TOWN OF GUADALUPE, ARIZONA Annual Financial Statements and Independent Auditors’ Report June 30, 2016 TABLE OF CONTENTS INDEPENDENT AUDITORS’ REPORT ............................................................................... 1 Government-wide Statements Statement of Net Position ................................................................................................... Statement of Activities ....................................................................................................... 5 6 Fund Statements Governmental Funds Balance Sheet ............................................................................................................... Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position....................................................................................... Statement of Revenue, Expenditures, and Changes in Fund Balances......................... Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Governmentwide Statement of Activities................................................................................... 10 Proprietary Funds Statement of Net Position............................................................................................. Statement of Revenue, Expenses, and Changes in Fund Net Position ......................... Statement of Cash Flows .............................................................................................. 11 12 13 Notes to Financial Statements ........................................................................................... 15 Other Required Supplementary Information Budgetary Comparison Schedules ...................................................................................... Notes to Budgetary Comparison Schedules........................................................................ Schedule of the Town’s Proportionate Share of the Net Pension Liability – Cost-Sharing Pension Plans ........................................................................ Schedule of Changes in the Town’s Net Pension Liability (Asset) and Related Ratios – Agent Pension Plans.......................................................................... Schedule of Town Pension Contributions .......................................................................... Schedule of Agent OPEB Plans’ Funding Progress ........................................................... 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 ............................................................................................................ 7 8 9 49 52 53 54 55 57 59 INDEPENDENT AUDITORS’ REPORT To the Town Council Town of Guadalupe, Arizona Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of Guadalupe, Arizona, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Town’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. -1- We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information The Town of Guadalupe, Arizona has not presented the Management’s Discussion and Analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not required to be part of, the basic financial statements. Such missing 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. Accounting principles generally accepted in the United States of America require that the Budgetary Comparison Schedules on pages 49 through 52, Schedule of the Town’s Proportionate Share of the Net Pension Liability – Cost-Sharing Pension Plans on page 53, Schedule of Changes in the Town’s Net Pension Liability (Asset) and Related Ratios – Agent Pension Plans on page 54, Schedule of Town Pension Contributions on page 55, and Schedule of Agent OPEB Plans’ Funding Progress on page 57, 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. -2- Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 31, 2017, 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 with Government Auditing Standards in considering the Town of Guadalupe, Arizona’s internal control over financial reporting and compliance. Other Reporting Required by Arizona Revised Statutes 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, insofar as they relate to accounting matters. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the Town’s noncompliance with the use of highway user revenue fund monies and other dedicated state transportation revenues, insofar as they relate to accounting matters. January 31, 2017 -3- -4- TOWN OF GUADALUPE, ARIZONA Statement of Net Position June 30, 2016 AS S ETS Cas h an d cas h eq u iv alen ts A cco u n ts receiv ab le - n et Taxes receiv ab le - n et M is cellan eo u s receiv ab les Du e fro m o th er g o v ernmen ts Prep aid exp en s es No tes receiv ab le - n et Cap ital as s ets , n o t b ein g d ep reciated Cap ital as s ets , b ein g depreciated , n et Total as s ets DEFERRED OUTFLOW S OF RES OURCES Deferred o u tflo ws related to p en s io n s LIAB ILITIES A cco u n ts p ay ab le A ccru ed exp en s es Co u rt b o n d s p ay ab le Un earn ed rev en u e Refu n d ab le d ep o s its No n cu rren t liab ilities Du e with in 1 y ear Du e in mo re th an 1 y ear Total liabilities DEFERRED INFLOW S OF RES OURCES Deferred in flo ws related to p en s io n s NET POS ITION Net in v es tmen t in cap ital as s ets Res tricted fo r: Cap ital acq u is itio n s Hig h way s an d s treets Co mmu n ity d ev elopmen t Un res tricted (d eficit) Total net pos ition Go v ern men tal A ctiv ities Primary Go v ern men t Bu s in es s -ty p e A ctiv ities Total $ 1,258,775 78,082 424 877,275 12,470 774,128 7,039,174 10,389,218 $ 1,470,728 9,432 67,689 1,117 84,703 304,252 $ 2,729,503 9,432 78,082 424 944,964 13,587 774,128 7,123,877 10,693,470 20,429,546 1,937,921 22,367,467 320,521 10,642 331,163 497,771 78,658 101,005 436,525 - 32,101 2,386 11,234 529,872 81,044 101,005 436,525 11,234 68,119 3,288,826 1,371 79,981 69,490 3,368,807 4,470,904 127,073 4,597,977 245,630 15,134 260,764 15,761,785 388,955 16,150,740 1,417,401 8 117,288 858,529 713,324 $ 1,806,356 $ 17,839,889 8 117,288 858,529 (704,077) $ 16,033,533 The accompanying notes are an integral part of these financial statements. -5- TOWN OF GUADALUPE, ARIZONA Statement of Activities Year Ended June 30, 2016 Fun ct io n s / P rogram s P ri m a ry g o ve rn m e n t: Go v ernm en t al act iv it ies P ublic safet y Gen eral go v ern m en t P ublic wo rk s an d st reet s Healt h an d welfare Cult ure an d recreat io n Co m m un it y dev elo p m en t In t erest o n gen eral lo n g-t erm debt To ta l g o ve rn m e n ta l a cti vi ti e s E x p en ses $ Busin ess-t y p e act iv it ies Sewer T ian guis Refuse To ta l bu s i n e s s -ty pe a cti vi ti e s To ta l pri m a ry g o ve rn m e n t Ch arges fo r Serv ices 2 ,8 2 3 ,6 7 3 8 3 7 ,4 7 7 7 0 2 ,1 3 8 3 4 2 ,1 8 6 1 2 8 ,0 0 7 1 1 0 ,0 5 1 3 6 ,3 9 6 4 ,9 7 9 ,9 2 8 $ 8 6 ,7 4 2 1 7 3 ,2 8 8 3 1 2 ,5 6 4 5 7 2 ,5 9 4 $ 5 ,5 5 2 ,5 2 2 P ro gram Rev en ue O p erat in g Gran t s an d Co n t ribut io n s 1 5 0 ,6 3 6 2 7 9 ,2 3 0 6 ,1 1 8 4 3 5 ,9 8 4 $ 1 0 8 ,6 5 2 1 2 8 ,5 1 1 3 2 5 ,3 0 0 5 6 2 ,4 6 3 $ 9 9 8 ,4 4 7 G e n e ra l re ve n u e : T ax es: Sales t ax es Franch ise t ax es Bed t ax es St at e sales t ax rev en ue sh arin g A ut o lieu t ax rev en ue sh arin g St at e rev en ue sh arin g In t erest in co m e Gain (lo ss) o n disp o sal o f cap it al asset s M iscellan eo us T o t al gen eral rev en ue Ch an ge in n et p o sit io n N et p o sit io n , begin n in g o f y ear N et p o sit io n , en d o f y ear 1 0 1 ,8 7 1 3 7 4 ,5 9 6 2 1 1 ,9 1 3 4 ,6 3 7 6 9 3 ,0 1 7 Cap it al Gran t s an d Co n t ribut io n s $ $ 6 9 3 ,0 1 7 4 1 ,5 8 6 400 7 4 7 ,0 4 1 7 8 9 ,0 2 7 $ 7 8 9 ,0 2 7 N et (Ex p en ses) Rev en ue an d Ch an ges in Net P o sit io n P rim ary Go v ernm en t Go v ern m en t al Busin ess-t y p e Act iv it ies A ct iv it ies T o t al $ ( 2 ,6 3 1 ,4 5 1 ) (4 5 6 ,3 7 6 ) (3 2 7 ,1 4 2 ) (1 3 0 ,2 7 3 ) (1 2 1 ,8 8 9 ) 6 4 1 ,6 2 7 (3 6 ,3 9 6 ) ( 3 ,0 6 1 ,9 0 0 ) $ ( 3 ,0 6 1 ,9 0 0 ) 2 ,0 1 5 ,8 1 6 2 5 ,3 6 0 4 6 8 ,6 3 2 5 2 5 ,7 6 5 2 2 8 ,7 2 6 6 6 4 ,9 6 8 6 ,0 3 6 3 ,0 2 1 1 1 ,8 0 4 3 ,9 5 0 ,1 2 8 8 8 8 ,2 2 8 1 5 ,1 4 5 ,3 0 5 $ 1 6 ,0 3 3 ,5 3 3 The accompanying notes are an integral part of these financial statements. -6- $ - $ (2 ,6 3 1 ,4 5 1 ) (4 5 6 ,3 7 6 ) (3 2 7 ,1 4 2 ) (1 3 0 ,2 7 3 ) (1 2 1 ,8 8 9 ) 6 4 1 ,6 2 7 (3 6 ,3 9 6 ) (3 ,0 6 1 ,9 0 0 ) 2 1 ,9 1 0 (4 4 ,7 7 7 ) 1 2 ,7 3 6 (1 0 ,1 3 1 ) 2 1 ,9 1 0 (4 4 ,7 7 7 ) 1 2 ,7 3 6 (1 0 ,1 3 1 ) (1 0 ,1 3 1 ) (3 ,0 7 2 ,0 3 1 ) 2 ,9 4 2 2 ,9 4 2 (7 ,1 8 9 ) 1 ,8 1 3 ,5 4 5 1 ,8 0 6 ,3 5 6 2 ,0 1 5 ,8 1 6 2 5 ,3 6 0 4 6 8 ,6 3 2 5 2 5 ,7 6 5 