Fort Walton Beach — Comprehensive Financial Report September 30, 2015 — reading text

Guards Distribution Reserve Officers Sewer Collection  INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of September 30, 2015, and the respective changes in financial position, and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and Community Redevelopment Agency (Special Revenue Fund) for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 20, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, as well as Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment to GASB Statement No. 68, as of October 1, 2014. These standards significantly changed the accounting for the City’s net pension liability and the related disclosures. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis on pages 4-15, the Schedules of Changes in the City’s Net Position Liability and Related Ratios on pages 82-84, the Schedule of Contributions on page 85, the Notes to the Schedule of Contributions on pages 86-90, and the Schedule of Funding Progress for other post-employment benefits on page 91 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fort Walton Beach, Florida's basic financial statements. The introductory section, combining and individual non-major fund financial statements, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Schedule of Expenditures of State Financial Assistance is presented for purposes of additional analysis as required by Chapter 10.550, Rules of the Auditor General, and is also not a required part of the basic financial statements. 2 The combining and individual non-major fund financial statements, budgetary comparison schedules, and the Schedule of Expenditures of State Financial Assistance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non-major fund financial statements, budgetary comparison schedules, and the Schedule of Expenditures of State Financial Assistance are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 2, 2016, on our consideration of the City of Fort Walton Beach, Florida’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters included under the heading “Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters based on an Audit of the Financial Statements performed in accordance with Government Auditing Standards”. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Fort Walton Beach, Florida’s internal control over financial reporting and compliance. Fort Walton Beach, Florida March 2, 2016 3  MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Fort Walton Beach, Florida, we offer readers of the City of Fort Walton Beach’s financial statements this narrative overview and analysis of the financial activities of the City of Fort Walton Beach for the fiscal year ended September 30, 2015. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iv-viii of this report. FINANCIAL HIGHLIGHTS  The assets and deferred outflows of the City of Fort Walton Beach exceeded its liabilities and deferred inflows by $54.3 million (net position). Of this amount, $10.8 million represents unrestricted assets that are available to meet the City’s ongoing obligations to citizens and creditors.  Combined with beginning balance restatement of ($13.4) million, the government’s net position decreased by $11.0 million, primarily attributable to the implementation of Governmental Accounting Standards Board Statement (GASB) 68, Accounting and Financial Reporting for Pensions – an amendment to Statement 27 and GASB 71. These Statements enhance the financial reporting by state and local governments for pensions. They also improve information provided by state and local governmental employers about financial support for pensions that is provided by other entities. These statements require governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. As predicted, the implementation has had a significant impact on the financial position and changes in net position of the City.  As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $14.5 million, a decrease of $5.2 million in comparison with the prior year. This decrease is related to the use of prior year restricted fund balance to complete the new City of Fort Walton Beach Recreation Complex. Approximately 80.4% of this amount, or $11.6 million, is available for spending at the discretion of City Council.  At the end of the fiscal year, committed, assigned, and unassigned fund balance for the General Fund was $9.4 million, or 41.3% of total General Fund expenditures.  The City of Fort Walton Beach’s total debt decreased by $130,727, or 0.4%, during the fiscal year. This decrease is related to the refunding of the 2001 Capital Improvement Revenue Note. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis intends to serve as an introduction to the City of Fort Walton Beach’s basic financial statements, which are comprised of three components: 1) government-wide financial