HomeMy WebLinkAbout2012 Financial Statemetns & federal Single Audit ReportWashington State Auditor’s Office
Financial Statements and Federal Single Audit Report
City of Port Townsend
Jefferson County
Audit Period
January 1, 2012 through December 31, 2012
Report No. 1010618
Issued September 30, 2013
Reissued September 30, 2013
September 30, 2013
Mayor and City Council
City of Port Townsend Port Townsend, Washington
Report on Financial Statements and Federal Single Audit
Please find attached our report on the City of Port Townsend’s financial statements and
compliance with federal laws and regulations.
We are issuing this report in order to provide information on the City’s financial condition. Sincerely,
TROY KELLEY
STATE AUDITOR
Washington State Auditor
Troy Kelley
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388
Table of Contents
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
Federal Summary ...................................................................................................................... 1
Schedule of Federal Audit Findings and Questioned Costs ........................................................ 3
Schedule of Audit Findings and Responses ............................................................................... 6
Status of Prior Audit Findings ....................................................................................................10
Independent Auditor’s 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 ....................................................................11
Independent Auditor’s Report on Compliance For Each Major Federal Program and on
Internal Control Over Compliance in Accordance with OMB Circular A-133 ..............................13
Independent Auditor’s Report on Financial Statements .............................................................16
Financial Section .......................................................................................................................19
Federal Summary
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
The results of our audit of the City of Port Townsend are summarized below in accordance with
U.S. Office of Management and Budget Circular A-133.
FINANCIAL STATEMENTS
An unmodified opinion was issued on the financial statements.
Internal Control Over Financial Reporting:
• Significant Deficiencies: We identified deficiencies in the design or operation of
internal control over financial reporting that we consider to be significant deficiencies.
• Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses.
We noted no instances of noncompliance that were material to the financial statements of the City.
FEDERAL AWARDS
Internal Control Over Major Programs:
• Significant Deficiencies: We identified deficiencies in the design or operation of
internal control over major federal programs that we consider to be significant deficiencies.
• Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses.
We issued an unmodified opinion on the City’s compliance with requirements applicable to each of its major federal programs.
We reported findings that are required to be disclosed under section 510(a) of OMB
Circular A-133.
_________________________________________________________________________________________________________
Washington State Auditor's Office 1
Identification of Major Programs:
The following were major programs during the period under audit:
CFDA No. Program Title
97.047 Pre-Disaster Mitigation Grant
97.039 Hazard Mitigation Grant Program
The dollar threshold used to distinguish between Type A and Type B programs, as prescribed
by OMB Circular A-133, was $300,000.
The City did not qualify as a low-risk auditee under OMB Circular A-133.
_________________________________________________________________________________________________________
Washington State Auditor's Office 2
Schedule of Federal Audit Findings and
Questioned Costs
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
1. The City lacked the internal controls to ensure compliance with Hazard Mitigation program period of availability requirements. CFDA Number and Title: 97.039 – Hazard Mitigation Grant
Federal Grantor Name: U.S. Department of Homeland Security
Federal Award/Contract Number: NA
Pass-through Entity Name: Military Department
Pass-through Award/Contract Number: E10-132
Questioned Cost Amount: $37,354
Background
The City of Port Townsend received approximately $2,517,364 in federal grant funds in 2012, and the City spent $1,568,176 of that money on the Hazard Mitigation Grant
program. The program objective is to implement mitigation planning and hazard mitigation measures that are cost effective and which substantially reduce the risk of
future damage, hardship, loss or suffering in any area affected by a major disaster. Description of Condition
Title 2 of the Code of Federal Regulations only allows recipients to charge to a grant
allowable costs resulting from obligations incurred during the funding period and any pre-award costs authorized by the Federal awarding agency. In addition, unless the
Federal awarding agency authorizes an extension, a recipient shall liquidate all
obligations incurred under the award not later than 90 calendar days after the funding period or the date of completion as specified in the terms and conditions of the award.
The City’s staff was unaware of the compliance requirements relating to the period of availability.
Cause of Condition
The City did not dedicate the necessary time and resources to put in place internal
processes, such as monitoring and oversight, to ensure that expenditures charged to the grant were obligated and paid in accordance with grant requirements.
_________________________________________________________________________________________________________
Washington State Auditor's Office 3
Effect of Condition and Questioned Costs
• The City charged $705 to the grant for obligations that occurred after the funding period.
• The City did not pay $36,649 of obligations incurred under the award within 90 calendar days after the funding period.
Recommendation
We recommend the City:
• Provide training to ensure program staff understands federal compliance
requirements relating to the grant period of availability.
• The City implements internal controls, such as monitoring or oversight, to ensure
only obligations incurred during the funding period are charged to the grant and
obligations are liquidated within 90 calendar days after the funding period.
