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Audit - 2004/2005 . SALINE COUNTY-CITY BUILDING AUTHORITY Salina, Kansas . FINANCIAL STATEMENTS December 31, 2005 and 2004 . BARTLETT, SETTLE & EDGERLE A PROFESSIONAL ASSOCIATION Certified Public Accountants . . SALINE COUNTY-CITY BUILDING AUTHORITY Salina, Kansas FINANCIAL STATEMENTS For the Years Ended December 31, 2005 and 2004 Table of Contents . Independent Auditor's Report Management's Discussion and Analysis Statements of Net Assets Statements of Revenues, Expenses, and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements Pa2e 1 2-4 5 6 7 8 - 11 . . . BAl{fLETT SETTLE & EffiE~LE A PROFESSIONAL ASSOCIATION CERTIFIED PUBLIC ACCOUNTANTS To the Governing Board Saline County-City Building Authority Salina, Kansas . We have audited the accompanying financial statements of the business-type activities of the Saline County-City Building Authority, Salina, Kansas, as of December 31, 2005 and 2004, and for the years then ended which comprises the Building Authority's basic financial statements as shown in the table of contents. These financial statements are the responsibility of the Saline County-City Building Authority's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the Kansas Municipal Audit Guide. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit, the financial statements referred to above present fairly, in all material respects, the net assets of the Saline County-City Building Authority as of December 31, 2005 and 2004 and the revenues, expenses, changes in net assets and cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express on opinion on it. . ~,So~+-~ A Professional Association Hutchinson, Kansas March 1, 2006 . 129 WEST SECO'lD, Sun A . PO. Box 2889 . Hl'TCHINSON, KS 67504-2889 PHONE: 620.662.3358 . TOll-FREE: 888.414.0123 . FAX: 620.662.3350 . E'.1AIL: bse@cpabse.com . -2- MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the Saline County-City Building Authority (the "Authority"), we offer readers of our financial statements this narrative overview and analysis of the financial activities of the Authority for the fiscal year ended December 31, 2005. Financial IDghlights . The assets of the Authority exceeded its liabilities at the close of the most recent fiscal year by $2,912,015 (net assets). Of this amount, $907,301 (unrestricted net assets) may be used to meet the Authority's ongoing obligations to customers and creditors. . The Authority's total net assets increased by $149,281. . Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Authority's basic financial statements. Since the Authority is engaged only in business-type activities, its basic financial statements are comprised of only two components: 1) enterprise fund financial statements and 2) notes to financial statements. Enterprise fund financial statements - The enterprise fund fmancial statements are designed to provide readers with a broad overview of the Authority's finances, in a manner similar to a private-sector business. The statement of net assets presents information on the Authority's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. The statement of revenues, expenses and changes in fund net assets presents information showing how the Authority's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave). The basic enterprise fund financial statements can be found on pages 5 through 7 of this report. Notes to financial statements - The notes provide additional information that is essential to a full understanding of the data provided in the fmancial statements. The notes to the fmancial statements can be found on pages 8 through 11 of this report. . Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's fmancial position. In the case of the Authority, assets exceeded liabilities by $2,912,015 at the close of the most recent fiscal year. The largest portion of the Authority's net assets (67%) reflects its investment in capital assets, less any related debt used to acquire those assets that is still outstanding. The Authority uses these capital assets to provide facilities, equipment, and services to its tenants; consequently, these assets are not available for future spending. Although the Authority's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. . . -3- Financial Analysis (Continued) Net Assets 2005 2004 2003 Current and other assets $ 965,718 $ 934,335 $ 742,879 Capital assets 2.048.583 1.987.741 2.033.860 Total assets $3.014.301 $2.922.076 $2.776.739 Long-term liabilities outstanding $ $ 43,869 $ 85,711 Other liabilities 102.286 115.473 98.885 Total