2 2 8 ,7 2 6 6 6 4 ,9 6 8 8 ,9 7 8 3 ,0 2 1 1 1 ,8 0 4 3 ,9 5 3 ,0 7 0 8 8 1 ,0 3 9 1 6 ,9 5 8 ,8 5 0 $ 1 7 ,8 3 9 ,8 8 9 TOWN OF GUADALUPE, ARIZONA Balance Sheet Governmental Funds June 30, 2016 Co m m un it y Co m m un it y Dev elo p m en t Serv ice Ot h er T o t al Gen eral Gran t s Gran t s Go v ern m en t al Go v ern m en t al Fun d Fun d Fun d Fun ds Fun ds AS S ETS Cash an d cash equiv alen t s T ax es receiv able - n et M iscellan eo us receiv ables Due fro m o t h er go v ern m en t s P rep aid ex p en ses Due fro m o t h er fun ds To ta l a s s e ts $ 1 ,0 3 8 ,6 3 7 $ 7 8 ,0 8 2 1 0 7 ,7 8 4 $ - - 7 7 4 ,5 5 2 - 1 1 2 ,3 5 4 $ 1 ,2 5 8 ,7 7 5 - - 7 8 ,0 8 2 - - 7 7 4 ,5 5 2 3 3 ,9 0 4 8 7 7 ,2 7 5 30 1 2 ,4 7 0 8 1 4 ,6 1 1 303 2 8 ,4 5 7 1 2 ,0 1 3 129 298 - - 1 ,5 9 8 $ - 1 ,5 9 8 1 ,9 4 4 ,9 4 1 8 8 2 ,7 6 8 2 8 ,7 5 5 1 4 6 ,2 8 8 3 ,0 0 2 ,7 5 2 4 5 9 ,4 4 6 205 1 5 ,5 3 6 2 2 ,5 8 4 4 9 7 ,7 7 1 Li a bi l i ti e s Acco un t s p ay able Accrued ex p en ses Co urt bo n ds p ay able Due t o o t h er fun ds U n earn ed rev en ue To ta l l i a bi l i ti e s 6 3 ,9 6 3 - 8 ,2 8 7 6 ,4 0 8 1 0 1 ,0 0 5 - - - 1 0 1 ,0 0 5 - 1 ,5 9 8 - 1 ,5 9 8 4 0 8 ,7 3 3 2 4 ,4 5 8 3 ,3 3 4 - 4 3 6 ,5 2 5 1 ,0 3 3 ,1 4 7 2 4 ,6 6 3 2 8 ,7 5 5 2 8 ,9 9 2 7 7 4 ,1 2 8 - - 129 - 30 1 3 ,7 7 0 1 1 7 ,2 5 8 1 1 7 ,2 5 8 - 7 8 ,6 5 8 1 ,1 1 5 ,5 5 7 De fe rre d i n fl o w s o f re s o u rce s U n av ailable rev en ue - 7 7 4 ,1 2 8 Fu n d ba l a n ce s N o n sp en dable 1 3 ,6 1 1 Rest rict ed fo r: High way s an d st reet s - - - Co m m un it y dev elo p m en t - 8 3 ,8 4 8 - Cap it al acquisit io n - - - 8 9 8 ,1 8 3 - - 9 1 1 ,7 9 4 8 3 ,9 7 7 - U n assign ed To ta l fu n d ba l a n ce s - 8 3 ,8 4 8 8 - 8 8 9 8 ,1 8 3 1 1 7 ,2 9 6 1 ,1 1 3 ,0 6 7 1 4 6 ,2 8 8 $ 3 ,0 0 2 ,7 5 2 To ta l l i a bi l i ti e s , de fe rre d re ve n u e , a n d fu n d ba l a n ce s $ 1 ,9 4 4 ,9 4 1 $ 8 8 2 ,7 6 8 $ 2 8 ,7 5 5 $ The accompanying notes are an integral part of these financial statements. -7- TOWN OF GUADALUPE, ARIZONA Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds June 30, 2016 Fund balances--total governmental funds $ 1,113,067 A mounts reported for governmental activities in the Statement of N et P osition are different because: Capital assets used in governmental activities are not financial resources and therefore, are not reported in the funds. 17,428,392 Some receivables are not available to pay for current-period expenditures and therefore, are deferred in the funds. N otes receivable - net Long-term liabilities, such as net pension liabilities and loans payable are not due and payable in the current period and, therefore, are not reported as a liability in the funds. Capital lease Compensated absences U namortized loan premium Loan payable N et pension liability 774,128 (5,162) (53,085) (142,984) (1,500,000) (1,655,714) (3,356,945) D eferred outflow s and inflow s of resources related to pensions are applicable to future reporting periods and, therefore, are not reported in the funds. N e t po s itio n o f gove rnme ntal activ itie s 74,891 $ 16,033,533 The accompanying notes are an integral part of these financial statements. -8- TOWN OF GUADALUPE, ARIZONA Statement of Revenue, Expenditures, and Changes in Fund Balance Governmental Funds Year Ended June 30, 2016 Co m m un it y Co m m un it y Dev elo p m en t Serv ice Ot h er T o t al Gen eral Gran t s Gran t s Go v ern m en t al Go v ern m en t al Fun d Fun d Fun d Fun ds Fun ds Re ve n u e In t ergo v ern m en t al $ 2 ,3 8 0 ,0 7 0 T ax es $ 1 9 ,7 3 6 $ 2 0 5 ,1 5 2 $ 3 7 4 ,9 9 6 $ 2 ,9 7 9 ,9 5 4 2 ,5 0 9 ,8 0 9 - - - 2 ,5 0 9 ,8 0 9 Ch arges fo r serv ices 1 5 9 ,1 5 0 - - - 1 5 9 ,1 5 0 L icen ses an d p erm it s 1 2 6 ,1 9 8 - - - 1 2 6 ,1 9 8 Fin es an d fo rfeit ures 7 2 ,7 0 7 - - - 7 2 ,7 0 7 Ot h er rev en ue 1 1 ,8 0 0 5 0 ,2 2 9 6 ,7 6 1 - 6 8 ,7 9 0 - - 1 ,1 2 8 6 ,0 3 6 3 7 6 ,1 2 4 5 ,9 2 2 ,6 4 4 In t erest 4 ,9 0 8 To ta l re ve n u e 5 ,2 6 4 ,6 4 2 6 9 ,9 6 5 2 1 1 ,9 1 3 2 ,7 9 1 ,5 7 6 - - - 7 7 7 ,2 7 8 - - 446 7 7 7 ,7 2 4 1 4 ,3 3 4 - - 3 8 8 ,2 4 6 4 0 2 ,5 8 0 - - Ex pe n di tu re s Curren t P ublic safet y Gen eral go v ern m ent P ublic wo rk s an d st reet s Healt h an d welfare Cult ure an d recreat io n - 3 3 8 ,0 5 7 - - - 1 2 6 ,0 6 3 1 1 ,5 4 1 - - 9 1 ,3 9 7 1 ,5 2 0 - - 2 1 5 ,0 0 0 2 1 6 ,5 2 0 - - - 7 8 ,6 0 0 7 8 ,6 0 0 1 2 6 ,0 6 3 Co m m un it y dev elop m en t 7 9 ,8 5 6 3 3 8 ,0 5 7 2 ,7 9 1 ,5 7 6 Debt Serv ice P rin cip al In t erest Cap it al o ut lay 7 9 2 ,9 6 0 To ta l e x pe n di tu re s 2 3 ,4 5 5 8 1 6 ,4 1 5 4 ,5 8 3 ,5 8 7 1 1 ,5 4 1 - 3 3 8 ,0 5 7 - 7 0 5 ,7 4 7 5 ,6 3 8 ,9 3 2 6 8 1 ,0 5 5 5 8 ,4 2 4 (1 2 6 ,1 4 4 ) (3 2 9 ,6 2 3 ) E x cess (deficien cy ) o f rev en ue o v er (un der) ex p en dit ures 2 8 3 ,7 1 2 O th e r fi n a n ci n g s o u rce s (u s e s ) Sale o f cap it al asset s 3 ,0 2 1 - - - 3 ,0 2 1 Cap it al lease agreem en t 6 ,6 8 2 - - - 6 ,6 8 2 T ran sfers (4 2 0 ,1 9 0 ) - 1 2 6 ,1 4 4 2 9 4 ,0 4 6 - (4 1 0 ,4 8 7 ) - 1 2 6 ,1 4 4 2 9 4 ,0 4 6 9 ,7 0 3 2 7 0 ,5 6 8 5 8 ,4 2 4 - (3 5 ,5 7 7 ) 2 9 3 ,4 1 5 6 4 1 ,2 2 6 2 5 ,5 5 3 - 1 5 2 ,8 7 3 8 1 9 ,6 5 2 1 1 7 ,2 9 6 $ 1 ,1 1 3 ,0 6 7 To ta l o th e r fi n a n ci n g s o u rce s (u s e s ) Ne t ch a n g e i n fu n d ba l a n ce s Fun d balan ces, begin n in g o f y ear Fu n d ba l a n ce s , e n d o f y e a r $ 9 1 1 ,7 9 4 $ 8 3 ,9 7 7 $ - $ The accompanying notes are an integral part of these financial statements. -9- 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, 2016 N et change in fund balances--total governmental funds A mounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. How ever, in the Statement of A ctivities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay D epreciation expense $ $ 293,415 816,415 (491,969) 324,446 In the Statement of Activities, only the gain/loss on the sale of capital assets is reported w hereas in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net position differ from the change in fund balance by the book value of the capital assets sold. Gain on disposal of assets P roceeds from the sale of assets 3,021 (3,021) - Revenues in the Statement of A ctivities that do not provide current financial resources are not reported as revenues in the funds. Change HOME note receivables U navailable grant revenues (45,589) (11,920) (57,509) Tow n pension contributions are reported as expenditures in the governmental funds w hen made. H owever, they are reported as deferred outflows of resources in the Statement of N et P osition because the reported net pension liability is measured a year before the Town's report date. P ension expense, which is the change in the net pension liability adjusted for changes in deferred outflow s and inflow s of resources related to pensions, is reported in the Statement of Activities. Tow n pension contributions P ension expense 156,700 (63,589) 93,111 D ebt proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net P osition. Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net P osition. D ebt principal repayments A mortization of loan premium Capital lease acquisition N et change in compensated absences 216,520 42,204 (6,682) (17,277) 234,765 C hange in ne t po s itio n of gove rnme ntal activ itie s $ 888,228 The accompanying notes are an integral part of these financial statements. - 10 - TOWN OF GUADALUPE, ARIZONA Statement of Net Position Proprietary Funds June 30, 2016 Business-ty p e A ctivities--Enterp rise F unds T ianguis Econ. D ev. Refuse F und F und Sew er Fund AS S ETS Current assets Cash and cash equivalents A ccounts receivable - net D ue from other governments P rep aid exp enses D ue from other funds Total cu rre nt asse ts 13,589 110 39,673 1,303,763 9,432 832 10,264 225,757 225,757 84,703 78,495 163,198 1,529,520 173,462 D EFERRED O UTFLO WS O F RES O URC ES D eferred outflow s related to p ensions 6,067 4,575 - 10,642 LIABILITIES C u rre n t liabiliti e s A ccounts p ay able A ccrued exp enses Refundable dep osits Comp ensated absences - current p ortion D ue to other funds Total cu rre nt liabiliti e s 4,125 1,277 1,371 6,773 20,596 1,109 11,234 39,673 72,612 7,380 7,380 32,101 2,386 11,234 1,371 39,673 86,765 152 45,509 45,661 34,320 34,320 - 152 79,829 79,981 52,434 106,932 7,380 166,746 8,628 6,506 - 15,134 N oncurrent assets Cap ital assets, net of accumulated dep reciation, w here ap p licable: Land U t ilities sy stems, net Buildings, net Total n on curre n t asse ts Total asse ts N on cu rre n t liabiliti e s Comp ensated absences N et p ension liability Total n on