TOWN OF GUADALUPE, ARIZONA Annual Financial Statements and Independent Auditors’ Report June 30, 2011 TABLE OF CONTENTS INDEPENDENT AUDITORS’ REPORT ............................................................................... 1 Required Supplementary Information – Management’s Discussion and Analysis ................... 3 Government-wide Statements Statement of Net Assets ...................................................................................................... Statement of Activities ........................................................................................................ 13 14 Fund Statements Governmental Funds Balance Sheet ................................................................................................................ Reconciliation of the Balance Sheet to the Statement of Net Assets ............................ Statement of Revenue, Expenditures, and Changes in Fund Balances ......................... Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities ...................................... 15 16 17 18 Proprietary Funds Statement of Net Assets ................................................................................................ Statement of Revenue, Expenses, and Changes in Fund Net Assets ............................ Statement of Cash Flows .............................................................................................. 19 20 21 Notes to Financial Statements .................................................................................................. 23 Other Required Supplementary Information Budgetary Comparison Schedules ...................................................................................... Notes to Budgetary Comparison Schedules ........................................................................ Schedule of Agent Retirement Plans’ Funding Progress .................................................... 40 44 45 Single Audit Section Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Governmental Auditing Standards ............................................................................... 47 Independent Auditors’ Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133 ................................................................................................... 49 Schedule of Expenditures of Federal Awards ..................................................................... Notes to Schedule of Expenditures of Federal Awards ...................................................... Schedule of Findings and Questioned Costs ...................................................................... Summary Schedule of Prior Audit Findings ....................................................................... 51 52 53 56 Independent Auditors’ Report on Compliance with Requirements Applicable to the Uses of Highway User Revenue Fund Monies in Accordance with ARS Title 28, Chapter 18, Article 2 ....................................................... 58 INDEPENDENT AUDITORS’ REPORT To the Town Council Town of Guadalupe, Arizona We have audited the accompanying financial statements of the governmental activities, businesstype activities, each major fund, and aggregate remaining fund information of the Town of Guadalupe, Arizona as of and for the year ended June 30, 2011 which collectively comprise the Town’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town’s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 Town of Guadalupe, Arizona, as of June 30, 2011, and the respective changes in financial position, and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 14, 2011, on our consideration of the Town of Guadalupe, Arizona’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. 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 -1- with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, and schedule of agent retirement plans’ funding progress on pages 3 through 12, 40 through 44, and page 45, respectively, 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town of Guadalupe, Arizona’s financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. December 14, 2011 -2- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Management’s Discussion and Analysis We (the Town of Guadalupe, Arizona) are pleased to provide an overview of our financial activities for the fiscal year ended June 30, 2011. The intended purpose of the Management Discussion and Analysis (MD&A) is to provide an introduction to the basic financial statements and notes, that provides an objective and easy to read analysis of our financial activities based on currently known facts, decisions, and conditions, by providing an easily readable summary of operating results and reasons for changes, which will help to determine if our financial position improved or deteriorated over the past year. This report addresses current operational activities, the sources, uses, and changes in resources, adherence to budget, service levels, limitations, significant economic factors, and the status of infrastructure and its impacts on our debt and operation. When referring to prior year data in this analysis we will be drawing upon information from last year’s audited financial reports. Overview of the Financial Statements The financial section of the Annual Financial Report (AFR) for the Town of Guadalupe, Arizona consists of this discussion and analysis, the basic financial statements and the required supplementary schedules presented after the basic financial statements. The basic financial statements include the government-wide financial statements, fund financial statements, including the budgetary statements for the General Fund and major special revenue funds and notes to the basic financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the Town of Guadalupe, Arizona’s finances, in a manner similar to private-sector business. The statement of net assets presents information on all of the Town of Guadalupe, Arizona’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Town of Guadalupe, Arizona is improving or deteriorating. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the Town of Guadalupe, Arizona that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the Town of Guadalupe, Arizona include general government, public safety, public works and streets, culture and recreation, community development, health and welfare and debt -3- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 service-interest. The business-type activities include the Town’s refuse, sewer operations and a commercial center. The government-wide financial statements can be found on pages 13 and 14 of this report. Fund financial statements. Also presented are the traditional financial statements for governmental funds. The fund financial statements focus on major funds of the Town. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Town of Guadalupe, Arizona, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Town of Guadalupe, Arizona can be divided into categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. The basic governmental fund financial statements can be found on pages 15-18 of this report. Proprietary funds. The Town of Guadalupe, Arizona maintains three different proprietary funds, or enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Town of Guadalupe, Arizona uses enterprise funds to account for its refuse, sewer and commercial center operations. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the refuse, sewer and commercial center operations. All three funds are considered to be major funds of the Town of Guadalupe, Arizona. The basic Proprietary fund financial statements can be found on pages 19-22 of this report. Notes to the basic financial statements. The notes to the financial statements (pages 23-39) provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements and should be read with the financial statements. -4- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Required supplementary information other than MD&A. Governments have an option of including the budgetary comparison statements for the General Fund and major special revenue funds as either part of the fund financial statements within the basic financial statements, or as required supplementary information after the footnotes. The Town has chosen to present these budgetary statements as supplementary information after the footnotes. Additionally, governments are required to disclose certain information about employee pension funds. The Town has disclosed this information as required supplementary information after the footnotes. Financial Highlight  The assets of the governmental activities of the Town of Guadalupe, Arizona exceeded its liabilities at close of the most recent fiscal year by $14,416,414 (net assets). Of this amount $421,115 is restricted for capital asset acquisition, $250,200 is restricted for highways and streets, $571,072 is restricted for the HOME program, $13,135,332 is invested in capital assets, net of related debt, and $38,695 was unrestricted.  As of the close of the current fiscal year, the Town of Guadalupe, Arizona’s governmental funds reported combined ending fund balances of $691,614 resulting in a decrease of $382,406 in comparison with prior year.  At the end of the current fiscal year, unassigned fund balance for the General Fund reflects a deficit of $90.  