City’s Response
From Substantial Completion to Physical Completion the City was in contact with EMD
regarding closeout procedures. EMD informed City staff of the 90-day closeout window
for all reimbursable grant/closeout related work. City staff remained in communication with EMD/FEMA staff regarding the fact that the final reimbursement request would be
outside of the 90-day window. There was no indication from EMD/FEMA that a formal
grant extension was needed and EMD/FEMA processed the last reimbursement/closeout reimbursement request with the knowledge that it was outside
the 90-day window.
The City could not ask for final reimbursement until the City received a Certification of
Release from Labor and Industries, which was granted on February 27, 2013. On
February 28, 2013 the City cut a retainage check to the Contractor and the Final Reimbursement/Closeout paperwork was sent to EMD on April 18, 2013.
The City has reviewed its internal controls relating to this grant finding and noted
corrective action to prevent any future errors.
Regardless of the situation with the grant agency the City will seek in all cases an
extension if any grant related matters may cause the city to go beyond the 90 day period
of availability with the grant deadline.
While we believe we did everything we could to comply with these requirements, as
recommended we will use this finding as a staff training tool and implement additional monitoring procedures to make sure that this condition is avoided for future grants.
Auditor’s Remarks
We appreciate the City’s commitment to resolving this issue. We will review this during
our next scheduled audit.
_________________________________________________________________________________________________________
Washington State Auditor's Office 4
Applicable Laws and Regulations
U.S. Office of Management and Budget Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations, Section 300 Auditee responsibilities, states in part:
The auditee shall:
(b) Maintain internal control over Federal programs that provides
reasonable assurance that the auditee is managing Federal awards in compliance with laws, regulations, and the provisions of contracts or grant
agreements that could have a material effect on each of its Federal programs.
Title 2, Code of Federal Regulation, Part 215, Section 215.25, states: Where a funding period is specified, a recipient may charge to the grant
only allowable costs resulting from obligations incurred during the funding period and any pre-award costs authorized by the Federal awarding
agency.
Title 2, Code of Federal Regulation, Part 215, Section 215.71 (b), states:
Unless the Federal awarding agency authorizes an extension, a recipient shall liquidate all obligations incurred under the award not later than 90
calendar days after the funding period or the date of completion as
specified in the terms and conditions of the award or in agency implementing instructions.
_________________________________________________________________________________________________________
Washington State Auditor's Office 5
Schedule of Audit Findings and Responses
City of Port Townsend Jefferson County
January 1, 2012 through December 31, 2012
2. The City should improve its internal controls over federal grant reporting to
ensure complete audit coverage of its federal grants.
Background
It is the responsibility of City management to design and follow internal controls and
processes that provide reasonable assurance regarding the reliability of financial reporting. Our audit identified significant deficiencies in controls that adversely affect the
City’s ability to produce reliable financial statements and reports.
U.S. Office of Management and Budget Circular A-133 requires grantees that spend
$500,000 or more each year in federal money in a year to submit a completed Schedule
of Expenditures of Federal Awards (SEFA) and to have a single audit conducted and audit report issued within nine months of fiscal year-end.
The City spent $2,607,468 in federal grant funds in 2012.
Description of Condition
City personnel responsible for preparation and review of the SEFA did not have an
accurate understanding of the OMB Circular A-133 and State Auditor’s Budgeting,
Accounting and Reporting System (BARS) Manual reporting requirements. The City lacks good communication with staff responsible for the SEFA preparation
regarding federal awards and amendments. The City had obtained a grant amendment dated January 12, 2012 that allowed additional pre-award costs from 2010 and 2011.
This was not communicated to staff responsible for preparing the 2012 SEFA.
Cause of Condition
The City has not designed internal controls, such as providing training for staff, adequate oversight and sufficient communication of changes to grant awards, to ensure accurate,
complete and timely financial reporting.
Effect of Condition
Our current federal audit determined the City’s SEFA contained the following errors:
• The City reported $101,854 in federal expenditures for the Hazard Mitigation Grant (CFDA 97.039) which belonged in 2011.
_________________________________________________________________________________________________________
Washington State Auditor's Office 6
• The City reported $39,386 in federal expenditures for the Hazard Mitigation Grant
(CFDA 97.39) which belonged in 2013.
• The City reported $287,076 in federal expenditures for the Pre-Disaster
Mitigation Grant (CFDA 97.047) which belonged in 2011.
• The City reported $35,885 in federal expenditure for the Pre-Disaster Mitigation
Grant (CFDA 97.047) which belonged in 2013.
• The City did not report $45,052 in federal expenditures for the Pre-Disaster Mitigation Grant (CFDA 97.047) which was reported in 2011.
Inaccurate financial reports limit access to financial information used by City officials, the
public, state and federal agencies and other interested parties.
Should future omissions or other errors be made and not identified in a timely manner,
the City could miss its federal reporting deadline, jeopardize future federal funding and
report its financial information inaccurately to citizens and other governments. Timely, accurate reporting is an important accountability measure.
Recommendation We recommend the City design internal controls for employees responsible for federal
grant reporting to receive training on the SEFA reporting requirements to ensure complete audit coverage of its grant requirements.
We recommend the City design internal controls for management to adequately communicate grant awards and grant amendments to the appropriate staff to ensure
SEFA reporting in the proper period.