curre n t liabiliti e s Total liabiliti e s D EFERRED IN FLO WS O F RES O URC ES D eferred inflow s related to p ensions N ET PO S ITIO N N et investment in cap ital assets U nrestricted (deficit) Total n e t position $ 1,250,391 $ - 225,757 1,248,768 $ 1,474,525 $ - 54,100 175 274,612 274,612 163,198 (98,599) $ 64,599 220,337 T otal $ $ 1,470,728 9,432 67,689 1,117 39,673 1,588,639 84,703 225,757 78,495 388,955 1,977,594 267,232 388,955 1,417,401 267,232 $ 1,806,356 The accompanying notes are an integral part of these financial statements. - 11 - TOWN OF GUADALUPE, ARIZONA Statement of Revenue, Expenses, and Changes in Fund Net Position Proprietary Funds Year Ended June 30, 2016 Sew er Fund O pe ratin g re ve n u e s Charges for services Rents Total ope ratin g re ve n u e s O pe ratin g e xpe n se s P rofessional services D ep reciation U t ilities P ersonnel Rep airs and maintenance M aterials and sup p lies Insurance M iscellaneous Total ope ratin g e xpe n se s O pe ratin g in com e (loss) N on ope ratin g re ve n u e Investment income In cre ase (de cre ase ) in n e t position T otal net p osition, beginning of y ear Total n e t position , e n d of ye ar $ Business-ty p e A ctivities--Enterp rise F unds T ianguis Econ. D ev. Refuse F und F und 108,652 108,652 $ 128,511 128,511 $ 325,300 325,300 $ T otal 433,952 128,511 562,463 4,434 47,221 391 29,948 4,116 632 86,742 8,252 40,515 65,655 14,901 24,545 12,536 3,699 3,185 173,288 310,201 2,363 312,564 322,887 87,736 66,046 44,849 28,661 12,536 6,694 3,185 572,594 21,910 (44,777) 12,736 (10,131) 2,942 - - 2,942 24,852 (44,777) 12,736 (7,189) 109,376 254,496 1,813,545 267,232 $ 1,806,356 1,449,673 $ 1,474,525 $ 64,599 $ The accompanying notes are an integral part of these financial statements. - 12 - TOWN OF GUADALUPE, ARIZONA Statement of Cash Flows Proprietary Funds Year Ended June 30, 2016 Business-ty p e A ctivities--Enterp rise F unds T ianguis Sew er Econ. D ev. Refuse F und F und F und T otal C ash flows from ope ratin g activitie s : Receip ts from customers P ay ments to sup p liers and p roviders of goods and services P ay ments to emp loy ees N e t cash provide d (u se d) by ope ratin g activitie s $ 101,729 $ (9,314) (30,023) 133,541 $ (112,130) (14,256) 298,659 (307,976) - $ 533,929 (429,420) (44,279) 62,392 7,155 (9,317) 60,230 C ash flows from n on capital fin an ci n g activitie s: Interfund loans 7,155 (7,155) - - C ash flows from i n ve stin g activitie s : Interest received on investments 2,942 - - 2,942 N e t in cre ase (de cre ase ) i n cash an d cash e qu i vale n ts 72,489 - (9,317) 63,172 Cash and cash equivalents, beginning of y ear 1,177,902 - C ash an d cash e qu i vale n ts, e n d of ye ar $ 1,250,391 $ - $ 229,654 1,407,556 220,337 $ 1,470,728 The accompanying notes are an integral part of these financial statements. - 13 - TOWN OF GUADALUPE, ARIZONA Statement of Cash Flows Proprietary Funds Year Ended June 30, 2016 (Continued) Business-ty p e A ctivities--Enterp rise Funds T ianguis Sew er Econ. D ev. Refuse Fund Fund Fund T otal Re conciliation of ope rating incom e (loss) to ne t cash provide d (use d) by ope rating activitie s: O p erating income (loss) A djustments to reconcile op erating income (loss) to net cash p rovided by (used by ) op erating activities: D ep reciation Pension exp ense Emp loy er p ension contributions (Increase) decrease in: A ccounts receivable D ue from other governments Prep aid exp enses Increase (decrease) in: A ccounts p ay able A ccrued exp enses Refundable dep osits Comp ensated absences p ay able N e t cash provide d (use d) by ope rati ng activitie s $ $ 21,910 $ (44,777) $ 12,736 $ (10,131) 47,221 (566) (3,265) 40,515 (426) (3,184) - 87,736 (992) (6,449) (6,923) (8) 4,332 (196) (26,641) 148 4,332 (33,564) (56) 4,098 439 (514) 9,548 645 698 - 4,440 - 18,086 1,084 698 (514) 62,392 $ 7,155 $ (9,317) The accompanying notes are an integral part of these financial statements. - 14 - $ 60,230 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 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 the 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 position 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. - 15 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 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. - 16 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued 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 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 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. - 17 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 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, 2016 for the Tianguis Economic Development Fund was $61,916. The amount recorded as uncollectible at June 30, 2016 for notes receivable in the Governmental Activities was $1,056,791 (see Note 4). 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: Capitalization Threshold Land Construction in progress Buildings and building improvements Land improvements Equipment Streets Curbs and gutters Street lights $ - 18 - 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 D epreciation Method Estimated U seful 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 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 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. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position and or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future periods) and so will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the statement of financial position and or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so not be recognized as an inflow of resources (revenue) until that time. The government has only one type of item which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. - 19 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued J. 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. 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. K. Impact of Recently Issued Accounting Principles In January 31015, the GASB issued Statement 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The Town implemented this standard during this fiscal period. - 20 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued In June 2015, the GASB issued Statement 73, Accounting and Financial Reporting for Pensions and Related Assets that are not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. The Town implemented this standard during this fiscal period. In June 2015, the GASB issued Statement 75, Accounting and Financial Reporting for Postemployment Benefits other than Pensions. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement is effective for fiscal years beginning after June 15, 2017. Upon implementation, it is anticipated that this Statement will cause a restatement of beginning net position of the Governmental Activities, Business-type Activities, and the proprietary funds. In June 2015, the GASB issued Statement 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify—in the context of the current governmental financial reporting environment—the hierarchy of generally accepted accounting principles (GAAP). The “GAAP hierarchy” consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The Town implemented this standard during this fiscal period. In March 2016, the GASB issued Statement 82, Pension Issues—an amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. - 21 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. L. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the pension plans’ fiduciary net position and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. M. Budgets Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. All annual appropriations lapse at year end. The Town is subject to the State of Arizona’s Spending Limitation Law for Towns and Cities. This law does not permit the Town to spend more than budgeted revenues plus the carry-over unrestricted cash balance from the prior fiscal year. The limitation is applied to the total of the combined funds. The Town complied with this law during the year. Expenditures may not legally exceed budgeted appropriations at the fund level. The individual budgetary comparison schedules as listed in the table of contents present all major governmental funds which incurred an excess of expenditures/expenses over appropriations for the year ended June 30, 2016, if any. 