liabilities $ 102.286 $ 159.342 $ 184.596 Net assets: Invested in capital assets, net of related debt $2,004,714 $1,902,029 $1,908,238 Unrestricted 907.301 860.705 683.905 . Total net assets $2.912.015 $2.762.734 $2.592.143 At the end of the current fiscal year, the Authority is able to report positive balances in both categories of net assets. The same situation held true for the prior fiscal year. Changes in Net Assets 2005 2004 2003 Operating revenues: Charges for facilities, equipment and services $ 823.423 $ 817.793 $ 831.393 Nonoperating revenues: Investment income 22,920 5,070 2,384 Other nonoperating revenue 5.706 8.271 3.862 Total nonoperating revenues 28.626 13.341 6.246 Total revenues 852.049 831.134 837.639 Operating expense: Personnel expense 318,855 306,104 340,727 Depreciation 131,530 127,761 122,900 Operation and maintenance 206,089 184,520 231,262 Other operating 44.170 38.208 35.050 Total operating expense 700.644 656.593 729.939 Nonoperating expense: . Interest and fiscal charges 2.124 3.950 3.295 Total expense 702.768 660.543 733.234 Income (loss) 149,281 170,591 104,405 Net assets - January 1 2.762.734 2.592.143 2.487.738 Net assets - December 31 $2.912.015 $2.762.734 $2.592.143 The Authority's net assets increased by $149,281 during the current fiscal year. Operating revenues increased by $5,630, or 0.69%, and operating expenses decreased by $44,051, or 6.71%. Key elements of these changes are as follows: . Salary expenses and related costs increased by approximately $12,751. . Operation and maintenance expenses increased by approximately $21,569. . Other operating expenses increased by $5,962. . Depreciation of fixed assets increased by $3,769. . i. -4- Capital Asset and Debt Administration Capital assets - The Authority's investment in capital assets as of December 31, 2005, amounts to $2,048,583 (net of accumulated depreciation). This investment in capital assets includes, land and land improvements, building, motor vehicles, furniture and ftxtures, and maintenance equipment. The net increase in the Authority's investment in capital assets for the current ftscal year was $60,842. This increase is a net ftgure resulting from capital assets additions of $192,542, less retirement of assets of $170, and depreciation of $131 ,530. Additional information related to capital assets is located in Note 6 ofthe Notes to Financial Statements. . Land and land improvements Building Offtce furniture, ftxtures and telephone system Maintenance equipment Total Major capital asset events during the current ftscal year included: Roof replacements Ceiling tile replacements Parking lot improvements Equipment additions Window replacements Capital Assets (net of depreciation) 2005 $ 313,732 1,579,023 129,894 25.934 $2.048.583 2004 $ 309,749 1,460,665 161,619 55.708 $1.987.741 $ 160834 11,445 10,454 7,034 2,775 Long-Term Debt - At the end of the current ftscal year, the Authority had an outstanding principal balance of $43,869 on a telephone system lease purchase agreement versus $85,712 last year, a decrease of 49%. The key factor in this decrease was principal payment on outstanding obligations. Requests for Information This ftnancial report is designed to provide a general overview of the Authority's fmances for all those with an interest in the Authority's fmances. Questions concerning any of the information provided in this report or requests for additional fmancial information should be addressed to the Saline County-City Building Authority, 300 West Ash Street, Salina, KS 67401. . . . -5- SALINE COUNTY-CITY BUILDING AUTHORITY Salina, Kansas STATEMENTS OF NET ASSETS December 31, 2005 and 2004 2005 2004 ASSETS Current Assets Cash and cash equivalents $ 965,718 $ 926,635 Receivables (net) 7,700 Total current assets 965,718 934,335 . Noncurrent Assets Capital assets (net of depreciation) 2,048,583 1,987,741 TOTAL ASSETS $ 3,014,301 $ 2,922,076 LIABILITIES Current Liabilities Accounts payable $ 22,573 $ 38,330 Accrued interest payable 2,124 4,150 Accrued vacation and sick leave payable 33,720 31,150 Capital lease payable 43,869 41,843 Total current liabilities 102,286 115,473 Lon2-term liabilities: Capital lease payable 43,869 Total Liabilities 102,286 159,342 NET ASSETS Invested in capital assets net of related debt 2,004,714 1,902,029 Unrestricted 907,301 860,705 . Total Net Assets 2,912,015 2,762,734 TOTAL LIABILITIES AND NET ASSETS $ 3,014,301 $ 2,922,076 . The accompanying notes are an integral part of these financial statements. . -6- SALINE COUNTY-CITY BUILDING AUTHORITY Salina, Kansas STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Years