City’s Response
In prior years, federal and state grant expenditures were reported by City staff as the date when the expenditure reimbursement requests were submitted to the granting
agency. This was done to ensure the correct dollar amount was reported and balanced
to the General Ledger. This report was prepared by the Administrative Specialist and reviewed and submitted by Finance.
City staff now understands that these are to be reported on the basis of when the expenditure occurs, rather than when the reimbursement request is submitted.
Therefore, a new internal procedure is being implemented to correctly report the grant
expenditures on the SEFA report in the future. There will be a three stage internal process. The Administrative Specialist will prepare the report after a year end meeting
with the Project Managers to review and confirm the grant eligible project expenses for
the year. The report will be reviewed by the Deputy Finance Director and final approval will be by the Finance Director.
The new procedures for completing the SEFA report are as follows:
• All grant related expenditures will be reported in the year they are expended. Only the project costs which the grant will allow are to be reported. As is
currently the case, if the grant pays only a percentage of the cost and has a
_________________________________________________________________________________________________________
Washington State Auditor's Office 7
match of other funds, only the expenses reimbursed by the grant are to be reported. The retainage is to be reported in the year it is sent to the vendor.
• The Administrative Specialist will prepare a first draft. Then the Project
Managers will meet with the Administrative Specialist to review the project
expenses and clearly define eligible reimbursements and their associated percentages. The eligible associated percentage will be the amount reported on
the SEFA report.
• The eligible reimbursements will be verified against the A-19 reimbursement log
since projects can be multi-year. Eligibility dates will be checked along with eligible reimbursement expenditures.
• For grants that have been awarded after the project has started and the grant
requirements allow for prior year expenses, then the expenses can be reported in
the year the grant was awarded. The grant eligibility statement with all the backup paperwork will be included in the transmittal to Finance.
• The SEFA report will be reviewed by the Deputy Finance Director and approved
by the Finance Director before final submission to the state.
Auditor’s Remarks
We appreciate the City’s commitment to resolving this issue. We will review this during our next scheduled audit.
Applicable Laws and Regulations
State law (RCW 43.09.200) states:
The state auditor shall formulate, prescribe, and install a system of accounting and reporting for all local governments, which shall be uniform
for every public institution, and every public office, and every public
account of the same class.
The system shall exhibit true accounts and detailed statements of funds
collected, received, and expended for account of the public for any
purpose whatever, and by all public officers, employees, or other persons.
The accounts shall show the receipt, use, and disposition of all public
property, and the income, if any, derived therefore; all sources of public income, and the amounts due and received from each source; all receipts, vouchers, and other documents kept, or required to be kept,
necessary to isolate and prove the validity of every transaction; all statements and reports made or required to be made, for the internal administration of the office to which they pertain; and all reports published
or required to be published, for the information of the people regarding any and all details of the financial administration of public affairs.
_________________________________________________________________________________________________________
Washington State Auditor's Office 8
Budgeting, Accounting and Reporting System (BARS) Manual, Part 3, Accounting, Chapter 1, Accounting Principles and General Procedures, Section B, Internal Control,
states in part:
Internal control is a management process for keeping an entity on course in achieving its business objectives, as adopted by the governing body.
This management control system should ensure that resources are guarded against waste, loss and misuse; that reliable data is obtained, maintained, and fairly disclosed in financial statement and other reports;
and resource use is consistent with laws, regulations and policies.
Each entity is responsible for establishing and maintaining an effective
system of internal control throughout their government.
Government Auditing Standards, July 2007 Revision – Section 5.11 states that auditors should report material weaknesses and significant
deficiencies in internal control.
The American Institute of Certified Public Accountants’ Statement on Auditing Standards
No. 115 defines significant deficiencies and material weaknesses as follows:
a. Significant deficiency: 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.
b. Material weakness: A material weakness is a deficiency, or 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.
U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non Profit Organizations, states in part:
§___.310 Financial statements.
(b) Schedule of expenditures of federal awards. The auditee shall also prepare a schedule of expenditures of federal awards for the period covered by the auditee's financial statements.
_________________________________________________________________________________________________________
Washington State Auditor's Office 9
Status of Prior Audit Findings
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
The status of findings contained in the prior years’ audit reports of the City of Port Townsend is
provided below:
1. The City’s financial condition did not improve putting it as risk of not meeting financial obligations at current service levels.
Report No. 1008469, dated September 28, 2012
Background
During the 2010 and 2011 financial statement audits, we found the City’s General Fund expenditures exceeded revenues in two of the prior five years, attributing to a decline in
the change in cash position. This continued in 2012, although the ending cash balance increased significantly by year end 2012. Much of this increase was due to one-time savings by the City. In addition, the City’s utility funds, as proprietary funds, should be
self-sufficient and they have shown deficits for the last four years.
Status
During the 2012 audit, we noted the City’s General Fund ending cash balance increased significantly; however, the change in cash position for all governmental funds continued
to decrease. City debt obligations increased only slightly due to a refunding of bonds; however, a bond levy to support the ongoing Library project was rejected by voters in
2013.