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 - 22 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 2 – DEPOSITS AND INVESTMENTS – Continued 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, 2016, the carrying amount of the Town’s total nonpooled cash in bank was $210,036, and the bank balance was $245,145. The entire bank balance was covered by federal deposit insurance (FDIC). Investments—At June 30, 2016, the investments consisted of the following. Investment Rating O rganization Credit Rating Reported A mount Fair V alue S& P AAA $2,509,778 $2,509,778 A rizona LGIP P ool 5 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. NOTE 3 – DUE FROM OTHER GOVERNMENTS Due from other governments for each governmental fund consisted of the following: State o f A rizo n a M arico p a Co u n ty Oth er g o v ern men ts Gen eral Fu n d $ 57,917 756,694 Co mmu n ity Dev elo p men t Gran ts Fu n d $ 303 - Co mmu n ity Serv ice Gran ts Fu n d $ 3,604 24,853 HURF/LTA F Fu n d (n o n -majo r) $ 33,904 - $ $ $ $ 814,611 303 28,457 33,904 Due from other governments for the Sewer and Refuse Funds consisted of amounts due from the City of Tempe totaling $13,589 and $54,100, respectively. - 23 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 4 – NOTES RECEIVABLE On the government-wide statement of net position, 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, 2016 consisted of $1,830,919 of which $1,056,791 are expected to be forgiven. The notes receivable balance – net totaled $774,128. NOTE 5 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2016, was as follows: Balan ce Ju ly 1, 2015 Governmental activities : Capital as s ets not being depreciated: Lan d $ 7,039,174 In creas es $ - Decreas es $ - Balan ce Ju n e 30, 2016 $ 7,039,174 Capital as s ets being depreciated: Bu ild in g an d b u ild in g imp rovemen ts Lan d imp ro v emen ts Eq u ip men t Street lig h ts Streets Cu rb s and g u tters Total 4,072,610 722,141 2,307,741 472,427 4,994,228 4,594,274 17,163,421 760,110 32,850 23,455 816,415 (20,745) (20,745) 4,072,610 1,482,251 2,319,846 472,427 5,017,683 4,594,274 17,959,091 Les s accu mu lated d ep reciatio n fo r: Bu ild in g an d b u ild in g imp rovemen ts Lan d imp ro v emen ts Eq u ip men t Street lig h ts Streets Cu rb s and g u tters Total (2,293,199) (504,139) (1,815,132) (119,296) (1,434,333) (932,550) (7,098,649) (72,249) (25,495) (109,384) (24,910) (129,569) (130,362) (491,969) 20,745 20,745 (2,365,448) (529,634) (1,903,771) (144,206) (1,563,902) (1,062,912) (7,569,873) Total capital as s ets being depreciated, net 10,064,772 324,446 - 10,389,218 - $ 17,428,392 Go v ern men tal activ ities cap ital as s ets , n et $ 17,103,946 - 24 - $ 324,446 $ TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 5 – CAPITAL ASSETS – Continued Balan ce Ju ly 1, 2015 B us ines s -type activities : Capital as s ets not being depreciated: Lan d $ Capital as s ets being depreciated: Utility s y s tems Eq u ip men t Bu ild in g s Bu ild in g imp ro v emen ts Total Les s accu mu lated d ep reciatio n fo r: Utility s y s tems Eq u ip men t Bu ild in g s Bu ild in g imp ro v emen ts Total $ $ - Balan ce Ju n e 30, 2016 Decreas es $ - $ 84,703 1,819,472 27,401 25,000 581,194 2,453,067 - - 1,819,472 27,401 25,000 581,194 2,453,067 (1,546,494) (27,401) (25,000) (462,184) (2,061,079) (47,221) (40,515) (87,736) - (1,593,715) (27,401) (25,000) (502,699) (2,148,815) (87,736) - 391,988 Total capital as s ets being depreciated, net Bu s in es s -ty pe activ ities cap ital as s ets , n et 84,703 In creas es 476,691 $ (87,736) $ 304,252 - $ 388,955 Depreciation expense was charged to functions as follows: Governmental activities: H ighw ays and streets P ublic safety General government Community development Health and w elfare Culture and recreation $ 306,898 61,877 73,763 23,104 22,689 3,638 Total governmental activities depreciation expense $ 491,969 Business-type activities: Tianguis center Sewer $ 40,515 47,221 Total business-type activities depreciation expense $ 87,736 - 25 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 6 – UNEARNED REVENUE The Town has received advanced contract payments for the lease of billboard space with a term of 20-years. The Town recognizes revenue annually at 1/20th of the contract price. The remaining amount is recorded as unearned revenue that will be recognized as revenue over the life of the contract. The amount deferred for the billboard contract at June 30, 2016 is $357,500. The remaining balance of unearned revenue in the governmental funds consists of grant advances in which the Town had not yet fulfilled contract requirements to recognize revenue. NOTE 7 – LONG-TERM LIABILITIES Loans – The Town’s loans payable consist of a loan of $2,145,000 received through the Greater Arizona Development Authority (GADA). The loan requires principal payments annually beginning July 1, 2014 with interest payments of 2.00 percent paid semiannually on July 1 and January 1 with the first interest payment due July 1, 2014. Total loan net proceeds of $2,389,785 were used to refinance a prior loan through GADA. State-shared General Fund revenues are used as security for the loan payable. Loans payable at June 30, 2016, were as follows: Des cription Loan payable Face Value M aturity Ranges Interes t Rate Outs tanding June 30, 2016 $ 2,145,000 2014-2023 2.00% $ 1,500,000 The following schedule details the Town’s long-term liability and obligation activity for the year ended June 30, 2016. Balan ce Ju ly 1, 2015 Go v ern mental activities : Co mpens ated abs ences Net p ens ion liability Capital leas e p ay able Lo an s p ay ab le Lo an p remium Go vernmen tal activities lo n g -term liabilities $ A d ditions Red u ctio n s Balan ce Ju ne 30, 2016 Du e within 1 y ear 35,808 1,524,086 1,715,000 185,188 $ 17,277 131,628 6,682 - $ 1,520 215,000 42,204 $ 53,085 1,655,714 5,162 1,500,000 142,984 $ 47,777 1,164 19,178 $ 3,460,082 $ 155,587 $ 258,724 $ 3,356,945 $ 68,119 2,037 72,898 $ 6,931 $ 514 - $ 1,523 79,829 $ 1,371 - 74,935 $ 6,931 $ 514 $ 81,352 $ 1,371 Bu s ines s -ty pe activities : Co mpens ated abs ences $ Net p ens ion liability Bu s ines s -ty pe activ ities lo n g -term liabilities $ - 26 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 7 – LONG-TERM LIABILITIES – Continued The following schedule details debt service requirements to maturity for the Town’s loan payable at June 30, 2016. Year En d in g Ju n e 30 2017 2018 2019 2020 2021 2022-23 Total Go vern men tal A ctiv ities Lo an Pay ab le Premiu m Prin cip al A mo rtizatio n In teres t $ 220,000 235,000 245,000 255,000 545,000 $ 1,500,000 $ 19,178 35,530 29,192 23,569 18,816 16,669 $ 142,954 $ 50,822 23,470 18,058 13,881 8,434 (2,669) $ 111,996 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, 2016, outstanding defeased revenue bonds totaled $335,000. Capital leases—The Town has acquired equipment under the provisions of a long-term lease agreement classified as a capital lease 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 leases are as follows: Governmental Activities Copier Less: accumulated depreciation $ 9,702 (647) Carrying value $ 9,055 - 27 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 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, 2016: Year Ending June 30 Governmental Activities 2017 2018 2019 2020 $ Total minimum lease payments Less amount representing interest 1,520 1,520 1,520 1,520 6,080 (918) P resent value of net minimum lease payments $ 5,162 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. - 28 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS The Town contributes to the pension plans described below. The plans are component units of the State of Arizona. At June 30, 2016, the Town reported the following aggregate amounts related to pensions for all plans to which it contributes: Go v ern men tal A ctiv ities S tatement of Net Pos ition and S tatement of Activities Net pens io n liab ilities Deferred o u tflo ws o f res o u rces Deferred in flo ws o f res o u rces Pen s io n expens e $ 1,655,714 320,521 245,630 63,589 Bu s ines s -ty pe A ctiv ities $ 79,829 10,642 15,134 (992) Total $ 1,735,543 331,163 260,764 62,597 The Town reported $156,700 of pension expenditures in the governmental funds related to all pension plans to which it contributes. A. Arizona State Retirement System Plan Description – Town employees not covered by the other pension plans described below participate in the Arizona State Retirement System (ASRS). The ASRS administers a costsharing multiple-employer defined benefit pension plan, a cost-sharing multiple-employer defined benefit health insurance premium benefit (OPEB) plan, and a cost-sharing multipleemployer defined benefit long-term disability (OPEB) plan. The Arizona State