The Town’s General Fund revenues exceeded estimates and were 13% higher than budgeted. Current year revenues were lower than prior year as a result of passthrough gaming grants in the prior year. General fund expenses and transfers to other funds were $8,270 less than budgeted. Because the Town has no property tax it relies heavily on the current economy for its revenues. Budgeted revenues and transfers in for fiscal year 2011 were $2,331,931 lower than the prior year. Likewise, budgeted expenses and transfers out were $2,071,161 lower than prior year and as expected the economy did continue to be sluggish and revenues and expenses were very close to budget as forecasted. The Town experienced significant decreases in state-shared personal income taxes collected. In addition to low interest rates, investments continued to yield very low interest revenues as compared to years past. Revenues were $415,814 higher than the final budget in the General Fund for fiscal year 2011. Revenues were slightly higher than budgeted only as a direct result of conservative budgeting practices due to the current economy. General Fund revenues still remain lower than the past six (6) years or back to fiscal year 2005. -5- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Government-Wide Financial Analysis Net assets may serve over time as a useful indicator of a government’s financial position. The following table reflects the condensed Statement of Net Assets of the Town for June 30, 2011 showing that assets exceeded liabilities by $16,448,105. Town of Guadalupe, Arizona Condensed Statement of Net Assets As of June 30, 2011 and 2010 ASSETS Current and other assets Capital assets Non-depreciable Depreciable (net) Governmental Activities Business-Type Activities $ $ Total assets LIABILITIES Other liabilities Non-current liabilities Due within one year Due in more than one year Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital acquisitions Highways and streets HOME program Unrestricted (deficit) Total net assets $ 2,669,148 1,321,874 Total $ 3,991,022 Prior Year June 30, 2010 $ 5,743,804 7,070,674 8,837,968 84,703 686,998 7,155,377 9,524,966 7,805,640 8,095,739 18,577,790 2,093,575 20,671,365 21,645,183 1,287,946 61,884 1,349,830 2,914,306 136,789 2,736,641 - 136,789 2,736,641 155,490 2,975,672 4,161,376 61,884 4,223,260 6,045,468 13,135,332 771,701 13,907,033 12,893,843 421,115 250,200 571,072 38,695 1,259,990 421,115 250,200 571,072 1,298,685 765,379 272,481 412,494 1,255,518 14,416,414 $ 2,031,691 $ 16,448,105 $ 15,599,715 The unrestricted net assets of the Governmental Activities for the Town of Guadalupe, Arizona have increased to a surplus of $38,695 from a prior year deficit of $81,162. -6- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Comparative Analysis of Government-Wide Revenues and Expenses For the year ended June 30, 2011 and 2010 Governmental Activities Business-Type Activities $ $ Prior Year June 30, 2010 Total REVENUE Program revenue: Charges for services Grants and contributions Total program revenue 377,343 2,741,444 508,771 22,671 $ 886,114 2,764,115 $ 923,371 2,794,348 3,118,787 531,442 3,650,229 3,717,719 Sales taxes Franchise tax Bed taxes Restaurant tax State sales tax revenue sharing Auto lieu tax revenue sharing State revenue sharing Interest income Gain (loss) on disposal of assets Miscellaneous 1,129,705 23,496 288,324 268,870 424,757 181,718 540,684 4,023 61,062 2,257 - 1,129,705 23,496 288,324 268,870 424,757 181,718 540,684 6,280 61,062 Total general revenue 2,922,639 2,257 2,924,896 2,828,697 Total revenue 6,041,426 533,699 6,575,125 6,546,416 912,100 2,433,647 690,926 93,031 704,593 326,039 - 89,828 191,679 284,892 912,100 2,433,647 690,926 93,031 704,593 326,039 89,828 191,679 284,892 1,212,269 2,416,440 677,476 100,437 462,260 362,987 85,797 155,634 301,096 5,160,336 566,399 5,726,735 5,774,396 General revenue: 883,900 22,981 285,657 311,664 407,656 186,137 717,209 12,298 (48,326) 49,521 EXPENSE General government Public safety Public works and streets Culture and recreation Community Development Health and welfare Sewer Tianguis Refuse Total expenses Transfers 140,302 (140,302) Change in net assets 1,021,392 (173,002) Beginning net assets 13,395,022 Ending net assets $ 14,416,414 -7- - 2,204,693 $ 2,031,691 $ - 848,390 772,020 15,599,715 14,827,695 16,448,105 $ 15,599,715 TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Financial Analysis of the Town’s Funds Governmental Funds. The focus of the Town’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources that are available for spending. Such information is useful in assessing the Town’s financing requirements. In particular, unassigned fund balance may serve as a useful measurement of a government’s net resources available for spending at the end of the fiscal year. Types of governmental funds reported by the Town include the General Fund, special revenue funds, debt service funds and capital projects funds. At the end of the current fiscal year, the Town’s governmental funds reported combined ending fund balances of $691,614, a decrease of $382,406 in comparison with the prior year. Although General Fund expenses were reduced again by $493,812 during the year, revenues declined as well, and as a results the General Fund Balance reflected a decrease of $90 with a remaining deficit fund balance of $90. The Town continues to budget conservatively as the state and local economy is and, we feel, will continue to be sluggish. Balance at June 30, 2011 Fund General Fund HURF/LTAF Comm. Dev. Grants Capital Projects Fund $ (90) 250,200 22,544 421,115 Increase/(Decrease) From 2009-10 $ (90) (22,281) (13,616) (344,264) The General Fund is the chief operating fund of the Town of Guadalupe, Arizona. At the end of the current fiscal year, the fund balance of the General Fund was a deficit of $90, while the balance of all governmental funds declined to $691,614. The fund balance of Town of Guadalupe, Arizona’s General Fund decreased by $90 during the current fiscal year. Key factors in this change are as follows:    Most General Fund revenues were over or at budget with the exception of Restaurant/Bar, Vehicle in Lieu taxes and billboard revenues with a combined under budget amount of $45,000. At year end, the General Fund revenues exceeded expenses by $41,596. However, transfers from the General Fund to pay the bond principal and interest in the amount of $317,151, from the General Fund to the senior center in the amount of $28,241 and from the General Fund to the community action program in the amount of $2,596 resulted in General Fund transfers and expenses exceeding revenues by $306,302. To cover the shortfall in the General Fund, monies assigned for capital projects were transferred to the General Fund and the remainder was transferred from the Sewer Fund to the General Fund. Those departments materially over budget were the fire department by $41,000 due to a grant revenue and expense that was not budgeted and both parks and youth -8- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011  recreation were over budget by a combined $21,000 due to a large increase in utility costs. Those departments materially under budget were information technology by $35,000 due to accounting software not being updated. Proprietary Funds. The Town of Guadalupe, Arizona’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the Refuse, Sewer, and Commercial Center Funds at the end of the year amounted to $113,410, $1,142,132, and $4,448, respectively. The total change in net assets for the three funds was $47,069, ($148,913), and ($71,158), respectively. General Fund Budgetary Highlights The Town’s annual budget is the legally adopted expenditure control document of the Town. Budgetary comparison statements are required for the General Fund and all major special revenue funds and may be found on pages 37-40. These statements compare the original adopted budget, the budget if amended during the fiscal year, and the actual expenditures prepared on a budgetary basis. General Fund revenues of $3,538,451 were greater than budgeted revenues of $3,122,637 by $415,814 while expenditures of $3,496,855 were greater than budgeted expenses of $3,453,611 by $43,244. The primary cause in the difference between the revenues and expenditures and the budgeted revenues and expenses was the result of taxes and state-shared revenues being higher than budgeted and fire department grant expenses not being budgeted. Capital Asset and Debt Administration The Town’s capital assets for its governmental and business-type activities as of June 30, 2011 amount to $16,803,343 (net of accumulated depreciation). For government-wide financial statement presentation, all depreciable capital assets were depreciated from acquisition date to the end of the current fiscal year. Fund financial statements record capital asset purchases as expenditures. See Note 5 in the Notes to the Basic Financial Statements for further information regarding capital assets. The current year fixed asset additions were as follows;  During the year the Town received gaming funds of $80,000 from the Salt River Pima Maricopa Indian Community for the Fire Department to purchase heart monitors/defibrillators.  The Town was awarded a Department of Commerce (Green) Grant to replace all high energy use throughout all town buildings for $67,401.  The Town received contributed assets from the Arizona Department of Transportation using ARRA funds for the improvements to Guadalupe and -9- TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Magdalena Roads as well as street lighting on Guadalupe Road and Avenida del Yaqui for a total of $467,820.  The Town also received from ADOT a federal grant for improvements to Magdalena Road for $186,090.  The Town received CDBG grants in the amount of $383,346 for curbs and gutter for both La Cuarenta and Solarez streets.  Residential street improvements and curb and gutters were added throughout the Town using federal grants, HURF funds, Impact fees and bond funds that totaled $172,945. The following table provides a breakdown of the capital assets of the Town at June 30, 2011 Capital Assets at June 30, 2011 and 2010 (Net of accumulated depreciation) Land Land and improvements Buildings and improvements Infrastructure Street lights Machinery and equipment Curbs and gutters Construction in progress Total $ Governmental Activities 2011 2010 7,070,674 $ 7,070,674 204,751 250,506 2,023,043 2,691,646 410,615 2,048,569 1,693,754 40,723 430,376 3,077,537 521,369 2,757,508 - - 650,263 - - $ $ Business Type Activities 2011 2010 84,703 $ 84,703 15,908,642 $ 15,033,366 - 771,701 $ - 259,323 427,675 - $ Total 310,082 473,228 - $ 868,013 2011 7,155,377 $ 204,751 250,506 2,282,366 3,119,321 410,615 2,358,651 2,166,982 40,723 430,376 3,077,537 521,369 2,757,508 $ 2010 7,155,377 16,680,343 650,263 $ 15,901,379 Long-term Debt At the end of the current fiscal year, the Town of Guadalupe, Arizona had total long-term obligations outstanding of $2,881,337. Of that amount $2,720,000 outstanding debt is secured by pledges of specific revenue sources of the Town. Capital leases payable amount to $53,310 and the remaining $108,027 is compensated absences payable to employees. The following schedule shows the outstanding debt of the Town (both current and long-term) as of June 30, 2011. Further detail on the Town’s outstanding debt may be found in Note 7 on pages 30-33. - 10 - TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 Outstanding Debt Revenue bonds Capital leases payable Compensated absences TOTAL $ $ Governmental Activities 2011 2010 2,720,000 $ 2,910,000 $ Business Type Activities 2011 2010 $ - Total $ 2011 2,720,000 $ 2010 2,910,000 53,310 97,536 - - 53,310 97,536 100,120 117,322 7,907 6,304 108,027 123,626 2,873,430 $ 3,124,858 $ 7,907 $ 6,304 $ 2,881,337 $ 3,131,162 Economic Factors and Next Year’s Budgets and Rates  State-shared revenue makes up 32% of the Town’s General Fund revenue. Stateshared revenue is expected to decrease by 8% or $94,743 for fiscal year 2012. This is a result of the continuing slow economy, foreclosures, high unemployment with very little population growth as indicated from the slow home sales to out of state home buyers.  