There was some improvement in the City’s overall financial condition during 2012, so we
have not re-issued the finding; however, we will continue to monitor the City’s financial
condition during our next audit.
_________________________________________________________________________________________________________
Washington State Auditor's Office 10
Independent Auditor’s 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
City of Port Townsend Jefferson County January 1, 2012 through December 31, 2012
Mayor and City Council
City of Port Townsend Port Townsend, Washington
We have audited, 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, the financial statements of the City of Port Townsend, Jefferson County, Washington, as of and for the year ended
December 31, 2012, and the related notes to the financial statements, which collectively comprise the City’s financial statements, and have issued our report thereon dated September 16, 2013.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit of the financial statements, we considered the City’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 opinion on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s
internal control. Accordingly, we do not express an opinion on the effectiveness of the City’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 City'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
_________________________________________________________________________________________________________
Washington State Auditor's Office 11
material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our
audit we did not identify any deficiencies in internal control that we consider to be material
weaknesses. We did identify certain deficiencies in internal control, described in the accompanying Schedule of Audit Findings and Responses as Finding 2 that we consider to be
significant deficiencies. COMPLIANCE AND OTHER MATTERS
As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of the City’s 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.
CITY’S REPONSE TO FINDINGS
The City’s response to the findings identified in our audit is described in the accompanying Schedule of Audit Findings and Responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express
no opinion on the response. 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 City’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 City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However,
this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations.
TROY KELLEY
STATE AUDITOR
September 16, 2013
_________________________________________________________________________________________________________
Washington State Auditor's Office 12
Independent Auditor’s Report on Compliance
For Each Major Federal Program and on
Internal Control Over Compliance in
Accordance with OMB Circular A-133
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
Mayor and City Council
City of Port Townsend Port Townsend, Washington
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM
We have audited the compliance of the City of Port Townsend, Jefferson County, Washington,
with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material
effect on each of its major federal programs for the year ended December 31, 2012. The City’s
major federal programs are identified in the accompanying Federal Summary.
Management’s Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal
programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain
reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program
occurred. An audit includes examining, on a test basis, evidence about the City’s compliance
with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination on the City’s
compliance.
_________________________________________________________________________________________________________
Washington State Auditor's Office 13
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on each of its major
federal programs for the year ended December 31, 2012.
Other Matters
The results of our auditing procedures disclosed an instance of noncompliance with those
requirements which is required to be reported in accordance with OMB Circular A-133 and
which is described in the accompanying Schedule of Federal Audit Findings and Questioned Costs as Finding 1. Our opinion on each major federal program is not modified with respect to
these matters.
City’s Response to Findings
The City's response to the noncompliance findings identified in our audit is described in the
accompanying Schedule of Federal Audit Findings and Questioned Costs. The City's response was not subjected to the auditing procedures applied in the audit of compliance and,
accordingly, we express no opinion on the response. REPORT ON INTERNAL CONTROL OVER COMPLIANCE
Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and
performing our audit of compliance, we considered the City’s internal control over compliance
with the types of requirements that could have a direct and material effect on each major federal program in order to determine the auditing procedures that are appropriate in the circumstances
for the purpose of expressing an opinion on compliance for each major federal program and to
test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over
compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over
compliance, such that there is a reasonable possibility that material noncompliance with a type
of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a
deficiency, or a combination of deficiencies, in internal control over compliance with a type of
compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with
governance.
Our consideration of internal control over compliance was for the limited purpose described in
the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We
did not identify any deficiencies in internal control over compliance that we consider to be
_________________________________________________________________________________________________________
Washington State Auditor's Office 14
material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying Schedule of Federal Audit Findings and
Questioned Costs as Finding 1 that we consider to be significant deficiencies.
City’s Response to Findings
The City's response to the internal control over compliance findings identified in our audit is described in the accompanying Schedule of Federal Audit Findings and Questioned Costs. The City's response was not subjected to the auditing procedures applied in the audit of compliance
and, accordingly, we express no opinion on the response.
PURPOSE OF THIS REPORT
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the
requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other
purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess
government operations.
TROY KELLEY STATE AUDITOR
September 16, 2013
_________________________________________________________________________________________________________
Washington State Auditor's Office 15
Independent Auditor’s Report on Financial
Statements
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
Mayor and City Council
City of Port Townsend
Port Townsend, Washington REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of the City of Port Townsend,
Jefferson County, Washington, for the year ended December 31, 2012, and the related notes to
the financial statements, which collectively comprise the City’s financial statements, as listed on page 19.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with the basis of accounting that demonstrates compliance with Washington State statutes and the Budgeting, Accounting and Reporting System (BARS) manual prescribed by the State Auditor described in Note 1. This includes determining that the
basis of accounting is acceptable for the presentation of the financial statements in the circumstances. Management is also responsible for 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 an opinion 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 City’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 City’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the
_________________________________________________________________________________________________________
Washington State Auditor's Office 16
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion. Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position and results of operations of the City of Port Townsend, for the year ended December 31, 2012, on the basis of accounting described in Note 1.