Ended December 31, 2005 and 2004 2005 2004 OPERATING REVENUES Charges for facilities, services and equipment Saline County $ 503,158 $ 499,668 City of Salina 312,565 310,425 I. Salina Public Library 7,700 7,700 Total operating revenues 823,423 817,793 OPERATING EXPENSES Personnel costs 318,855 306,104 Maintenance and repairs 82,410 63,097 Supplies and small tools 17,767 19,580 Depreciation 131,530 127,761 Insurance 32,072 30,162 Utilities 105,912 101,843 Contracted services 7,520 5,056 Miscellaneous expenses 4,578 2,990 Total operating expenses 700,644 656,593 Net Operating Income 122,779 161,200 NONOPERATING REVENUE AND EXPENSE Interest income 22,920 5,070 Interest expense (2,124) (3,950) Vending income (net) 3,382 3,169 Miscellaneous revenue 2,324 5,102 . Total nonoperating revenue and expense 26,502 9,391 Change in Net Assets 149,281 170,591 Net Assets at Beginning of Year 2,762,734 2,592,143 Net Assets at End of Year $ 2,912,015 $ 2,762,734 . The accompanying notes are an integral part of these financial statements. . -7- SALINE COUNTY-CITY BUILDING AUTHORITY Salina, Kansas STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2005 and 2004 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received for facility and equipment use $ 831,123 $ 810,093 Cash paid to suppliers (266,449) (209,588) Cash paid to employees (316,285) (302,456) Net cash provided by operating activities 248,389 298,049 . CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase of capital assets (192,110) (78,147) Principal paid on capital debt (41,843) (39,910) Interest paid on capital debt (4,150) (6,082) Proceeds from sale of assets 200 Other receipts 5,677 4,776 Net cash used for capital and related financing activities (232,226) (119,363) CASH FLOWS FROM INVESTING ACTIVITIES: Interest received 22,920 5,070 Net cash provided by investing activities 22,920 5,070 Net increase (decrease) in cash and cash equivalents 39,083 183,756 Cash and cash equivalents at beginning of year 926,635 742,879 Cash and cash equivalents at end of year $ 965,718 $ 926,635 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: . Operating income $ 122,779 $ 161,200 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 131,530 127,761 Changes in assets and liabilities: Receivables 7,700 (7,700) Accounts payable (16,190) 13,140 Accrued expenses 2,570 3,648 Net cash provided by operating activities $ 248,389 $ 298,049 . The accompanying notes are an integral part of these financial statements. . Note 1 - . . . -8- SALINE COUNTY-CITY BUILDING AUTHORITY Salina, Kansas NOTES TO FINANCIAL STATEMENTS December 31,2005 and 2004 Orl!anization and Summarv of Sil!Dificant Accountinl! Policies A. Reporting Entity - The Saline County-City Building Authority (the "Authority") was formed March 22, 1965, under the Interlocal Cooperation Act of Kansas (KSA 12-2901 to 12-2907). The organizing agreement was restated January 16, 1996. The Authority is a joint venture organized by three participating municipalities for the purpose of acquiring facilities to house and accommodate the offices of Saline County, the City of Salina, and the county and city courts, and such other offices as may be expedient, and to equip, operate, and maintain the facility so acquired. The governing board of the Authority is composed of seven members, six of whom are appointed from the governing boards of the participating municipalities, and one of who is selected at large by the six appointed members. The makeup of the appointed members is three from Saline County, two from the City of Salina, and one from the District Court. B. Measurement Focus and Basis of Accounting - The Authority consists solely of an enterprise fund. Enterprise funds are classified as proprietary funds by the Governmental Accounting Standards Board (GASB) and are accounted for using a total economic resource measurement focus. The enterprise fund is used to account for operations that are fmanced and operated in a manner similar to private business enterprises. The intent of the Board is that the cost of providing services on a continuing basis be recovered through user fees and rents. The Authority's fmancial statements are prepared using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. As permitted by generally accepted accounting principles, the Authority has elected not to apply Financial Accounting Standards Board pronouncements issued after November 30, 1989. The Authority distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from the providing of services and the related upkeep and maintenance of