Retirement System Board governs the ASRS according to the provisions of A.R.S. Title 38, Chapter 5, Articles 2 and 2.1. The ASRS issues a publicly available financial report that includes its financial statements and required supplementary information. The report is available on its Web site at www.azasrs.gov. - 29 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Benefits Provided – The ASRS provides retirement, health insurance premium supplement, longterm disability, and survivor benefits. State statute establishes benefits terms. Retirement benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: AS RS Retirement Initial members hip date: B efore J uly 1 , 2 0 1 1 On or after J uly 1 , 2 0 1 1 Years o f s erv ice an d ag e req u ired to receiv e b en efit Su m o f y ears an d ag e eq u als 80 10 y ears ag e 62 5 y ears ag e 50* an y y ears ag e 65 Fin al av erag e s alary is b as ed on Hig h es t 36 mo n th s o f las t 120 mo n th s Hig h es t 60 mo n th s o f las t 120 mo n th s 2.1% to 2.3% 2.1% to 2.3% Ben efit p ercen t p er y ear o f s erv ice 30 y ears ag e 55 25 y ears ag e 60 10 y ears ag e 62 5 y ears ag e 50* an y y ears ag e 65 * W ith actu arially red u ced b en efits . Retirement benefits for members who joined the ASRS prior to September 13, 2013, are subject to automatic cost-of-living adjustments based on excess investment earning. Members with a membership date on or after September 13, 2013, are not eligible for cost-of-living adjustments. Survivor benefits are payable upon a member’s death. For retired members, the survivor benefit is determined by the retirement benefit option chosen. For all other members, the beneficiary is entitled to the member’s account balance that includes the member’s contributions and employer’s contributions, plus interest earned. Contributions – In accordance with state statutes, annual actuarial valuations determine active member and employer contribution requirements. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. For the year ended June 30, 2016, active ASRS members were required by statute to contribute at the actuarially determined rate of 11.47 percent (11.35 percent for retirement and 0.12 percent for long-term disability) of the members’ annual covered payroll, and the Town was required by statute to contribute at the actuarially determined rate of 11.47 percent (10.85 percent for retirement, 0.50 percent for health insurance premium benefit, and 0.12 percent for long-term disability) of the active members’ annual covered payroll. The Town’s contributions to the pension plan for the year ended June 30, 2016, - 30 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued were $79,628. The Town’s contributions for the current and two preceding years for OPEB, all of which were equal to the required contributions, were as follows: AS RS Year en d ed Ju n e 30, 2016 2015 2014 Health B enefit S upplement Fund $ 3,670 3,753 3,572 Long -term Dis ability Fund $ 881 763 1,429 During fiscal year 2016, the Town paid for ASRS pension and OPEB contributions as follows: 51.17 percent from the General Fund, 19.39 percent from the HURF Fund, 21.27 percent from the Community Services Grants Fund, .75 percent from the Community Development Grants Fund, 3.19 percent from the Tianguis Economic Development Fund, and 4.23 percent from the Sewer Fund. Pension Liability – At June 30, 2016, the Town reported a liability of $1,075,859 for its proportionate share of the ASRS’ net pension liability. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was determined using update procedures to roll forward the total pension liability from an actuarial valuation as of June 30, 2014, to the measurement date of June 30, 2015. The Town’s proportion of the net pension liability was based on the Town’s actual contributions to the plan relative to the total of all participating employers’ contributions for the year ended June 30, 2015. The Town’s proportion measured as of June 30, 2015, was .006910 percent, which was an increase of .000305 from its proportion measured as of June 30, 2014. - 31 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Pension Expense and Deferred Outflows/Inflows of Resources – For the year ended June 30, 2016, the Town recognized pension expense for ASRS of ($13,367). At June 30, 2016, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: AS RS Differen ces b etween exp ected an d actu al exp erien ce Net d ifferen ce b etween p ro jected an d actu al earn in g s o n p en s io n p lan in v es tmen ts Ch an g es in p ro p o rtio n an d d ifferen ces b etween To wn co n trib u tio n s an d p ro p o rtio n ate s h are o f co n trib u tio n s Town co n trib u tio n s s u b s eq u en t to th e meas u remen t d ate Total Deferred Outflows of Res ources $ 29,358 Deferred Inflows of Res ources $ - 34,479 34,435 113,103 79,628 $ 56,376 143,421 $ 203,958 The $79,628 reported as deferred outflows of resources related to ASRS pensions resulting from Town contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to ASRS pensions will be recognized in pension expense as follows: Year en d ed Ju n e 30, 2017 2018 2019 2020 2021 Th ereafter $ - 32 - (94,182) (49,088) (21,784) 24,889 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: AS RS A ctu arial v alu atio n d ate A ctu arial ro ll fo rward d ate A ctu arial co s t meth o d In v es tmen t rate o f retu rn Pro jected s alary in creas es In flatio n Perman en t b en efit in creas e M o rtality rates Ju n e 30, 2014 Ju n e 30, 2015 En try ag e n o rmal 8% 3 - 6.75% 3% In clu d ed 1994 GA M Scale BB Actuarial assumptions used in the June 30, 2014, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2012. The long-term expected rate of return on ASRS pension plan investments was determined to be 8.79 percent using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: AS RS As s et Clas s Eq u ity Fixed in co me Real es tate M u lti-as s et clas s Co mmo d ities Total Targ et Allocation 58% 25% 10% 5% 2% 100% Long -term Arithmetic Expected Real Rate of Return 6.79% 3.70% 4.25% 3.41% 3.93% Discount Rate – The discount rate used to measure the ASRS total pension liability was 8 percent, which is less than the long-term expected rate of return of 8.79 percent. The projection of cash flows used to determine the discount rate assumed that contributions from participating employers will be made based on the actuarially determined rates based on the ASRS Board’s funding policy, which establishes the contractually required rate under Arizona statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. - 33 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Sensitivity of the Town’s Proportionate Share of the ASRS Net Pension Liability to Changes in the Discount Rate – The following table presents the Town’s proportionate share of the net pension liability calculated using the discount rate of 8 percent, as well as what the Town’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7 percent) or 1 percentage point higher (9 percent) than the current rate: AS RS 1 % Decreas e (7 % ) To wn 's p ro p o rtio n ate s h are o f th e n et p en s ion liab ility $ 1,409,743 Current Dis count Rate (8 % ) $ 1,075,859 1 % Increas e (9 % ) $ 847,039 Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued ASRS financial report. B. Public Safety Personnel Retirement System Plan Descriptions – Town fire employees participate in the Public Safety Personnel Retirement System (PSPRS). The PSPRS administers an agent multiple-employer defined benefit pension plan and an agent multiple-employer defined benefit health insurance premium benefit (OPEB) plan (agent plans). A seven-member board known as the Board of Trustees and the participating local boards govern the PSPRS according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. The PSPRS issue publicly available financial reports that include their financial statements and required supplementary information. The reports are available on the PSPRS Web site at www.psprs.com. Benefits Provided – The PSPRS provide retirement, health insurance premium supplement, disability, and survivor benefits. State statute establishes benefits terms. - 34 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Retirement, disability, and survivor benefits are calculated on the basis of age, average monthly compensation, and service credit as follows: PS PRS Initial members hip date: On or after J anuary 1 , B efore J anuary 1 , 2 0 1 2 2012 Retirement and Dis ability Years o f s erv ice an d ag e req u ired to receiv e b en efit Fin al av erag e s alary is