Basis of Accounting
We draw attention to Note 1 of the financial statements, which describes the basis of
accounting. As described in Note 1 to the financial statements, the financial statements are prepared in accordance with the basis of accounting that demonstrates compliance with
Washington State statutes and the Budgeting, Accounting and Reporting System (BARS)
manual prescribed by the State Auditor, which is a basis of accounting other than accounting principles generally accepted in the United State of America. Our opinion is not modified with
respect to this matter.
Other Matters
Supplementary and Other Information
Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for
purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The accompanying Schedule of Liabilities is also presented for purposes of additional analysis as required by the
prescribed BARS manual. These schedules are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly
to the underlying accounting and other records used to prepare the financial statements. The
information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our
opinion, the information is fairly stated, in all material respects, in relation to the financial
statements taken as a whole.
Purpose of this Report
The report is intended for the information and use of the management, the Mayor and City Council, federal awarding agencies and pass-through entities of the City. However, this report
is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated
September 16, 2013 on our consideration of the City’s internal control over financial reporting
_________________________________________________________________________________________________________
Washington State Auditor's Office 17
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 City’s internal control over financial reporting and compliance.
TROY KELLEY STATE AUDITOR
September 16, 2013
_________________________________________________________________________________________________________
Washington State Auditor's Office 18
Financial Section
City of Port Townsend
Jefferson County
January 1, 2012 through December 31, 2012
FINANCIAL STATEMENTS
Fund Resources and Uses Arising from Cash Transactions – 2012 Fiduciary Fund Resources and Uses Arising from Cash Transactions – 2012
Notes to Financial Statements – 2012 SUPPLEMENTARY AND OTHER INFORMATION Schedule of Liabilities – 2012
Schedule of Expenditures of Federal Awards and Notes – 2012
_________________________________________________________________________________________________________
Washington State Auditor's Office 19
BARS Code
Beginning Cash and Investments
30810 Beg Fund Bal-Reserved
30880 Beg Fund Bal-Unreserved
38880/58880 Prior Period Adjustments, net
Operating Revenues
310 Taxes
320 Licenses & Permits
330 Intergovernmental Revenues
340 Charges for Goods and
Services
350 Fines & Penalties
360 Miscellaneous Revenues
Total Operating Revenues:
Operating Expenditures
510 General Government
520 Public Safety
530 Utilities And Environment
540 Transportation
550 Economic Environment
560 Mental & Physical Health
570 Culture And Recreation
598 Intergovernmental Payments
Total Operating Expenditures:
Net Operating Increase (Decrease):
Nonoperating Revenues
370, 380, 395, 398 Other Financing Sources
391-393 Debt Proceeds
397 Transfers-In
Total Nonoperating Revenues:
Nonoperating Expenditures
580, 596, 599 Other Financing Uses
591-593 Debt Service
594-595 Capital Expenditures
597 Transfers-Out
Total Nonoperating Expenditures:
Increase (Decrease) in Cash and Investments
Ending Cash and Investments
50810 End Fund Bal-Reserved
50880 End Fund Balance-Unreserved
Total for All funds*010 General Fund
101 Drug
Enforcement &
Education
102 Contingency
Fund
3,205,960 0 0 0
6,035,949 32,269 26,542 67,379
0 -14,400 0 0
9,738,038 4,825,898 0 21,169
222,754 221,854 0 0
3,665,528 331,488 0 0
6,907,237 1,312,840 0 0
92,888 83,922 0 0
975,345 15,991 27 124
21,601,790 6,791,993 27 21,293
2,668,924 1,642,101 0 0
5,005,886 2,830,565 0 0
4,608,558 0 0 0
903,332 0 0 0
861,223 599,298 0 0
0 0 0 0
2,141,799 16,413 0 0
0 0 0 0
16,189,722 5,088,377 0 0
5,412,068 1,703,616 27 21,293
426,533 100,000 0 0
467,505 0 0 0
1,933,098 26,288 0 0
2,827,136 126,288 0 0
181,709 75,687 0 0
1,382,141 4,500 0 0
6,323,580 2,549 0 0
1,933,098 1,319,326 26,288 0
9,820,528 1,402,062 26,288 0
-1,581,324 427,842 -26,261 21,293
3,021,466 0 0 0
4,649,204 445,703 281 88,672
For the Year Ended December 31, 2012
FUND RESOURCES AND USES ARISING FROM CASH TRANSACTIONS
STATEMENT C-4Port Townsend, City ofMCAG NO.0364
The accompanying notes are an integral part of this Statement.