building, grounds and equipment owned by the Authority. The principal operating revenues of the Authority are rents and assessments charged to the entities occupying the Authority's facilities and for the use of equipment owned by the Authority. Operating expenses include those costs necessary for upkeep and maintenance and related administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this defmition are reported as nonoperating revenues and expenses. C. Cash and Cash Equivalents - The Authority's cash and cash equivalents are consider to consist of cash on hand, demand deposits, and all highly liquid investments (including restricted assets) with maturities of three months or less when purchased. D. Capital Assets - Additions to property and equipment are recorded at cost. Maintenance and repairs are expensed as incurred. When properties are disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss on disposition is credited or charged to operations. Assets are depreciated using the straight-line method over the estimated useful lives of the assets as follows: Years Buildings and Improvements 5-50 Equipment 5-25 E. Inventory - The Building Authority maintains no significant inventory of office and maintenance supplies. These items are expensed as purchased and no inventory is recorded in these financial statements. F. Taxes - The Building Authority is exempt from payment offederal and state income, property and certain other taxes. . -9- SALINE COUNTY-CITY BUILDING AUTHORITY NOTES TO FINANCIAL STATEMENTS - continued December 31, 2005 and 2004 Note 1 - . Note 2 - Note 3 - . . Ore:anization and Summary of Sie:nificant Accountine: Policies - continued G. Budget Law Compliance - The Saline County-City Building Authority does not have tax levying powers and is not required to publish a budget. A budget is adopted annually by the Governing Board for the purpose of determining appropriations required from participating municipalities to cover net operating and maintenance costs of the building. These appropriations are borne by the participating municipalities. H. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets, liabilities, revenues, and expenses. Accordingly, actual results could differ from those estimates. I. Compensated Absences - The Authority compensates employees for the following types of absences at their current rate of pay. A. VACATION - Full-time employees earn from 12 to 21 days of vacation pay per year based on the nwnber of years of continupus service. Vacation pay may accumulate to a maxinnun of 24 days depending upon the employees' nwnber of years of continuous service. Upon tennination, an employee is entitled to a lump sum payment for all accumulated vacation earned. B. SICK LEA VE - Full-time employees earn one day of sick leave for each month of full-time service to be used for illness or death in the family. Accumulation is unlimited. Upon termination due to retirement, an employee is entitled to a lump sum payment for one-half of all accumulated sick leave not to exceed 90 days. Upon termination for any other reason except dismissal for cause, an employee with at least five continuous years of service is entitled to a lump sum payment for one-half of all accumulated sick leave, not to exceed 30 days. C. PERSONAL LEA VE - One day of personal leave is granted to each full-time employee annually. There is no accumulation of personal leave beyond the year it is allowed J. Net Assets - Net assets are the difference between assets and liabilities. Net assets invested in capital assets represents capital assets, less accumulated depreciation less any outstanding debt related to the acquisition, construction or improvement of those assets. Stewardship. Compliance. and Accountability Cash-Basis Law (KSA 10-1113) - The Authority was in compliance with this law at all times during the year. Depository Security (KSA 9-1402) - The Authority's funds were adequately secured at all times during the year. Deposits and Investments As of December 31, 2005 and 2004, the Authority had cash and cash equivalents as listed below: Deposits in fmancial banking institutions $966.426 $935.054 The Authority did not have any activity in investment-type assets. The Authority's policies relating to deposits and investments are governed by various Kansas Statutes (KSA). Those statutes specify the type of deposits and investments as well as the securing of those deposits and investments. Interest rate risk - In accordance with Kansas Statute 12-1675, the Authority manages its exposure to interest rate fluctuations by limiting