b as ed o n Ben efit p ercen t No rmal Retiremen t 20 y ears , an y ag e 15 y ears , ag e 62 25 y ears , ag e 52.5 Hig h es t 36 mo n th s of las t 20 y ears Hig h es t 60 mo n th s o f las t 20 y ears 50% les s 2.0% fo r each y ear o f cred ited s erv ice les s th an 20 y ears OR p lu s 2.0% to 2.5% fo r each y ear o f cred ited s erv ices o v er 20 y ears , n o t to exceed 80% 2.5% p er y ear o f cred ited s erv ice, n o t to exceed 80% A ccid en tal Dis ab ility Retiremen t 50% o r n o rmal retiremen t, wh ich ev er is g reater Catas tro p h ic Dis ab ility Retiremen t Ord in ary Dis ab ility Retiremen t 90% fo r th e firs t 60 mo n th s th en red u ced to eith er 62.5% o r n o rmal retiremen t, wh ich ev er is g reater No rmal retiremen t calcu lated with actu al y ears o f cred ited s erv ice o r 20 y ears o f cred ited s erv ice, wh ich ev er is g reater, multip lied b y y ears o f cred ited s erv ice (n o t to exceed 20 y ears ) d iv id ed b y 20 S urvivor B enefit Retired M embers A ctiv e M embers 80% o f retired memb er's p en s io n b en efit 80% if accid en tal d is ab ility retiremen t b en efit o r 100% o f av erag e mo n thly co mp en s atio n if d eath was res u lt o f in ju ries receiv ed o n th e jo b Retirement and survivor benefits are subject to automatic cost-of-living adjustments based on excess investment earning. In addition, from and after December 31, 2015, the Legislature may enact permanent one-time benefit increases after a Joint Legislative Budget Committee analysis of the increase’s effects on the plan. PSPRS also provides temporary disability benefits of 50 percent of the member’s compensation for up to 12 months. - 35 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Employees Covered by Benefit Terms – At June 30, 2016, the following employees were covered by the agent pension plans’ benefit terms: PS PRS Fire In activ e emp lo yees o r b en eficiaries curren tly receiv in g b en efits In activ e emp lo yees en titled to b u t no t y et receiv in g b en efits A ctive emp lo y ees Total 1 4 5 Contributions and Annual OPEB Cost – State statutes establish the pension contribution requirements for active PSPRS employees. In accordance with state statutes, annual actuarial valuations determine employer contribution requirements for PSPRS pension and health insurance premium benefits. The combined active member and employer contribution rates are expected to finance the costs of benefits employees earn during the year, with an additional amount to finance any unfunded accrued liability. Contributions rates for the year ended June 30, 2016, are indicated below. Rates are a percentage of active members’ annual covered payroll. PS PRS Fire A ctive M emb ers - Pen s ion To wn Pens io n Health in s u ran ce p remium b enefit 11.65% 26.33% 0.87% - 36 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued For the agent plans, the Town’s contributions to the pension plan and annual OPEB cost and contributions for the health insurance premium benefit for the year ended June 30, 2016, were: Pens ion Co n trib u tio n s M ad e Health Ins urance Premium B enefit A n nual OPEB co s t Co n trib u tio n s mad e PS PRS Fire $ 82,014 2,465 2,465 During fiscal year 2016, the Town paid for 100 percent of PSPRS pension and OPEB contributions from the General Fund. Net Pension Liability (Asset) – At June 30, 2016, the Town reported the following net pension liability: Net Pens ion Liability (As s et) $ 659,684 PSPRS Fire The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. In May 2016 voters approved Proposition 124 that authorized certain statutory adjustments to PSPRS’ automatic cost-of-living adjustments. The statutory adjustments change the basis for future cost-of-living adjustments from excess investment earnings to the change in the consumer price index, limited to a maximum annual increase of 2 percent. The change in the Town’s net pension liability as a result of the statutory adjustments is not known. - 37 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Pension Actuarial Assumptions – The significant actuarial assumptions used to measure the total pension liability are as follows: PS PRS A ctu arial v alu atio n date A ctu arial co s t meth od Dis co u n t rate Pro jected s alary in creas es In flatio n Perman en t b en efit in creas e M o rtality rates Ju n e 30, 2015 En try ag e n o rmal 7.85% 4.0% -8.0% 4.0% In clu d ed RP-2000 mo rtality tab le (ad ju s ted b y 105% fo r b o th males an d females ) Actuarial assumptions used in the June 30, 2015, valuation were based on the results of an actuarial experience study for the 5-year period ended June 30, 2011. The long-term expected rate of return on PSPRS pension plan investments was determined to be 7.85 percent using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: As s et Clas s Sh o rt term in v es tmen ts A b s o lu te retu rn Ris k p arity Fixed In co me Real as s ets GTA A Priv ate Eq uity Real es tate Cred it o p p o rtu n ities No n -U.S. eq u ity U.S. equity To tal Targ et Allocation 2% 5% 4% 7% 8% 10% 11% 10% 13% 14% 16% 100% - 38 - Long -term Expected Geometric Real Rate of Return 0.75% 4.11% 5.13% 2.92% 4.77% 4.38% 9.50% 4.48% 7.08% 8.25% 6.23% TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Pension Discount Rates – The following discount rates were used to measure the total pension liabilities: PS PRS Fire Dis count rates 7.85% The projection of cash flows used to determine the PSPRS discount rates assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between the actuarially determined contribution rate and the member rate. Based on those assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. - 39 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Changes in the Net Pension Liability (Asset) Balan ces at Ju ne 30, 2015 Ch an ges fo r th e y ear Serv ice Co s t In teres t o n th e to tal p ens io n liability Differen ces b etween exp ected an d actu al exp erien ce in th e meas u remen t o f th e p en s io n liability Co n trib u tio n s -emp loyer Co n trib u tio n s -emp loyee Net in v es tmen t income Ben efit p ay men ts , in clu d in g refu nds o f emp lo yee co n trib u tio n s A d min is trativ e exp en s e Oth er ch an g es Net ch anges Balan ces at Ju ne 30, 2016 Total Pens ion Liability (As s et) (a) $ 1,407,245 Increas e (Decreas e) Plan Fiduciary Net Pos ition (b) $ 787,592 50,177 - 50,177 110,540 - 110,540 58,412 30,153 29,544 (4,211) (58,412) (30,153) (29,544) (48,359) (1,107) (527) 68,116 855,708 1,107 527 40,031 659,684 (4,211) - $ Net Pens ion Liability (As s et) (a) - (b) $ 619,653 (48,359) 108,147 1,515,392 $ $ Sensitivity of the Town’s Net Pension Liability to Changes in the Discount Rate – The following table presents the Town’s net pension liabilities (assets) calculated using the discount rate of 7.85 percent, as well as what the Town’s net pension liability (asset) would be if it were calculated using a discount rate that is 1 percentage point lower (6.85 percent) or 1 percentage point higher (8.85 percent) than the current rate: 1% Decreas e (6.85 % ) PSPRS fire Rate Net p ens ion liab ility $ 6.85% 867,933 Current Dis count Rate (7 .8 5% ) $ 7.85% 659,684 1 % Increas e (8.85 % ) $ 8.85% 486,133 Pension Plan Fiduciary Net Position – Detailed information about the pension plans’ fiduciary net position is available in the separately issued PSPRS financial reports. - 40 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Pension Expense – For the year ended June 30, 2016, the Town recognized the following pension expense: Pens ion Expens e PSPRS Fire $ 75,964 Pension Deferred Outflows/Inflows of Resources – At June 30, 2016, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Res ources Differen ces b etween exp ected an d actu al exp erien ce Ch an g es o f as s u mp tio n s o r o th er in p u ts Net d ifferen ce b etween p ro jected an d actu al earn in g s o n p en s io n p lan in v es tmen ts To wn co n trib u tio n s s u b s eq u en t to th e meas u remen t date To tal $ $ - Deferred Inflows of Res ources $ 34,028 78,691 - 27,037 22,778 82,014 - 187,742 - 41 - $ 56,806 TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued The amounts reported as deferred outflows of resources related to pensions resulting from Town contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: PS PRS Fire Year ended Ju n e 30, 2017 2018 2019 2020 2021 Thereafter $ 7,106 7,106 7,107 14,700 7,940 4,963 Agent Plan OPEB Actuarial Assumptions – The health insurance premium benefit contribution requirements for the year ended June 30, 