_________________________________________________________________________________________________________
Washington State Auditor's Office 20
BARS Code
Beginning Cash and Investments
30810 Beg Fund Bal-Reserved
30880 Beg Fund Bal-Unreserved
38880/58880 Prior Period Adjustments, net
Operating Revenues
310 Taxes
320 Licenses & Permits
330 Intergovernmental Revenues
340 Charges for Goods and
Services
350 Fines & Penalties
360 Miscellaneous Revenues
Total Operating Revenues:
Operating Expenditures
510 General Government
520 Public Safety
530 Utilities And Environment
540 Transportation
550 Economic Environment
560 Mental & Physical Health
570 Culture And Recreation
598 Intergovernmental Payments
Total Operating Expenditures:
Net Operating Increase (Decrease):
Nonoperating Revenues
370, 380, 395, 398 Other Financing Sources
391-393 Debt Proceeds
397 Transfers-In
Total Nonoperating Revenues:
Nonoperating Expenditures
580, 596, 599 Other Financing Uses
591-593 Debt Service
594-595 Capital Expenditures
597 Transfers-Out
Total Nonoperating Expenditures:
Increase (Decrease) in Cash and Investments
Ending Cash and Investments
50810 End Fund Bal-Reserved
50880 End Fund Balance-Unreserved
110 Street 120 Library Fund 150 Lodging Tax 171 Fire and EMS
0 0 0 0
20,034 109,536 36,188 10,472
0 0 0 0
471,830 967,713 350,091 2,204,556
0 0 0 0
192,979 11,571 0 0
400 0 0 0
0 8,966 0 0
724 5,008 276 0
665,933 993,258 350,367 2,204,556
0 0 28,870 0
0 0 0 2,175,321
0 0 0 0
447,256 0 0 0
0 0 182,413 0
0 0 0 0
0 838,211 0 0
0 0 0 0
447,256 838,211 211,283 2,175,321
218,677 155,047 139,084 29,235
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 25 0 0
0 0 0 0
0 99,865 0 0
195,370 15,000 103,701 0
195,370 114,890 103,701 0
23,307 40,157 35,383 29,235
0 0 0 0
43,344 149,694 71,571 39,707
The accompanying notes are an integral part of this Statement.
_________________________________________________________________________________________________________
Washington State Auditor's Office 21
BARS Code
Beginning Cash and Investments
30810 Beg Fund Bal-Reserved
30880 Beg Fund Bal-Unreserved
38880/58880 Prior Period Adjustments, net
Operating Revenues
310 Taxes
320 Licenses & Permits
330 Intergovernmental Revenues
340 Charges for Goods and
Services
350 Fines & Penalties
360 Miscellaneous Revenues
Total Operating Revenues:
Operating Expenditures
510 General Government
520 Public Safety
530 Utilities And Environment
540 Transportation
550 Economic Environment
560 Mental & Physical Health
570 Culture And Recreation
598 Intergovernmental Payments
Total Operating Expenditures:
Net Operating Increase (Decrease):
Nonoperating Revenues
370, 380, 395, 398 Other Financing Sources
391-393 Debt Proceeds
397 Transfers-In
Total Nonoperating Revenues:
Nonoperating Expenditures
580, 596, 599 Other Financing Uses
591-593 Debt Service
594-595 Capital Expenditures
597 Transfers-Out
Total Nonoperating Expenditures:
Increase (Decrease) in Cash and Investments
Ending Cash and Investments
50810 End Fund Bal-Reserved
50880 End Fund Balance-Unreserved
180 Affordable
Housing Fund
190 Comm Dev
Block Grants
195 System
Development
Charges
199 Community
Services
0 0 11,250 0
0 177,383 892,878 80,191
0 0 0 0
10,080 0 0 610,361
0 0 0 0
0 13,376 0 0
0 0 0 91,910
0 0 0 0
1 269 1,695 18,778
10,081 13,645 1,695 721,049
0 0 0 333,919
0 0 0 0
0 0 0 0
0 0 0 0
6,157 61,985 0 11,370
0 0 0 0
0 0 0 1,287,175
0 0 0 0
6,157 61,985 0 1,632,464
3,924 -48,340 1,695 -911,415
0 0 109,383 1,563
0 0 0 0
0 0 0 857,437
0 0 109,383 859,000
0 0 0 0
0 0 0 0
0 0 0 421
0 0 73,413 0
0 0 73,413 421
3,924 -48,340 37,665 -52,836
0 0 0 0
3,925 129,043 941,793 27,356
The accompanying notes are an integral part of this Statement.