all time investments to maturities ofless than two years. Credit risk - State law limits the amount of credit risk by restricting governments to specific investment types as listed in KSA 12-1675. The Authority's policy is to place idle funds in certificates of deposit, United States obligations, and the Kansas Municipal Investment Pool (KMIP). The KMIP was rated AAAflS1+ by Standard & Poor's as of March 15, 2004. The KMIP is permitted to invest in fully collateralized certificates of deposit, certain obligations of the United States, certain repurchase/reverse repurchase agreements, and other types of investments. Maturity information released by the KMIP at September 30, 2005 showed that the investment pool consisted of investment with a maturity date of 365 days or less. . -10- SALINE COUNTY-CITY BUILDING AUTHORITY NOTES TO FINANCIAL STATEMENTS - continued December 31, 2005 and 2004 I- I Note 3 - Deposits and Investments - continued Custodial credit risk - The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. Kansas Statutes 9-1402 and 9-1405 require that governments obtain security for all deposits. The Authority manages its custodial credit risk by requiring the fInancial institutions to grant a security interest in securities held by third-party custodial banks. Monies in the Kansas Municipal Investment Pool are not required to have pledged securities. Concentration of credit risk - This is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The Authority manages this risk by placing funds with fmancial institutions only after contacting all eligible institutions in the taxing area and monies in the Kansas Municipal Investment Pool are diverse according to the policies of the investment pool. Note 4 - Defined Benefit Pension Plan The non-school municipality participates in the Kansas Public Employees Retirement System (KPERS), a cost-sharing nmltiple-employer defmed benefIt pension plan as provided by KSA 74-4901, et seq. KPERS provides retirement benefIts, life insurance, disability income benefIts, and death benefIts. Kansas law establishes and amends benefIt provisions. KPERS issues publicly available fInancial statements and required supplementary information. That report may be obtained by writing to KPERS (400 SW 8th Avenue, Suite 200, Topeka, KS 66603-3925) or by calling 1-800-228-0366. KSA 74-4919 establishes the KPERS member-employee contribution rate at 4% of covered salary. The employer collects and remits member-employee contributions according to the provisions of section 414(h) of the Internal Revenue Code. State law provides that the employer contnbution rate be determined annually based on the results of an annual actuarial valuation. KPERS is funded on an actuarial reserve basis. State law sets a limitation on annual increases in the contnbution rates for KPERS employers. The employer rate established by statute for calendar year 2005 is 2.93%. The non-school municipality employer contnbutions to KPERS for the years ending December 31,2005 and 2004 were $8,876 and $7,743, respectively, equal to the statutory required contributions for each year. Note 5 - Lonl!- Term Debt The following summarizes the lease obligations included in the long-term debt: - Debt Issue Date Issued Maturitv Date 0ri1rina1 Amount Interest Rate Telephone Lease Purchase Agreement 2/7/01 2/7/06 $200.000 4.84% The lease purchase agreements were entered into for the purpose of fInancing a contract for the telephone system Annual debt service requirements to maturity for the equipment lease purchase agreement follow: Year 2006 Principal Due Interest Due Total Due $~ $Ul4 ~ I I. I . SALINE COUNTY-CITY BUILDING AUTHORITY NOTES TO FINANCIAL STATEMENTS - continued December 31, 2005 and 2004 -11- Note 6 - Capital Assets The following sunnnarizes the changes in capital assets for the year ended December 31, 2005: Belrinninl!: Ending Balance Additions Dispositions Balance $ 223,873 128,580 3,263,308 475.484 4,091,245 (2.042.662) $ 2.048.583 Land $ 223,873 $ $ Parking Lot 118,126 10,454 Building and Improvements 3,088,254 175,054 Equipment 475.674 7.034 (7.224) Total 3,905,927 192,542 (7,224) . Accumulated Depreciation 0.918.186) (131.530) 7.054 Net Investment in Capital Assets $ 1.987.741 $ 61.012 $~ Note 7 - Risk Manae:ement The Authority is exposed to various levels of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. There bas been no significant reduction in the Authority's insurance coverage from the previous year. In addition, there have been not settlements in excess of the Authority's coverage in any of the prior three years. . .