2016, were established by the June 30, 2014, actuarial valuations, and those actuarial valuations were based on the following actuarial methods and assumptions. Actuarial valuations involve estimates of the reported amounts’ value and assumptions about the probability of events in the future. Amounts determined regarding the plans’ funded status and the annual required contributions are subject to continual revision as actual results are compared to past expectations and new estimates are made. The required schedule of funding progress for the health insurance premium benefit presented as required supplementary information provides multiyear trend information that shows whether the actuarial value of the plans’ assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. - 42 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued Projections of benefits are based on (1) the plans as understood by the Town and plans’ members and include the types of benefits in force at the valuation date, and (2) the pattern of sharing benefit costs between the Town and plans’ members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The actuarial methods and assumptions used to establish the fiscal year 2016 contribution requirements are as follows: PS PRS - OPEB Contribution Requirements A ctu arial v alu atio n date A ctu arial co s t meth od A mo rtizatio n meth o d Ju n e 30, 2014 En try ag e n o rmal Lev el p ercen t clo s ed fo r u n fu n d ed actu arial accru ed liab ility , o p en fo r exces s 22 y ears fo r u n fu n d ed actu arial accru ed liab ility , 20 y ears fo r exces s 7-y ear s mo o th ed market v alu e; 20% co rrid o r Remain in g amo rtizatio n p erio d A s s et v alu atio n method A ctu arial as s u mp tio ns : In v es tmen t rate o f retu rn Pro jected s alary in creas es W ag e g ro wth 7.85% 4.0% -8.0% 4.0% Agent Plan OPEB Trend Information – Annual OPEB cost information for the health insurance premium benefit for the current and two preceding years: Year ended J une 3 0 , PSPRS Fire 2016 2015 2014 Annual OPEB Cos t $ 2,465 4,008 3,514 Percentag e of Annual Cos t Contributed 100% 100% 100% Net OPEB Oblig ation $ 24,879 22,310 22,610 Agent Plan OPEB Funded Status – The health insurance premium benefit plans’ funded status as of the most recent valuation date, June 30, 2016, along with the actuarial assumptions and methods used in those valuations follow. - 43 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 9 – PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS – Continued A ctuarial v alu e o f as s ets (a) A ctuarial accrued liab ility (b ) Un fun d ed actu arial accru ed liab ility (fu n d ing exces s ) (b ) - (a) Fu nded ratio (a)/(b ) A n nual co v ered p ay ro ll (c) Un fun d ed actu arial accru ed liab ility (fu n d ing exces s ) as a p ercen tag e o f co v ered p ay ro ll (b ) - (a) / (c) $ $ $ $ PS PRS Fire 32,693 55,003 22,310 59.44% 272,878 8.18% The actuarial methods and assumptions for the most recent valuation date are as follows: PS PRS - OPEB Funded S tatus A ctu arial v alu atio n date A ctu arial co s t meth od A mo rtizatio n meth o d Ju n e 30, 2016 En try ag e n o rmal Lev el p ercen t clo s ed fo r u n fu n d ed actu arial accru ed liab ility , o p en fo r exces s 20 y ears fo r u n fu n d ed actu arial accru ed liab ility , 20 y ears fo r exces s 7-y ear s mo o th ed market v alu e; 80% /120% market co rrid o r Remain in g amo rtizatio n p erio d A s s et v alu atio n method A ctu arial as s u mp tio ns : In v es tmen t rate o f retu rn Pro jected s alary in creas es W ag e g ro wth 7.50% 4% -8% 4% - 44 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 NOTE 10 – INTERFUND BALANCES AND ACTIVITY Interfund payables – Interfund payables for the year ended June 30, 2016, were as follows: Pay ab le to Gen eral Fu n d Pay ab le fro m Co mmu n ity Serv ices Gran ts Fu n d Tian g u is Eco n . Dev . Fu n d To tal Sewer Fu n d To tal $ 1,598 - $ 39,673 $ 1,598 39,673 $ 1,598 $ 39,673 $ 41,271 The purpose of the interfund payables shown above were to temporarily fund the operations of the aforementioned departments/activities. Interfund transfers – Interfund transfers for the year ended June 30, 2016, were as follows: Tran s fer Fro m General Fun d Trans fer To Co mmu nity Serv ices Gran ts Fu n d Deb t Serv ice Fu n d (n onmajo r fu n d ) Total $ 126,144 294,046 $ 420,190 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). - 45 - TOWN OF GUADALUPE, ARIZONA Notes to Financial Statements June 30, 2016 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, 2015 through January 318, 2020. Payments under the current contract for the year ended June 30, 2016, were approximately $259,364. Payments are based on the number of residences in the Town times a monthly rate of $16.07. The monthly rate is adjusted annually on March 1 based on the Consumer Price Index as published by the Bureau of Labor Statistics. The approximate total obligation under the contract for each fiscal year based on the current number of residences in the Town is as follows: Fis cal Year En d in g Ju ne 30 2017 2018 2019 2020 A mo u n t 261,431 261,431 261,431 174,287 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, 2016, the Town paid the County Sheriff $1,475,328 and has agreed to monthly installments of $141,448 for the 2017 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. - 46 - REQUIRED SUPPLEMENTARY INFORMATION TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule General Fund Year Ended June 30, 2016 Bu d g eted A mo u n ts Orig in al Fin al Revenue In terg o v ern men tal Taxes Ch arg es fo r s erv ices Licen s es an d p ermits Fin es an d fo rfeitu res Oth er rev en u e In teres t $ 5,142,084 1,949,252 148,089 28,000 151,000 118,600 200 $ 5,142,084 1,949,252 148,089 28,000 151,000 118,600 200 A ctu al A mo u n ts $ 2,380,070 2,509,809 159,150 126,198 72,707 11,800 4,908 Varian ce with Fin al Bu d g et $ (2,762,014) 560,557 11,061 98,198 (78,293) (106,800) 4,708 7,537,225 7,537,225 5,264,642 (2,272,583) 3,667,919 1,109,936 15,514 131,382 33,783 3,667,919 1,109,936 15,514 131,382 33,783 2,791,576 777,278 14,334 126,063 79,856 876,343 332,658 1,180 5,319 (46,073) 2,550,000 2,550,000 1,520 792,960 (1,520) 1,757,040 7,508,534 7,508,534 4,583,587 2,924,947 28,691 28,691 681,055 652,364 (436,976) (436,976) 3,021 6,682 (420,190) 3,021 6,682 16,786 Total other financing s ources (us es ) (436,976) (436,976) (410,487) 26,489 Net chang es in fund balances (408,285) (408,285) 270,568 678,853 641,226 641,226 641,226 Total revenue Expenditures Cu rren t Pu b lic s afety Gen eral g o v ern men t Pu b lic wo rks an d s treets Cu ltu re an d recreatio n Co mmu n ity d ev elo p men t Deb t Serv ice Prin cip al Cap ital o u tlay Total expenditures Exces s (d eficien cy ) o f rev en u e o v er exp en d itu res Other financing s ources (us es ) Sale o f cap ital as s ets Cap ital leas e ag reemen t Tran s fers Fu n d b alan ces , b eg in n in g o f y ear Fund balances , end of year $ 232,941 $ 232,941 $ 911,794 See accompanying notes to budgetary comparison schedule. - 49 - $ 678,853 TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule Community Development Grants Fund Year Ended June 30, 2016 Bu d g eted A mo u n ts Orig in al Fin al Revenue In terg o v ern men tal Oth er rev en u e $ Total revenue Expenditures Cu rren t Co mmu n ity d ev elo p men t Net chang es in fund balances Fu n d b alan ces , b eg in n in g o f y ear Fund balances , end of year $ 2,631,340 - $ A ctu al A mo u n ts 2,631,340 - $ 19,736 50,226 Varian ce with Fin al Bu d g et $ (2,611,604) 50,226 2,631,340 2,631,340 69,962 (2,561,378) 2,631,340 2,631,340 11,541 2,619,799 - - 58,421 58,421 25,553 25,553 25,553 - 25,553 $ 25,553 $ See accompanying notes to budgetary comparison schedule. - 50 - 83,974 $ 58,421 TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Budgetary Comparison Schedule Community Services Grants Fund Year Ended June 30, 2016 Bu d g eted A mo u n ts Orig in al Fin al Revenue In terg o v ern men tal Oth er rev en u e $ Total revenue Expenditures Cu rren t Health an d welfare Exces s (d eficien cy ) o f rev en u e o v er exp en d itu res Other financing s ources (us es ) Tran s fers Net chang es in fund balances Fu n d b alan ces , b eg in n in g o f y ear Fund balances , end of year $ 523,102 - $ A ctu al A mo u n ts 523,102 - $ 205,152 6,761 Varian ce with Fin al Bu d g et $ (317,950) 6,761 523,102 523,102 211,913 (311,189) 669,378 669,378 338,057 331,321 (146,276) (146,276) (126,144) 20,132 146,276 146,276 126,144 (20,132) - - - - - - - - - $ - $ See