_________________________________________________________________________________________________________
Washington State Auditor's Office 22
BARS Code
Beginning Cash and Investments
30810 Beg Fund Bal-Reserved
30880 Beg Fund Bal-Unreserved
38880/58880 Prior Period Adjustments, net
Operating Revenues
310 Taxes
320 Licenses & Permits
330 Intergovernmental Revenues
340 Charges for Goods and
Services
350 Fines & Penalties
360 Miscellaneous Revenues
Total Operating Revenues:
Operating Expenditures
510 General Government
520 Public Safety
530 Utilities And Environment
540 Transportation
550 Economic Environment
560 Mental & Physical Health
570 Culture And Recreation
598 Intergovernmental Payments
Total Operating Expenditures:
Net Operating Increase (Decrease):
Nonoperating Revenues
370, 380, 395, 398 Other Financing Sources
391-393 Debt Proceeds
397 Transfers-In
Total Nonoperating Revenues:
Nonoperating Expenditures
580, 596, 599 Other Financing Uses
591-593 Debt Service
594-595 Capital Expenditures
597 Transfers-Out
Total Nonoperating Expenditures:
Increase (Decrease) in Cash and Investments
Ending Cash and Investments
50810 End Fund Bal-Reserved
50880 End Fund Balance-Unreserved
200 G.O. Debt
Service
301 General CIP
Projects
411 Water Sewer
Fund 412 Storm Fund
0 0 3,194,710 0
113,581 2,385,779 957,220 489,679
0 14,400 0 0
101,811 174,529 0 0
0 0 900 0
0 2,732,076 384,038 0
0 0 4,046,224 520,016
0 0 0 0
593 91,373 51,776 762
102,404 2,997,978 4,482,938 520,778
-193 0 491,334 0
0 0 0 0
0 0 3,215,666 480,774
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
-193 0 3,707,000 480,774
102,597 2,997,978 775,938 40,004
0 0 10,219 0
0 0 467,505 0
875,960 0 173,413 0
875,960 0 651,137 0
0 0 105,997 0
1,064,606 0 313,035 0
0 4,773,118 1,264,034 144,893
0 200,000 0 0
1,064,606 4,973,118 1,683,066 144,893
-86,049 -1,975,140 -255,991 -104,889
0 0 3,021,466 0
27,533 425,039 884,559 384,789
The accompanying notes are an integral part of this Statement.
_________________________________________________________________________________________________________
Washington State Auditor's Office 23
BARS Code
Beginning Cash and Investments
30810 Beg Fund Bal-Reserved
30880 Beg Fund Bal-Unreserved
38880/58880 Prior Period Adjustments, net
Operating Revenues
310 Taxes
320 Licenses & Permits
330 Intergovernmental Revenues
340 Charges for Goods and
Services
350 Fines & Penalties
360 Miscellaneous Revenues
Total Operating Revenues:
Operating Expenditures
510 General Government
520 Public Safety
530 Utilities And Environment
540 Transportation
550 Economic Environment
560 Mental & Physical Health
570 Culture And Recreation
598 Intergovernmental Payments
Total Operating Expenditures:
Net Operating Increase (Decrease):
Nonoperating Revenues
370, 380, 395, 398 Other Financing Sources
391-393 Debt Proceeds
397 Transfers-In
Total Nonoperating Revenues:
Nonoperating Expenditures
580, 596, 599 Other Financing Uses
591-593 Debt Service
594-595 Capital Expenditures
597 Transfers-Out
Total Nonoperating Expenditures:
Increase (Decrease) in Cash and Investments
Ending Cash and Investments
50810 End Fund Bal-Reserved
50880 End Fund Balance-Unreserved
500 Equipment
Rental 540 PW Admin 555 Engineering
Services
0 0 0
615,278 21,540 0
0 0 0
0 0 0
0 0 0
0 0 0
7,009 254,212 674,626
0 0 0
787,948 0 0
794,957 254,212 674,626
172,893 0 0
0 0 0
0 246,217 665,901
456,076 0 0
0 0 0
0 0 0
0 0 0
0 0 0
628,969 246,217 665,901
165,988 7,995 8,725
205,368 0 0
0 0 0
0 0 0
205,368 0 0
0 0 0
0 0 0
30,954 0 7,746
0 0 0
30,954 0 7,746
340,402 7,995 979
0 0 0
955,682 29,535 979
The accompanying notes are an integral part of this Statement.
_________________________________________________________________________________________________________
Washington State Auditor's Office 24
BARS Code Total for All funds 601 Refundable
Deposits
610 Firemen's
Pension and Relief
613 Court -
Agency
308 Beginning Cash and
Investments
403,146 69,952 283,329 18,956
388 and 588 Prior Period Adjustments, net 0 0 0 0
310-360 Revenues 50,291 0 34,808 0
370-390 Other Increases and Financing
Sources
77,575 11,850 0 65,725
510-570 Expenditures 61,159 0 53,268 0
580-590 Other Decreases and
Financing Uses
67,040 15,338 0 51,702
Increase (Decrease) in Cash and Investments -333 -3,488 -18,460 14,023
508 Ending Cash and Investments 402,812 66,464 264,869 32,978
BARS Code 621 Memorial 623 Golf Course
Fund
308 Beginning Cash and
Investments
2,490 28,419 0 0
388 and 588 Prior Period Adjustments, net 0 0 0 0
310-360 Revenues 4 15,479 0 0
370-390 Other Increases and Financing
Sources
0 0 0 0
510-570 Expenditures 0 7,891 0 0
580-590 Other Decreases and
Financing Uses
0 0 0 0
Increase (Decrease) in Cash and Investments 4 7,588
508 Ending Cash and Investments 2,494 36,006 0 0
For the Year Ended December 31, 2012
FIDUCIARY FUND RESOURCES AND USES ARISING FROM CASH TRANSACTIONS
STATEMENT C-5Port Townsend, City ofMCAG NO.0364
The accompanying notes are an integral part of this Statement.