Local tax revenue, which makes up 45% of the General Fund revenue, is expected to increase by 12% or $182,413. This increase is expected based on a combination of a 3% reduction in local sales and a 1% increase in local sales tax. The sales reduction is expected due to current unemployment rates, local small business closures and loss of winter visitors.  The vacancy rate for Town owned commercial building remains high due to the slow economy. We are anticipating that to continue until the economy rebounds from its current slump. We are hoping that as a result of the recent improvements sales tax revenue will increase from current retailers. The cultural aspects of the building have been restored and enhanced providing a nice relaxing atmosphere for both local residents and visitors from out of state. Many cultural events are taking place at the commercial center thus improving revenues for upkeep to the building.  Because of the sluggish economy with no rebound in sight, the Town Council continued to make reductions in expenditures when the 2010-11 budget was prepared. However, expenses and transfers from the General Fund exceeded revenues by $306,392. In noting this shortfall, the Town Council is considering additional significant reductions in expenditures to the 2011-2012 budget that will certainly impact services including hours of operation, staff shortages, capital project delays, suspend park improvements, suspend vehicle and equipment replacements as well as many other areas.  In an effort to generate additional revenues, the Town continues to participate in the State Wild Land Fire Program. As a result of participation in this program, the Town is expecting to receive $130,000 in additional revenues in 2012. After considering the related expenses of the program, approximately ¼ of the funds represent revenues - 11 - TOWN OF GUADALUPE, ARIZONA Management’s Discussion and Analysis June 30, 2011 exceeding related expenses and these funds are used by the fire department for equipment maintenance, replacement purchases and fire department operating expenses. Financial contact This financial report is designed to provide a general overview of the Town’s finances for all of those with an interest in the government’s finances and to demonstrate accountability for the use of public funds. Questions about any of the information provided in this report, or requests for additional financial information should be addressed to: Town of Guadalupe, Arizona Finance Department 9241 South Avenida del Yaqui Guadalupe, AZ 85283 Or visit our website at: www.guadalupeaz.org - 12 - TOWN OF GUADALUPE, ARIZONA Statement of Net Assets June 30, 2011 Governmental Activities Primary Government Business-type Activities Total $ 1,443,197 121,081 17,358 505,389 11,051 571,072 7,070,674 8,837,968 $ 1,287,444 644 31,873 1,913 84,703 686,998 $ 2,730,641 644 121,081 17,358 537,262 12,964 571,072 7,155,377 9,524,966 18,577,790 2,093,575 20,671,365 148,036 107,228 88,499 944,183 - 36,906 3,802 13,269 184,942 111,030 88,499 944,183 13,269 90,108 10,012 7,117 790 97,225 10,802 ASSETS Cash and cash equivalents Accounts receivable - net Taxes receivable - net Miscellaneous receivables Due from other governments Prepaid expenses Notes receivable - net Capital assets, not being depreciated Capital assets, being depreciated, net Total assets LIABILITIES Accounts payable Accrued expenses Court bonds payable Deferred revenue Refundable deposits Compensated absences Due within 1 year Due in more than 1 year Noncurrent liabilities Due within 1 year Due in more than 1 year 46,681 2,726,629 - 46,681 2,726,629 Total liabilities 4,161,376 61,884 4,223,260 13,135,332 771,701 13,907,033 421,115 250,200 571,072 38,695 1,259,990 421,115 250,200 571,072 1,298,685 $ 14,416,414 $ 2,031,691 $ 16,448,105 NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital acquisitions Highways and streets HOME program Unrestricted (deficit) Total net assets The accompanying notes are an integral part of these financial statements. - 13 - TOWN OF GUADALUPE, ARIZONA Statement of Activities Year Ended June 30, 2011 Expenses Functions / Programs Primary government: Governmental activities General government Public safety Public works and streets Culture and recreation Community development Health and welfare Total governmental activities $ Business-type activities Sewer Tianguis Refuse Total business-type activities Total primary government Charges for Services 912,100 2,433,647 690,926 93,031 704,593 326,039 5,160,336 $ 89,828 191,679 284,892 566,399 $ 5,726,735 64,051 236,728 28,932 47,632 377,343 Program Revenue Operating Grants and Contributions $ 78,960 97,850 331,961 508,771 $ General revenue: Taxes: Sales taxes Franchise taxes Bed taxes State sales tax revenue sharing Auto lieu tax revenue sharing State revenue sharing Interest income Miscellaneous Total general revenue Transfers Change in net assets Net assets, July 1, 2010, restated Net assets, June 30, 2011 886,114 101,751 34,303 333,358 1,027 792,503 307,113 1,570,055 $ 22,671 22,671 $ 1,592,726 Net (Expenses) Revenue and Changes in Net Assets Primary Government Governmental Business-type Activities Activities Total Capital Grants and Contributions 67,709 80,000 1,023,680 1,171,389 $ $ (678,589) (2,082,616) 666,112 (63,072) 135,542 (18,926) (2,041,549) $ - 1,171,389 (2,041,549) $ 1,398,575 23,496 288,324 424,757 181,718 540,684 4,023 61,062 2,922,639 140,302 1,021,392 13,395,022 14,416,414 The accompanying notes are an integral part of these financial statements. - 14 - $ - $ (678,589) (2,082,616) 666,112 (63,072) 135,542 (18,926) (2,041,549) (10,868) (71,158) 47,069 (34,957) (10,868) (71,158) 47,069 (34,957) (34,957) (2,076,506) 2,257 2,257 (140,302) (173,002) 2,204,693 2,031,691 $ 1,398,575 23,496 288,324 424,757 181,718 540,684 6,280 61,062 2,924,896 848,390 15,599,715 16,448,105 TOWN OF GUADALUPE, ARIZONA Balance Sheet Governmental Funds June 30, 2011 Community Community Development Service Capital Debt Total General HURF/LTAF Grants Grants Projects Service Governmental Fund Fund Fund Fund Fund Fund Funds ASSETS Cash and cash equivalents $ Taxes receivable - net Miscellaneous receivables Due from other governments Prepaid expenses Due from other funds Total assets $ 788,066 $ 73,288 121,081 - 14,058 - $ 146,893 $ - - $ 434,950 $ - $ 1,443,197 - - - 121,081 415,794 - - - 429,852 143,795 201,137 91,572 68,885 - - 505,389 6,917 2,779 180 1,175 - - 11,051 15,749 - - - - 15,749 - 1,089,666 $ 277,204 $ 654,439 $ 70,060 $ 434,950 $ - $ 2,526,319 82,895 $ 17,146 $ 10,675 $ 23,485 $ 13,835 $ - $ 148,036 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ Accrued expenses 61,737 9,858 4,395 31,238 - - 107,228 Court bonds payable 88,499 - - - - - 88,499 - - - 15,749 - - 15,749 Due to other funds Deferred revenue 856,625 Total liabilities 1,089,756 - 616,825 1,743 - - 1,475,193 27,004 631,895 72,215 13,835 - 1,834,705 250,200 Fund balances Restricted for: Highways and streets - - - - - Community development - - 40,152 - - - 40,152 Capital acquisition - - - - - 421,115 (90) - (17,608) (2,155) - (19,853) 22,544 (2,155) - 691,614 Unassigned Total fund balances Total liabilities and fund balances 250,200 (90) $ 1,089,666 250,200 $ 277,204 $ 654,439 $ 70,060 421,115 421,115 $ 434,950 $ The accompanying notes are an integral part of these financial statements. - 15 - - $ 2,526,319 TOWN OF GUADALUPE, ARIZONA Reconciliation of the Balance Sheet to the Statement of Net Assets Governmental Funds June 30, 2011 Fund balances--total governmental funds Amounts reported for governmental activities in the Statement of Net Assets are different because: $ Capital assets used in governmental activities are not financial resources and therefore, are not reported in the funds. Some receivables are not available to pay for current-period expenditures and therefore, are deferred in the funds. Notes receivable - net Sales taxes receivable HOME grant receivable 691,614 15,908,642 571,072 100,013 18,503 689,588 Some liabilities, including bonds payable, are not due and payable in the current period and therefore, are not reported in the funds Compensated absences Capital leases payable Bonds payable (100,120) (53,310) (2,720,000) (2,873,430) Net assets of governmental activities $ 14,416,414 The accompanying notes are an integral part of these financial statements. - 16 - TOWN OF GUADALUPE, ARIZONA Statement of Revenue, Expenditures, and Changes in Fund Balance Governmental Funds Year Ended June 30, 2011 Revenue Intergovernmental Taxes Fines and forfeitures Charges for services Other revenue Interest Licenses and permits Total revenue $ Expenditures Current Public safety General government Community development Public works and streets Health and welfare Culture and recreation Debt Service Principal Interest Capital outlay Total expenditures Excess (deficiency) of revenue over (under) expenditures Other financing sources (uses) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, July 1, 2010 Fund balances, June 30, 2011 $ Community Community Development Service Capital Debt Total General HURF/LTAF Grants Grants Projects Service Governmental Fund Fund Fund Fund Fund Fund Funds 1,493,713 1,610,382 236,728 92,983 55,771 1,242 47,632 3,538,451 $ 496,299 597 496,896 $ 820,351 34,481 854,832 $ 552,569 5,292 557,861 $ 5,292 2,184 7,476 $ - $ 2,312,521 856,237 29,776 11,836 89,791 323,142 - 485,102 - 304,369 286,484 - 6,168 13,039 3,563 44,226 5,049 147,419 3,496,855 196,035 519,177 383,346 868,448 590,853 162,970 185,740 190,000 127,151 317,151 234,226 132,200 889,770 5,978,224 41,596 (22,281) (13,616) (32,992) (178,264) (317,151) (522,708) 306,302 (347,988) - - 30,837 - (166,000) 317,151 - 654,290 (513,988) (41,686) - - 30,837 (166,000) 317,151 140,302 (90) (22,281) (13,616) (2,155) (344,264) - - 272,481 36,160 - 765,379 - (90) $ 250,200 $ 22,544 $ (2,155) $ 421,115 - 3,362,932 1,610,382 236,728 92,983 100,836 4,023 47,632 5,455,516 $ The accompanying notes are an integral part of these financial statements. - 17 - - 2,318,689 856,237 819,247 348,017 286,484 93,354 (382,406) 1,074,020 $ 691,614 TOWN OF GUADALUPE, ARIZONA Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds Year Ended June 30, 2011 Net change in fund balances--total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay Depreciation expense $ $ (382,406) 889,770 (481,888) 407,882 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. ADOT street improvements HOME note receivable additions Sales taxes HOME grant 467,394 158,578 100,013 18,503 744,488 Debt proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Assets. Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets. Debt principal repayments Net change in compensated absences 234,226 17,202 251,428 Change in net assets of governmental activities $ 1,021,392 The accompanying notes are an integral part of these financial statements. - 18 - TOWN OF GUADALUPE, ARIZONA Statement of Net Assets Proprietary Funds June 30, 2011 Business-type Activities--Enterprise Funds Tianguis Econ. Dev. Refuse Fund Fund Sewer Fund ASSETS Current assets Cash and cash equivalents Accounts receivable - net Due from other governments Prepaid expenses Total current assets $ Noncurrent assets Capital assets, net of accumulated depreciation, where applicable: Land Utilities systems, net Buildings, net Total noncurrent assets Total assets LIABILITIES Current liabilities Accounts payable Accrued expenses Refundable deposits Compensated absences - current portion Total current liabilities Noncurrent liabilities Compensated absences Total liabilities Net assets Invested in capital assets, net of related debt Unrestricted (deficit) Total net assets $ 1,145,664 4,419 241 1,150,324 $ 32,447 644 825 33,916 $ 109,333 27,454 847 137,634 Total $ 427,675 427,675 84,703 259,323 344,026 1,577,999 377,942 137,634 2,093,575 22 1,986 5,566 7,574 12,660 1,816 13,269 1,551 29,296 24,224 24,224 36,906 3,802 13,269 7,117 61,094 618 172 8,192 29,468 24,224 61,884 427,675 1,142,132 344,026 4,448 113,410 771,701 1,259,990 1,569,807 $ 348,474 - 1,287,444 644 31,873 1,913 1,321,874 84,703 427,675 259,323 771,701 - $ 113,410 The accompanying notes are an integral part of these financial statements. - 19 - 790 $ 2,031,691 TOWN OF GUADALUPE, ARIZONA Statement of Revenue, Expenses, and Changes in Fund Net Assets Proprietary Funds Year Ended June 30, 2011 Sewer Fund Operating revenues Charges for services Rents (net of bad debts of $14,929) Total operating revenues $ Operating expenses Professional services Depreciation Personnel Utilities Repairs and maintenance Insurance Materials and supplies Miscellaneous Total operating expenses Operating income (loss) Nonoperating revenue Investment income Operating grant Total nonoperating revenue Income (loss) before transfers Transfers out Increase (decrease) in net assets Total net assets, July 1, 2010 Total net assets, June 30, 2011 78,960 78,960 Business-type Activities--Enterprise Funds Tianguis Econ. Dev. Refuse Fund Fund $ $ 331,961 331,961 $ 410,921 97,850 508,771 248 45,553 42,768 266 485 498 10 89,828 805 50,759 36,776 51,088 44,927 3,188 1,272 2,864 191,679 283,090 1,661 141 284,892 284,143 96,312 79,544 51,354 45,412 5,347 1,272 3,015 566,399 (10,868) (93,829) 47,069 (57,628) 2,257 2,257 22,671 22,671 - 2,257 22,671 24,928 (8,611) (71,158) 47,069 (32,700) (140,302) - - (140,302) (148,913) (71,158) 47,069 (173,002) 419,632 66,341 1,718,720 $ 97,850 97,850 Total 1,569,807 $ 348,474 $ 113,410 The accompanying notes are an integral part of these financial statements. - 20 - 2,204,693 $ 2,031,691 TOWN OF GUADALUPE, ARIZONA Statement of Cash Flows Proprietary Funds Year Ended June 30, 2011 Sewer Fund Cash flows from operating activities: Receipts from customers Payments to suppliers and providers of goods and services Payments to employees Net cash provided (used) by operating activities $ Cash flows from noncapital financing activities: Interfund transer Operating grant proceeds Net cash provided by (used by) noncapital financing activities Cash flows from investing activities: Interest received on investments Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents $ $ 332,759 $ 521,286 (112,867) (27,389) (285,449) - (412,570) (56,381) 35,858 (30,833) 47,310 52,335 (140,302) - 22,671 - (140,302) 22,671 (140,302) 22,671 - (117,631) 2,257 - - 2,257 2,257 - - 2,257 (8,162) 47,310 (63,039) 40,609 62,023 1,247,851 $ 109,423 Total (14,254) (28,992) (102,187) Cash and cash equivalents, July 1, 2010 Cash and cash equivalents, June 30, 2011 79,104 Business-type Activities--Enterprise Funds Tianguis Econ. Dev. Refuse Fund Fund 1,145,664 $ 32,447 $ 109,333 The accompanying notes are an integral part of these financial statements. - 21 - 1,350,483 $ 1,287,444 TOWN OF GUADALUPE, ARIZONA Statement of Cash Flows Proprietary Funds Year Ended June 30, 2011 (Continued) Business-type Activities--Enterprise Funds Tianguis Econ. Dev. Refuse Fund Fund Sewer Fund Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used by) operating activities: Depreciation Bad debt (Increase) decrease in: Accounts receivable Due from other governments Prepaid expenses Increase (decrease) in: Accounts payable Accrued expenses Refundable deposits Compensated absences payable Net cash provided (used) by operating activities $ (10,868) $ 45,553 - 12 1,129 35,858 $ 50,759 14,929 144 (112) $ (93,829) $ 47,069 Total $ - (57,628) 96,312 14,929 (4,410) (238) 798 (483) (3,612) 144 (833) 416 12 1,054 474 (74) - 342 24 1,054 1,603 (30,833) $ 47,310 The accompanying notes are an integral part of these financial statements. - 22 - $ 52,335 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Town of Guadalupe, Arizona, conform to generally accepted accounting principles applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). A summary of the Town’s significant accounting policies are as follows: A. Reporting Entity The Town is a general purpose local government that is governed by a separately elected Town Council. The accompanying financial statements present the activities of the Town (the primary government) and its component units. Component units are legally separate entities for which the Town is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the Town’s operations. Therefore, data from these units is combined with data of the primary government. The component unit discussed below has a June 30 year-end. The Town of Guadalupe Municipal Property Corporation is an Arizona nonprofit corporation incorporated under the laws of the State of Arizona. The principal objective of the Corporation is to assist the Town of Guadalupe, Arizona, in acquiring, constructing, operating, improving or modifying public facilities for the benefit of all Town of Guadalupe, Arizona, residents. The Town of Guadalupe Municipal Property Corporation is a blended component unit. B. Basis of Presentation The basic financial statements include both government-wide statements and fund financial statements. The government-wide statements focus on the Town as a whole, while the fund financial statements focus on major funds. Each presentation provides valuable information that can be analyzed and compared between years and between governments to enhance the usefulness of the information. Government-wide statements – provide information about the primary government (the Town) and its component units. The statements include a statement of net assets and a statement of activities. These statements report the financial activities of the overall government. They also distinguish between the governmental and business-type activities of the Town and between the Town and its discretely presented component units. Governmental activities generally are financed through taxes and intergovernmental revenues. Business-type activities are financed in whole or in part by fees charged to external parties. - 23 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued A statement of activities presents a comparison between direct expenses and program revenues for each function of the Town’s governmental activities and segment of its business-type activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The Town does not allocate indirect expenses to programs or functions. Program revenues include:    charges to customers or applicants for goods, services, or privileges provided, operating grants and contributions, and capital grants and contributions, including special assessments. Revenues that are not classified as program revenues, including internally dedicated resources and all taxes, are reported as general revenues. Generally, the effect of interfund activity has been eliminated from the government-wide financial statements to minimize the double counting of internal activities. However, charges for interfund services provided and used are not eliminated if the prices approximate their external exchange values. Fund financial statements – provide information about the Town’s funds, including blended component units. Separate statements are presented for the governmental and proprietary fund categories. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as non-major funds. Proprietary fund operating revenues, such as charges for services, result from transactions associated with the fund’s principal activity in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from transactions in which the parties do not exchange equal values. Revenues generated by ancillary activities are also reported as nonoperating revenues. The Town reports the following major governmental funds: The General Fund is the Town’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The HURF/LTAF Fund accounts for specific revenue received from the State of Arizona Highway User Revenue Fund and from State of Arizona Local Transportation Assistance Fund which are legally restricted to expenditures for specified purposes. The Capital Projects Fund accounts for resources to be used for acquiring or constructing major capital facilities, other than those financed by proprietary funds. - 24 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued The Community Development Grants Fund accounts for specific grant revenue sources that are legally restricted to expenditures for community development. The Community Services Grants Fund accounts for specific grant revenue sources that are legally restricted to expenditures for community services. The Debt Service Fund accounts for resources to be set aside to meet current and future debt service requirements on general long-term debt. The Town reports the following major enterprise funds: The Sewer Fund, Tianguis Economic Development Fund, and Refuse Fund account for operations that are financed and operated in a manner similar to private business enterprises, in which the intent of the Town Council is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or for which the Town Council has decided that periodic determination of revenue earned, expenses incurred, or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. C. Basis of Accounting The government-wide and proprietary fund financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Grants and donations are recognized as revenue as soon as all eligibility requirements the provider imposed have been met. Governmental funds in the fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The Town considers all revenues reported in the governmental funds to be available if the revenues are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they are due and payable. General capital asset acquisitions are reported as expenditures in governmental funds. Issuances of general long-term debt and acquisitions under capital lease agreements are reported as other financing sources. The Town’s business-type activities follow FASB Statements and Interpretations issued after November 30, 1989; Accounting Principles Board Opinions; and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements. - 25 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued D. Cash and Investments For purposes of its statement of cash flows, the Town considers only those highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Nonparticipating interest-earning investment contracts are stated at cost. Money market investments and participating interest-earning investment contracts with a remaining maturity of 1 year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. E. Allowance for Uncollectible Accounts Allowances for uncollectible accounts receivable are estimated by the Town. The amount recorded as uncollectible at June 30, 2011 for the Tianguis Economic Development Fund was $68,929. The amount recorded as uncollectible at June 30, 2011 for taxes receivable in the General Fund was $236,623. The amount recorded as uncollectible at June 30, 2011 for notes receivable in the Governmental Activities was $1,571,551. F. Capital Assets Capital assets are reported at actual cost. Donated assets are reported at estimated fair value at the time received. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts), depreciation methods, and estimated useful lives of capital assets reported in the government-wide statements and proprietary funds are as follows: Land Construction in progress Buildings and building improvements Land improvements Equipment Streets Curbs and gutters Street lights Capitalization Threshold Depreciation Method Estimated Useful Life $ n/a n/a Straight-line Straight-line Straight-line Straight-line Straight-line Straight-line n/a n/a 50 10 5 40 40 40 - 26 - 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued G. Investment Income Investment income is composed of interest, dividends, and net changes in the fair value of applicable investments. H. Compensated Absences Compensated absences consist of vacation leave earned by employees based on services already rendered. Employees may accumulate up to 240 hours of vacation depending on years of service, but any vacation hours in excess of the maximum amount that are unused at year-end are forfeited. Upon termination of employment, all unused vacation benefits are paid to employees. Accordingly, vacation benefits are accrued as a liability in the financial statements. Employees may accumulate up to 480 hours of sick leave hours but any sick hours in excess of the maximum amount that are unused at year-end are forfeited. Because sick leave benefits do not vest with employees, a liability for sick leave benefits is not accrued in the financial statements. I. Fund Balance Reporting The Governmental Accounting Standards Board (GASB) Statement No. 54 requires fund balances to be properly reported within one of the fund balance categories listed below: 1. Nonspendable fund balance includes amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact such as fund balance associated with inventories, prepaids, long-term loans and notes receivable (unless the proceeds are restricted, committed, or assigned), 2. Restricted fund balance includes amounts that can be spent only for the specific purposes stipulated by constitution provisions or enabling legislation, or external resource providers, 3. Committed fund balance includes amounts that can be used only for the specific purposes determined by a formal action of the Town’s Town Council, 4. Assigned fund balances are intended to be used by the Town for specific purposes but do not meet the criteria to be classified as restricted or committed, and 5. Unassigned fund balance is the residual classification for the Town’s governmental funds and includes all spendable amounts not contained in other classifications. The Town’s policy for committed fund balances is through formal Town resolutions passed through the elected town council. The process of rescinding a committed fund balance requires the same process. - 27 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued The Town’s policy for assigned fund balances is through motions passed by the elected town council. Assigned fund balances do not require a formal resolution. When expenditures incur for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) amounts are available, the Town’s policy is to apply the expenditure first to restricted, and then to unrestricted in the following order of committed, assigned, and then unassigned. NOTE 2 – DEPOSITS AND INVESTMENTS Arizona Revised Statutes (A.R.S.) authorize the Town to invest public monies in the State Treasurer’s investment pool; U.S. Treasury obligations; specified state and local government bonds; and interest-earning investments such as savings accounts, certificates of deposit, and repurchase agreements in eligible depositories. The statutes require collateral for demand deposits, certificates of deposit, and repurchase agreements at 101 percent of all deposits not covered by federal depository insurance. The Town has not formally adopted deposit and investment policies that limit the Town’s allowable deposits or investments and address the specific types of risk to which the Town is exposed. Deposits – At June 30, 2011, the carrying amount of the Town’s total nonpooled cash in bank was $94,230, and the bank balance was $190,778. The entire bank balance at June 30, 2011 was covered by federal depository insurance. Investments—At June 30, 2011, the investments consisted of the following. Investment Arizona LGIP Pool 5 Rating Organization Credit Rating Reported Amount Fair Value S&P AAAf/S1 $ 2,626,722 $ 2,626,722 The State Board of Investment provides oversight for the State Treasurer’s pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant’s position in the pool approximates the value of that participant’s pool shares. Those shares are not identified with specific investments and are not subject to custodial credit risk. - 28 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 3 – DUE FROM OTHER GOVERNMENTS Due from other governments for each governmental fund consisted of the following: General Fund U.S. Dept of Labor State of Arizona Maricopa County Other governments $ 143,795 - HURF/LTAF Fund $ 201,137 - $ 143,795 $ 201,137 Community Development Grants Fund $ 25,000 54,697 11,875 Community Service Grants Fund $ 22,812 20,028 26,045 $ $ 91,572 68,885 Due from other governments for the Sewer and Refuse Funds consisted of amounts due from the City of Tempe totaling $4,419 and $27,454, respectively. NOTE 4 – NOTES RECEIVABLE On the government-wide statement of net assets, the Town recognizes notes receivable from individuals who are part of the Home Investment Partnership Program (HOME). Through the HOME program, qualifying families receive grant funding towards buying a home and in return sign a note agreement payable to the Town. The Town places a lien on the property for the amount of the HOME funds the family receives. Note maturities vary from 10 to 30 years with interest rates that are below market. Proceeds from principal and interest payments are applied to other HOME program expenses. Some of the loans stipulate that the loan amount is forgiven over the life of the loan on a straight-line basis. The Town has recorded the loan balance net of amounts expected to be forgiven. Notes receivables at June 30, 2011 consisted of $2,142,623 of which $1,571,551 are expected to be forgiven. The notes receivable balance – net totaled $571,072. - 29 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 5 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2011, was as follows: Balance July 1, 2010 Governmental activities: Capital assets not being depreciated: Construction in progress Land Total capital assets not being depreciated $ 650,263 7,070,674 7,720,937 Capital assets being depreciated: Building and building improvements Land improvements Equipment Street lights Streets Curbs and gutters Total 3,936,225 577,538 1,964,289 49,361 2,636,892 3,140,762 12,305,067 Less accumulated depreciation for: Building and building improvements Land improvements Equipment Street lights Streets Curbs and gutters Total (1,887,656) (327,032) (1,442,920) (8,638) (943,138) (383,254) (4,992,638) Total capital assets being depreciated, net Governmental activities capital assets, net Increases $ - $ - (92,927) (45,755) (170,994) (12,047) (77,891) (82,274) (481,888) 1,525,539 $ 15,033,366 $ 1,525,539 (650,263) (650,263) 67,401 80,001 381,939 1,075,783 402,303 2,007,427 7,312,429 - 30 - Decreases $ Balance June 30, 2011 $ 7,070,674 7,070,674 - 4,003,626 577,538 2,044,290 431,300 3,712,675 3,543,065 14,312,494 - (1,980,583) (372,787) (1,613,914) (20,685) (1,021,029) (465,528) (5,474,526) - 8,837,968 (650,263) $ 15,908,642 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 5 – CAPITAL ASSETS – Continued Balance July 1, 2010 Business-type activities: Capital assets not being depreciated: Land Total capital assets not being depreciated $ Capital assets being depreciated: Utility systems Equipment Buildings Building improvements Total Less accumulated depreciation for: Utility systems Equipment Buildings Building improvements Total Total capital assets being depreciated, net Business-type activities capital assets, net 84,703 Increases $ $ - Balance June 30, 2011 $ 84,703 84,703 - - 84,703 1,786,122 27,401 25,000 545,693 2,384,216 - - 1,786,122 27,401 25,000 545,693 2,384,216 (1,312,894) (27,401) (25,000) (235,611) (1,600,906) (45,553) (50,759) (96,312) - (1,358,447) (27,401) (25,000) (286,370) (1,697,218) (96,312) - 783,310 $ - Decreases 868,013 - 31 - $ (96,312) $ - 686,998 $ 771,701 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 5 – CAPITAL ASSETS – Continued Depreciation expense was charged to functions as follows: Governmental activities: Highways and streets Public safety General government Community development Health and welfare $ 218,153 119,268 58,107 45,674 40,686 Total governmental activities depreciation expense $ 481,888 Business-type activities: Tianguis center Sewer $ 50,759 45,553 Total business-type activities depreciation expense $ 96,312 NOTE 6 – DEFERRED REVENUE The Town has received contract payments for the lease of billboard space with a term of 20years. The Town recognizes revenue annually at 1/20th of the contract price. The remaining amount is recorded as deferred revenue that will be recognized as revenue over the life of the contract. The amount deferred for the billboard contract at June 30, 2011 is $632,500. - 32 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 7 – LONG-TERM LIABILITIES Bonds – The Town’s bonded debt consists of a 2002 revenue bonds issuance of $3,445,000 received through the Greater Arizona Development Authority. The revenue bonds require principal payments annually beginning August 1, 2008 with interest payments that vary from 2.25 percent to 4.75 percent paid semiannually on August 1, and February 1 with the first interest payment due August 1, 2003. Bond net proceeds of $3,218,300 were used to provide for an advanced refunding of $1,935,000 towards the Town’s Municipal Facilities Revenue Bond with the remaining proceeds to be used to finance capital improvements. State-shared general fund revenues are used as security for the revenue bonds. Bonds outstanding at June 30, 2011, were as follows: Description Revenue bonds Original Amount Maturity Ranges Interest Rates Outstanding June 30, 2011 $ 3,445,000 2008-2022 2.25 - 4.75% $ 2,720,000 The following schedule details the Town’s long-term liability and obligation activity for the year ended June 30, 2011. Balance July 1, 2010 Governmental activities: Compensated absences Capital leases payable Bonds payable Governmental activities long-term liabilities Business-type activities: Compensated absences Business-type activities long-term liabilities $ Additions Reductions Balance June 30, 2011 Due within 1 year 117,322 97,536 2,910,000 $ - $ 17,202 44,226 190,000 $ 100,120 53,310 2,720,000 $ 90,108 46,681 - $ 3,124,858 $ - $ 251,428 $ 2,873,430 $ 136,789 $ 6,304 $ 1,603 $ - $ 7,907 $ 7,117 $ 6,304 $ 1,603 $ - $ 7,907 $ 7,117 - 33 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 7 – LONG-TERM LIABILITIES – Continued The following schedule details debt service requirements to maturity for the Town’s bonds payable at June 30, 2011. Governmental Activities Year Ending June 30 Revenue Bonds Payable Principal Interest 2012 2013 2014 2015 2016 2017-21 2022-23 200,000 205,000 215,000 225,000 1,280,000 595,000 123,331 115,531 107,431 99,031 90,063 291,545 28,619 $ 2,720,000 $ 855,551 Total In prior years, the Town defeased a revenue bond by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bond. Accordingly, the trust account assets and the liability for these defeased bonds are not included in the Town’s financial statements. At June 30, 2011, outstanding defeased revenue bonds totaled $1,150,000. Capital leases – The Town has acquired equipment under the provisions of a long-term lease agreements classified as capital leases for accounting purposes because it provides for a bargain purchase option or a transfer of ownership by the end of the lease term. The assets acquired through capital lease are as follows: Governmental Activities Copier Wireless network Fire truck $ 20,745 171,290 381,618 573,653 (352,651) $ 221,002 Less: accumulated depreciation Carrying value - 34 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 7 – LONG-TERM LIABILITIES – Continued The following schedule details debt service requirements to maturity for the Town’s capital leases payable at June 30, 2011. Year Ending June 30 Governmental Activities 2011 2012 2013 $ Total minimum lease payments Less amount representing interest 49,594 4,929 2,054 56,577 (3,267) Present value of net minimum lease payments $ 53,310 Interest expense – The amount of interest expense incurred for all debt related to governmental activities has been allocated to the appropriate functional direct expense categories on the Statement of Activities as follows: General government Public safety Highways and streets $ 919 4,130 127,151 Total interest expense $ 132,200 NOTE 8 – RISK MANAGEMENT The Town is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Town carries commercial insurance for all such risks of loss, including workers’ compensation and employees’ health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. - 35 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 9 – RETIREMENT PLANS Plan Descriptions – The Town contributes to the two plans described below. Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The Arizona State Retirement System (ASRS) administers a cost-sharing multiple-employer defined benefit pension plan that covers general employees of the Town. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The Public Safety Personnel Retirement System (PSPRS) is an agent multiple-employer defined benefit pension plan that covers public safety personnel who are regularly assigned hazardous duty as employees of the State of Arizona or one of its political subdivisions. The PSPRS, acting as a common investment and administrative agent, is governed by a five-member board, known as The Fund Manager, and the participating local boards according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. Each plan issues a publicly available financial report that includes its financial statements and required supplementary information. A report may be obtained by writing or calling the applicable plan. ASRS 3300 N. Central Ave. Phoenix, AZ 85012-0250 (602) 240-2000 PSPRS 3010 E. Camelback Rd., Ste. 200 Phoenix, AZ 85016 (602) 255-5575 Funding Policy – The Arizona State Legislature establishes and may amend active plan members’ and the Town’s contribution rates. Cost-sharing plans – For the year ended June 30, 2011, active ASRS members and the Town were each required by statute to contribute at the actuarially determined rate of 9.85 percent (9.60 percent retirement and 0.25 percent long-term disability) of the members’ annual covered payroll. The Town’s contributions to ASRS for the years ended June 30, 2011, 2010, and 2009, were $65,772, $74,386, and $85,172, respectively, which were equal to the required contributions for the year. Agent plans – For the year ended June 30, 2011, active PSPRS members were required by statute to contribute 7.65 percent of the members’ annual covered payroll, and the Town was required to contribute at the actuarially determined rate of 17.33 percent. - 36 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 9 – RETIREMENT PLANS – Continued Annual Pension Cost – The Town’s pension cost for the agent plan for the year ended June 30, 2011, and related information follows: PSPRS Contribution rates: Town Plan members Annual pension cost Contributions made $ $ 17.33% 7.65% 54,700 54,700 At the time of the issue of these financial statements, information for the year ended June 30, 2011 was unavailable. The prior year annual required contributions for the PSPRS were determined as part of its June 30, 2010, actuarial valuation using the projected unit credit method. The actuarial assumptions included (a) 8.50 percent investment rate of return and (b) projected salary increases ranging from 5.50 percent to 8.50 percent per year. Both (a) and (b) included an inflation component of 5.50 percent. The assumptions did not include cost-of-living adjustments. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a seven year period. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 2010, was 26 years. Trend Information – Annual pension cost information for the current and 2 preceding years follows for each of the agent plans. Plan PSPRS Year Ended June 30 2011 2010 2009 Annual Pension Cost (APC) $ - 37 - 54,700 67,540 53,424 Percentage of APC Contributed 100 % 100 100 Net Pension Obligation $ - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 10 – INTERFUND BALANCES AND ACTIVITY Interfund receivables and payables – During the year ended June 30, 2011, the Community Services Grants Fund borrowed $15,749 from the General Fund. Interfund transfers – Interfund transfers for the year ended June 30, 2011, were as follows: Transfer From Transfer To General Fund Community Service Grants Fund Debt Service Fund Total Capital Projects Fund General Fund Sewer Fund Total $ 30,837 317,151 $ 166,000 - $ 140,302 - $ 306,302 30,837 317,151 $ 347,988 $ 166,000 $ 140,302 $ 654,290 The purpose of the interfund transfer shown above to the Community Service Grants Fund was to help pay for expenditures not reimbursable under grant contracts. The purpose of the transfer to the Debt Service Fund was to pay for debt service expenditures related to the GADA revenue bonds (see Note 7). The purpose of the interfund transfer from the Capital Projects Fund to the General Fund was to help pay for capital expenditures. The purpose of the interfund transfer from the Sewer Fund to the General Fund was to help pay for excess expenditures over revenues. - 38 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2011 NOTE 11 – COMMITMENTS Refuse Collection Contract – The Town has contracted with a waste management firm to provide trash, and rubbish collection services to certain designated areas. The contract period is March 1, 2010 through February 28, 2015. Payments under the current contract for the year ended June 30, 2011, were $260,337. Payments are based on the number of residences in the Town times a fixed monthly rate of $16.07. The total obligation under the contract for each fiscal year based on the current number of residences in the Town is as follows: Fiscal Year Ending June 30 2012 2013 2014 2015 $ Amount 271,904 271,904 271,904 181,270 Public Safety – The Town of Guadalupe entered into a contract with the Maricopa County Sheriff’s Department for public safety services for the next fiscal year. Based on this agreement, the rendition of police services, the standards of performance, the discipline of officers, and other matters incidental to the performance of such services, and the control of personnel so employed shall remain in the County Sheriff’s Department. For the year ending June 30, 2011, the Town paid the County Sheriff $1,185,999 and has agreed to monthly installments of $100,841 for the 2012 fiscal year. Under the contract, a notice of termination of contract may be given by either party 180 days prior to the date of intended termination. NOTE 12 – BEGINNING NET ASSETS RESTATED Net assets of the Governmental Activities at July 1, 2010 were restated because the Town had expensed amounts related to the HOME program that should have been recorded as notes receivable on the statement of net assets. The change includes an addition of $412,494 to net assets with a corresponding addition to notes receivable. - 39 - TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule General Fund Year Ended June 30, 2011 Actual Amounts Budgeted Amounts Original Final Revenue Intergovernmental Taxes Fines and forfeitures Charges for services Other revenue Interest Licenses and permits $ Total revenue Expenditures Current Public safety General government Community development Public works and streets Culture and recreation Debt Service Principal Interest Capital outlay Total expenditures 1,355,166 1,319,000 170,000 75,000 160,471 7,000 36,000 $ 1,355,166 1,319,000 170,000 75,000 160,471 7,000 36,000 $ 1,493,713 1,610,382 236,728 92,983 55,771 1,242 47,632 Variance with Final Budget $ 138,547 291,382 66,728 17,983 (104,700) (5,758) 11,632 3,122,637 3,122,637 3,538,451 415,814 2,398,940 851,186 31,463 47,357 69,736 2,398,940 851,186 31,463 47,357 69,736 2,312,521 856,237 29,776 11,836 89,791 86,419 (5,051) 1,687 35,521 (20,055) 54,929 54,929 44,226 5,049 147,419 (44,226) (5,049) (92,490) 3,453,611 3,453,611 3,496,855 (43,244) Excess (deficiency) of revenue over expenditures (330,974) (330,974) 41,596 372,570 Other financing sources (uses) Transfers in Transfers out (399,502) (399,502) 306,302 (347,988) 306,302 51,514 Total other financing sources (uses) (399,502) (399,502) (41,686) 357,816 Net changes in fund balances (730,476) (730,476) (90) 730,386 Fund balances, July 1, 2010 - Fund balances, June 30, 2011 $ (730,476) $ (730,476) $ See accompanying notes to budgetary comparison schedule. - 40 - (90) $ 730,386 TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule HURF/LTAF Fund Year Ended June 30, 2011 Budgeted Amounts Original Final Revenue Intergovernmental Interest $ 2,187,929 - $ 2,187,929 - Actual Amounts $ 496,299 597 Variance with Final Budget $ (1,691,630) 597 Total revenue 2,187,929 2,187,929 496,896 (1,691,033) Expenditures Current Public works and streets Capital outlay 2,289,810 - 2,289,810 - 323,142 196,035 1,966,668 (196,035) 2,289,810 2,289,810 519,177 1,770,633 Total expenditures Net changes in fund balances Fund balances, July 1, 2010 Fund balances, June 30, 2011 $ (101,881) (101,881) (22,281) 79,600 272,481 272,481 272,481 - 170,600 $ 170,600 $ 250,200 See accompanying notes to budgetary comparison schedule. - 41 - $ 79,600 TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule Community Development Grants Fund Year Ended June 30, 2011 Budgeted Amounts Original Final Revenue Intergovernmental Other revenue $ 1,764,001 - $ Actual Amounts 1,764,001 - $ 820,351 34,481 Variance with Final Budget $ (943,650) 34,481 Total revenue 1,764,001 1,764,001 854,832 (909,169) Expenditures Current Community development Capital outlay 1,764,009 - 1,764,009 - 485,102 383,346 1,278,907 (383,346) 1,764,009 1,764,009 868,448 895,561 (13,616) (13,608) 36,160 - Total expenditures Net changes in fund balances (8) Fund balances, July 1, 2010 (8) 36,160 Fund balances, June 30, 2011 $ 36,152 36,160 $ 36,152 $ See accompanying notes to budgetary comparison schedule. - 42 - 22,544 $ (13,608) TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule Community Service Grants Fund Year Ended June 30, 2011 Budgeted Amounts Original Final Revenue Intergovernmental Other revenue $ 632,462 - $ Actual Amounts 632,462 - $ 552,569 5,292 Variance with Final Budget $ (79,893) 5,292 Total revenue 632,462 632,462 557,861 (74,601) Expenditures Current Community development Health and welfare 414,777 300,608 414,777 300,608 304,369 286,484 110,408 14,124 715,385 715,385 590,853 124,532 (82,923) (82,923) (32,992) 49,931 82,923 82,923 30,837 (52,086) - - (2,155) (2,155) - - - - Total expenditures Excess (deficiency) of revenue over expenditures Other financing sources (uses) Transfers in Net changes in fund balances Fund balances, July 1, 2010 Fund balances, June 30, 2011 $ - $ - $ See accompanying notes to budgetary comparison schedule. - 43 - (2,155) $ (2,155) TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Notes to Budgetary Comparison Schedules June 30, 2011 NOTE 1 – BUDGETING AND BUDGETARY CONTROL Arizona Revised Statutes (A.R.S.) require the Town to prepare and adopt a balanced budget annually for each governmental fund. The Town Council must approve such operating budgets on or before the third Monday in July to allow sufficient time for the legal announcements and hearings required for the adoption of the property tax levy on the third Monday in August. A.R.S. prohibit expenditures or liabilities in excess of the amounts budgeted. Expenditures may not legally exceed appropriations at the department level. In certain instances, transfers of appropriations between departments or from the contingency account to a department may be made upon the Town Councils’ approval. NOTE 2 – BUDGETARY BASIS OF ACCOUNTING The Town’s budget is prepared on a basis consistent with generally accepted accounting principles. - 44 - TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Schedule of Agent Retirement Plans’ Funding Progress June 30, 2011 Public Safety Personnel Retirement System Actuarial Valuation Date Actuarial Value of Plan Assets (a) Actuarial Accrued Liability (b) Funding (Liability) Excess (a-b) 06/30/10 06/30/09 06/30/08 $ 671,915 575,818 509,696 $ 1,161,445 1,168,802 1,089,226 $ (489,530) (592,984) (579,530) - 45 - Funded Ratio (a/b) 57.9 % 49.3 46.8 Annual Covered Payroll (c) $ 389,274 450,187 454,750 Unfunded Liability as Percentage of Covered Payroll ([a-b]/c) 125.8 % 131.7 127.4 SINGLE AUDIT ACT REPORTS SECTION INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Town Council Town of Guadalupe, Arizona We have audited the financial statements of the Town of Guadalupe, Arizona, as of and for the year ended June 30, 2011, and have issued our report thereon dated December 14, 2011. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Town of Guadalupe, Arizona’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town of Guadalupe, Arizona’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Town of Guadalupe, Arizona’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified a deficiency in internal control over financial reporting, described in the accompanying schedule of findings and questioned costs that we consider to be a significant deficiency in internal control over financial reporting. It is listed as item 11-01. - 47 - Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town of Guadalupe, Arizona’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and questioned costs as item 11-02. The Town of Guadalupe, Arizona’s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit Town of Guadalupe, Arizona’s responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use of the Town’s management, Town Council, and federal awarding agencies and is not intended to be, and should not be, used by anyone other than these specified parties. December 14, 2011 - 48 - INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Town Council Town of Guadalupe, Arizona Compliance We have audited the Town of Guadalupe, Arizona’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Town of Guadalupe, Arizona’s major federal programs for the year ended June 30, 2011. The Town of Guadalupe, Arizona’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the Town of Guadalupe, Arizona’s management. Our responsibility is to express an opinion on the Town of Guadalupe, Arizona’s compliance based on our audit. Except as discussed in the following paragraph, we conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Town of Guadalupe, Arizona’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Town of Guadalupe, Arizona’s compliance with those requirements. As described in item 11-03 in the accompanying schedule of findings and questioned costs, we were not able to obtain sufficient documentation supporting the compliance of the Town of Guadalupe, Arizona with the YouthBuild Program regarding eligibility, nor were we able to satisfy ourselves as to the Town of Guadalupe, Arizona’s compliance with those requirements by other auditing procedures. In our opinion, except for compliance requirement described in the preceding paragraph, the Town of Guadalupe, Arizona complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2011. - 49 - Internal Control Over Compliance Management of the Town of Guadalupe, Arizona is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Town of Guadalupe, Arizona’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of The Town of Guadalupe, Arizona’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified a deficiency in internal control over compliance that we consider to be a significant deficiency as described in the accompanying schedule of findings and questioned costs as item 11-03. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The Town of Guadalupe, Arizona’s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the Town of Guadalupe, Arizona’s responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of management, the Town Council, and federal awarding agencies is not intended to be and should not be used by anyone other than these specified parties. December 14, 2011 - 50 - TOWN OF GUADALUPE, ARIZONA Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2011 Federal Grantor/Pass Through Grantor/Program Title Federal CFDA Number Pass through Grantor's Number U.S. Department of Health and Human Services Passed through Maricopa County Human Services: CSBG Cluster: Community Services Block Grant ARRA - Community Services Block Grant 93.569 93.710 C-22-10-087-3 C-22-10-087-3 Disbursements/ Expenditures $ Total CSBG Cluster 7,499 23,683 31,182 TANF Cluster: Temporary Assistance for Needy Families 93.558 C-22-10-087-3 5,032 Low-Income Home Energy Assistance Social Services Block Grant 93.568 93.667 C-22-10-087-3 C-22-10-087-3 22,688 28,052 93.044 93.045 93.053 2011-19-GUA 2011-19-GUA 2011-19-GUA 37,990 55,165 12,412 93.667 2011-19-GUA Passed through Area Agency on Aging: Aging Cluster: Title III - Part B Title III - Part C Nutrition Services Incentive Program Total Aging Cluster Social Services Block Grant 105,567 6,323 Total U.S. Department Health and Human Services 198,844 U.S. Department of Transportation Passed through AZ Department of Transportation: Highway Planning and Construction 20.205 TEA-GUA-0 173,061 U.S. Department of Energy Passed through AZ Governor's Office of Energy: ARRA - Energy Efficiency and Conservation Block Grant 81.128 R16-10-25 67,709 U.S. Department of Labor ARRA - Youthbuild 17.274 YB-19062-09-60-A-4 302,163 U.S. Department of Agriculture Passed through the Office of Economic Development and Empowerment Services: Rural Self-Help Housing Technical Assistance Rural Self-Help Housing Technical Assistance 10.420 10.420 --- 65,455 21,416 Total U.S. Department of Agriculture 86,871 U.S. Department of Housing and Urban Development Passed through Maricopa County Community Development: Home Investment Partnerships Program Home Investment Partnerships Program Home Investment Partnerships Program Home Investment Partnerships Program Home Investment Partnerships Program 14.239 14.239 14.239 14.239 14.239 UC0907 UC0907A UC1007 UC1007A UC0807 68,039 120,335 26,715 114,411 29,078 CDBG - Entitlement Grants Cluster: Community Development Block Grants ARRA - Community Development Block Grants 14.218 14.253 DG1004 CDGBARRA0803 258,582 124,764 Total CDBG - Entitlement Grants Cluster 383,346 Total U.S. Department of Housing and Urban Development 741,924 Total Federal Assistance The accompanying notes are an integral part of this schedule. - 51 - $ 1,570,572 TOWN OF GUADALUPE, ARIZONA Notes to Schedule of Expenditures of Federal Awards June 30, 2011 NOTE 1 – BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Town of Guadalupe, Arizona, and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. - 52 - TOWN OF GUADALUPE, ARIZONA Schedule of Findings and Questioned Costs June 30, 2011 Summary Of Auditors’ Results Section 1 Financial Statements 1. Type of auditor’s report issued 2. Internal control over financial reporting: a. Material weaknesses? b. Significant deficiencies identified not considered to be material weaknesses? c. Noncompliance material to the financial statements noted? Unqualified No Yes Yes Federal Awards 1. Internal control over major program: a. Material weaknesses identified? b. Significant deficiencies identified not considered to be material weaknesses? 2. Type of auditor’s report issued on compliance for major program: 3. Any audit findings disclosed that are required to be reported in accordance with Circular OMB A-133, Section 510 (a)? 4. Identification of major program: Name of Federal Program CDBG – Entitlement Grants Cluster Community Development Block Grants ARRA - Community Development Block Grants ARRA - YouthBuild Highway Planning and Construction 5. Dollar threshold used to distinguish between Type A and Type B programs: 6. Auditee qualified as a low-risk auditee under OMB Circular A-133, Section 530? - 53 - No Yes Qualified Yes CFDA Number 14.218 14.253 17.274 20.205 $ 300,000 No TOWN OF GUADALUPE, ARIZONA Schedule of Findings and Questioned Costs June 30, 2011 Financial Statement Findings Item: 11-01 Criteria: All notes receivables should be recorded in the Town’s general ledger. Condition: The initial set up of notes receivable was not recorded in the general ledger. Cause and Effect: Notes receivable information was not properly communicated from the housing department to staff that are responsible for recording such notes into the general ledger. Therefore, prior year net asset balances required restatement. Recommendation: Housing department should communicate all notes receivable to the accounting staff to ensure that the note is recorded in the general ledger. Management Response: Management agrees with this finding and will implement policies to ensure that all notes are recorded in the general ledger. Item: 11-02 This finding is related to a non-major Federal program. (See Item 11-02 under Federal Award Findings and Questioned Costs.) - 54 - TOWN OF GUADALUPE, ARIZONA Schedule of Findings and Questioned Costs June 30, 2011 Federal Award Findings and Questioned Costs Item: 11-02 – (Non-major Federal program) Home Investment Partnership Program (HOME) – U.S. Dept. of Housing and Urban Development CFDA #: 14.239 Grant year ended June 30, 2011 Criteria: Program income should be used prior to requesting reimbursement from grant contracts. Condition: It was found that the Town had foreclosed on a HOME property and had received sales proceeds from the property in March 2011. The Town had existing HOME grant contracts from which they continued to request reimbursement for grant expenditures instead of using the sales proceeds. Questioned Costs: $43,200 Context: During our testing of program income, we noted that proceeds from a sale of a HOME program property were not used for subsequent program expenditures. Cause and Effect: The Town did not follow federal guidelines related to the HOME program and program income which resulted in the Town receiving funds from grant contracts that it should have not received because program income was not used first. Recommendation: According to federal guidelines, program income should be used prior to seeking reimbursement from grant contracts. Management Response: Management agrees with this finding and will use program income before requesting reimbursement from grant contracts. - 55 - TOWN OF GUADALUPE, ARIZONA Schedule of Findings and Questioned Costs June 30, 2011 Federal Award Findings and Questioned Costs - continued Item: 11-03 Youthbuild – U.S. Dept. of Labor CFDA #: 17.274 Contract #: YB-19062-09-60-A-4 Grant year ended June 30, 2011 Condition: We noted during our audit that participant files lacked any evidence of a review of the eligibility determination. We also noted that certain documentation was missing to support eligibility. Criteria: Proper internal controls are required to ensure that federal funds are only spent on eligible participants. The grant program requires individuals to provide documentation in order to meet certain requirements to participate. That documentation is required to be retained to support eligibility determination. Questioned Costs: Unable to determine. Context: We noted during our audit that participant files lacked any evidence of a review of the eligibility determination other than the person performing the determination. We also noted that certain documentation was missing to support eligibility. Cause and Effect: The personnel over the Youth Build program were unaware that proper documentation was required to support eligibility claims and that a review was needed. Making the appropriate copies of documentation to support eligibility claims, having a different individual review those documents, would help prevent ineligible participants and questioned costs. Recommendation: We recommend the Town implement appropriate policies and procedures in accordance with grant requirements to ensure all necessary documentation is retained and proper monitoring is completed. Management Response: Management will ensure that eligibility documentation will be retained and reviewed for accuracy. - 56 - TOWN OF GUADALUPE, ARIZONA Summary Schedule of Prior Audit Findings June 30, 2011 The status of audit findings from the prior year is as follows: Item: 2010-01 Community Development Block Grant – CDBG - Entitlement Grants Cluster CFDA #’s 14.218 and 14.253; Grant year ended June 30, 2010. Condition: Prevailing wages were not paid to workers as required under the DavisBacon Act. Status: The Town has updated its policies and procedures to help ensure that contractors pay prevailing wage rates. The Town has resolved this finding. - 57 - INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO THE USES OF HIGHWAY USER REVENUE FUND MONIES IN ACCORDANCE WITH ARS TITLE 28, CHAPTER 18, ARTICLE 2 To the Town Council Town of Guadalupe, Arizona We have audited, in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, business-type activities, each major fund, and aggregate remaining fund information of the Town of Guadalupe as of and for the year ended June 30, 2011, which collectively comprise the Town’s basic financial statements, and have issued our report thereon dated December 14, 2011. In connection with our audit, nothing came to our attention that caused us to believe that the Town failed to use highway user revenue fund monies received by the Town pursuant to Arizona Revised Statutes Title 28, Chapter 18, Article 2 and any other dedicated state transportation revenues received by the Town solely for the authorized transportation purposes. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. This report is intended solely for the information and use of management and the members of the Arizona State Legislature and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record, and its distribution is not limited. December 14, 2011 - 58 -