accompanying notes to budgetary comparison schedule. - 51 - - $ - TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Notes to Budgetary Comparison Schedules June 30, 2016 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. A.R.S. prohibit expenditures or liabilities in excess of the amounts budgeted. Expenditures may not legally exceed appropriations at the fund 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. - 52 - TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Schedule of the Town’s Proportionate Share of the Net Pension Liability Cost-Sharing Pension Plans June 30, 2016 Arizona State R e tire me nt Syste m Reporting Fis cal Year (Meas urement Date) 2016 (2 0 1 5 ) To wn 's p ro p o rtio n o f th e n et p en s io n liab ility To wn 's p ro p o rtio n ate s h are o f th e n et p en s io n liab ility To wn 's co v ered -emp lo y ee p ay ro ll To wn 's p ro p o rtio n ate s h are o f th e n et p en s io n liab ility as a p ercen tag e o f its co v ered -emp lo y ee p ay ro ll Plan fid u ciary n et pos itio n as a p ercen tag e o f th e to tal p en s io n liab ility 0.006910% $ 1,075,859 $ 733,899 146.59% 2015 (2 0 1 4 ) $ $ 0.006605% 977,331 636,171 153.63% 68.35% See accompanying notes to pension plan schedules. - 53 - 69.49% 2014 throug h 2007 In fo rmatio n n o t av ailab le TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Schedule of Changes in the Town’s Net Pension Liability (Asset) and Related Ratios Agent Pension Plans June 30, 2016 PSPR S Reporting Fis cal Year (Meas urement Date) 2016 (2 0 1 5 ) Total p en s io n liab ility Serv ice co s t In teres t o n th e to tal p en s io n liab ility Ch an g es o f b en efit terms Differen ces b etween exp ected an d actu al exp erien ce in th e meas u remen t o f th e p en s io n liab ility Ch an g es o f as s u mp tio n s o r o th er in p u ts Ben efit p ay men ts , in clu d in g refu n d s o f emp lo y ee co n trib u tio n s Net ch an g e in to tal p en s io n liab ility Total p en s io n liab ility - b eg in n in g Total p en s io n liab ility - en d in g (a) Plan fid u ciary n et p o s itio n Co n trib u tio n s - emp lo y er Co n trib u tio n s - emp lo y ee Net in v es tmen t in co me Ben efit p ay men ts , in clu d in g refu n d s o f emp lo y ee co n trib u tio n s A d min is trativ e exp en s e Oth er ch an g es Net ch an g e in p lan fid u ciary n et p o s itio n Plan fid u ciary n et p o s itio n - b eg in n in g Plan fid u ciary n et p o s itio n - en d in g (b ) Town 's n et p en s io n liab ility (as s et) - en d in g (a) - (b ) $ 50,552 96,007 21,443 (41,101) 106,427 (48,359) 108,147 1,407,245 $ 1,515,392 (47,649) 185,679 1,221,566 $ 1,407,245 $ $ 58,412 30,153 29,544 55,194 27,116 92,104 $ (48,359) (1,107) (527) 68,116 787,592 855,708 $ (47,649) (23,055) 103,710 683,882 787,592 $ 659,684 $ 619,653 56.47% $ Town 's n et p en s io n liab ility (as s et) as a p ercen tag e o f co v ered -emp lo y ee p ay ro ll $ (4,211) - Plan fid u ciary n et p o s itio n as a p ercen tag e o f th e to tal p en s io n liab ility Co v ered -emp lo y ee p ay ro ll 50,177 110,540 - 2015 (2 0 1 4 ) 272,878 241.75% 55.97% $ 261,991 236.52% See accompanying notes to pension plan schedules. - 54 - 2014 throug h 2007 In fo rmatio n n o t av ailab le TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Schedule of Town Pension Contributions June 30, 2016 Arizona State R e tire me nt Sys te m Reporting Fis cal Year 2016 Statu to rily req u ired co n trib u tio n To wn 's co n trib u tio n s in relatio n to th e s tatu to rily req u ired co n trib u tio n To wn 's co n trib u tio n d eficien cy (exces s ) To wn 's co v ered -emp lo y ee p ay ro ll To wn 's co n trib u tio n s as a p ercen tag e o f co v ered emp lo y ee p ay ro ll 2015 2014 $ 79,628 $ 69,279 $ 63,708 $ $ (79,628) 733,899 $ $ (69,279) 636,171 $ $ (63,708) 595,402 10.85% 10.89% 2013 throug h 2007 In fo rmatio n n o t av ailab le 10.70% PSPR S Reporting Fis cal Year 2016 A ctu arially d etermin ed co n trib u tio n To wn 's co n trib u tio n s in relatio n to th e actu arially d etermin ed co n trib u tio n To wn 's co n trib u tio n d eficien cy (exces s ) To wn 's co v ered -emp lo y ee p ay ro ll To wn 's co n trib u tio n s as a p ercen tag e o f co v ered emp lo y ee p ay ro ll 2015 2014 $ 82,014 $ 58,412 $ 55,194 $ $ (82,014) 311,485 $ $ (58,412) 272,878 $ $ (55,194) 261,991 26.33% 21.41% See accompanying notes to pension plan schedules. - 55 - 21.07% 2013 throug h 2007 In fo rmatio n n o t av ailab le TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Notes to Pension Plan Schedules June 30, 2016 NOTE 1 – ACTUARIALLY DETERMINED CONTRIBUTION RATES Actuarial determined contribution rates for PSPRS are calculated as of June 30 two years prior to the end of the fiscal year in which contributions are made. The actuarial methods and assumptions used to establish the contribution requirements are as follows: A ctu arial co s t meth o d A mo rtizatio n meth o d Remain in g amo rtizatio n p erio d as o f the 2014 actu arial v alu atio n A s s et valuatio n meth o d A ctu arial as s u mp tio n s : In ves tment rate o f retu rn Pro jected s alary in creas es W age g ro wth Retiremen t ag e M o rtality En try age n o rmal Level p ercen t clo s ed fo r u n fu n d ed actu arial accru ed liab ility , o pen fo r exces s 22 y ears fo r u n funded actu arial accrued liab ility , 20 y ears fo r exces s 7-y ear s mo o th ed market valu e; 80% /120% market co rrid o r In 2013 actu arial v alu atio n , the in v es tmen t rate o f retu rn was d ecreas ed fro m 8.0% to 7.85% In 2014 actu arial v alu atio n , p ro jected s alary in creas es were decreas ed fro m 4.5% - 8.5% to 4.0% - 8.0% . In 2013 actu arial v alu atio n , p ro jected s alary in creas es were d ecreas ed fro m 5.0% - 9.0% to 4.5% - 8.5% . In 2014 actu arial v alu atio n , wage g ro wth was d ecreas ed fro m 4.5% to 4.0% . In 2013 actu arial v alu atio n , wage g ro wth was d ecreas ed fro m 5.0% to 4.5% Exp erience-bas ed tab le o f rates th at is s p ecific to th e ty pe o f elig ib ility co n d itio n . Las t u p d ated fo r th e 2012 v aluatio n p u rs u an t to an experience s tu d y o f the perio d Ju ly 1, 2006 - June 30, 2011. RP-2000 mo rtality tab le (ad ju s ted b y 105% fo r b o th males an d females ) - 56 - TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Schedule of Agent OPEB Plans’ Funding Progress June 30, 2016 Health Ins urance Premium B enefit - PS PRS A ctu arial Valu e o f Plan A s s ets (a) A ctu arial Valu atio n Date 06/30/16 06/30/15 06/30/14 $ 36,548 32,693 28,702 A ctu arial A ccru ed Liab ility (b ) $ 61,427 55,003 51,313 Fu n d in g Liab ility (Exces s ) (b -a) $ 24,879 22,310 22,611 A n n u al Co v ered Pay ro ll (c) Fu n d ed Ratio (a/b ) 59.5 % 59.4 55.9 $ 311,485 272,878 261,990 See accompanying notes to schedule of agent OPEB plans’ funding progress. - 57 - Un fu n d ed Liab ility as Percen tag e o f Co v ered Pay ro ll ([b -a]/c) 7.99 % 8.18 % 8.63 % TOWN OF GUADALUPE, ARIZONA Required Supplementary Information Notes to Schedule of Agent OPEB Plans’ Funding Progress June 30, 2016 NOTE 1 – FACTORS THAT AFFECT THE IDENTIFICATION OF TRENDS Beginning in fiscal year 2014, PSPRS established separate funds for pension benefits and health insurance premium benefits. Previously, the plan recorded both pension and health insurance premium contributions in the same Pension Fund. During fiscal year 2014, the plan transferred prior-year health insurance premium benefit contributions that exceeded benefit payments from the plan’s Pension Fund to the new Health Insurance Fund. - 58 - 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, in accordance with the 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, the financial statements 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 and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Town of Guadalupe, Arizona’s basic financial statements and have issued our report thereon dated January 31, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Town of Guadalupe, Arizona’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions 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. Accordingly, we do not express an opinion on the effectiveness of the Town of Guadalupe, Arizona’s internal control. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. - 59 - Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town of Guadalupe, Arizona’s financial statements are free from 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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. January 31, 2017 - 60 -