_________________________________________________________________________________________________________
Washington State Auditor's Office 25
City of Port Townsend
Notes To The Financial Statements
For the Year Ended December 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Port Townsend reports financial activity using the revenue and expenditure
classifications, statements, and schedules contained in the Cash Basis Budgeting, Accounting and
Reporting System (BARS) manual. This basis of accounting and reporting is another
comprehensive basis of accounting (OCBOA) that is prescribed by the State Auditor’s Office under
the authority of Washington State law, Chapter 43.09 RCW.
The City of Port Townsend was incorporated on January 16, 1860, and operates under the laws of the
State of Washington applicable to a non-charter code city. The city is a general purpose government and
provides police and fire protection, water, sewer, storm drainage, as well as maintaining parks, streets,
and a library for use by its citizens.
The city uses single entry, cash basis accounting for its governmental and proprietary fund types, which
is a departure from generally accepted accounting principles (GAAP). Prior to 2008, the proprietary
(utility) funds were reported on accrual basis. Proprietary Funds are used to account for activities that
are operated in a manner similar to private enterprise business.
A. Fund Accounting
The accounts of the city are organized on the basis of funds and account groups, each of which is
considered a separate accounting entity. Each fund is accounted for with a separate set of single
entry accounts that comprise its cash, investments, revenues and expenditures or expenses, as appropriate.
The city's resources are allocated to and accounted for in individual funds depending on what they
are to be spent for and how they are controlled. The following are the fund types used by the city:
Governmental Fund Types.- are used to finance most governmental functions and account for
and report expendable financial resources and related obligations.
General Fund (Fund 010) (Current Expense Fund)
This fund is the primary operating fund of the city. It accounts for all financial resources except those required or elected to be accounted for in another fund.
Special Revenue Funds (Funds in the 100 series)
These funds account for revenues derived from specific taxes, grants, or other
sources which are designed to finance particular activities of the city.
Debt Service Funds (Funds in the 200 series)
These funds are used to gather resources to pay general government debt. Capital Projects Funds (Funds in the 300 series)
These funds account for financial resources which are designated for the acquisition
or construction of general government capital improvements.
_________________________________________________________________________________________________________
Washington State Auditor's Office 26
Proprietary Fund Types
Enterprise Funds (Funds in the 400 series)
These funds account for operations that provide goods or services to the general
public and are supported primarily through user charges.
Internal Service Funds (Funds in the 500 series)
These funds account for operations that provide goods or services to other
departments or funds of the city or other governmental units on a cost-reimbursement
basis.
Fiduciary Fund Types - Fiduciary funds account for assets held by the city in a trustee
capacity or as an agent on behalf of others.
Refundable Deposits (601)
This fund accounts for deposits being held pending city criteria for builders
being fulfilled.
Pension (and Other Employee Benefit) Trust Funds (611-620)
Firemen’s Pension
Private Purpose Trust Funds (621-630)
Funds used to report all trust arrangements under which principal and income
benefit individual, private organization and other government.
Agency Funds (Funds 631-699)
This fund accounts for assets whereby the city acts as a pass through agent for
various government entities.
B. Basis of Accounting
Basis of accounting refers to when revenues and expenditures are recognized in the accounts
and reported in the financial statements. Revenues are recognized only when cash is
received and expenditures are recognized when paid, including those properly chargeable
against the prior year(s) budget appropriations as required by state law.
Purchases of capital assets are expensed during the year of acquisition. There is no
capitalization of capital assets, nor allocation of depreciation expense. Inventory is expensed
when purchased.
The basis of accounting described above represents a comprehensive basis of accounting
other than accounting principles generally accepted in the United States of America.
C. Budgets and Budgetary Accounting
Annual appropriated budgets are adopted for all funds at the fund level.
The budgets constitute the legal authority for expenditures at that level. Annual
appropriations for all funds lapse at year end.
_________________________________________________________________________________________________________
Washington State Auditor's Office 27
The city manager is authorized to transfer budgeted amounts between (department within
and fund/object classes with departments); however, any revisions that alter the total
expenditures of a fund, or that affect the number of authorized employee positions, salary
ranges, hours, or other conditions of employment must be approved by the city council.
The appropriated and actual expenditures for the legally adopted budgets were as follows:
2012
Final Appropriated Actual
Amounts Expenditures Variance
General 6,660,534$ 6,486,448$ 174,086$
Drug Enforcement & Educ Fund 27,288$ 26,288$ 1,000$
Contingency -$ -$ -$
Street 659,198$ 642,624$ 16,574$
Library 997,517$ 953,102$ 44,415$
Public Work & Admin 978,523$ 919,864$ 58,659$
Lodging Tax 317,571$ 314,984$ 2,587$
Fire & EMS Service 2,203,319$ 2,175,321$ 27,998$
Affordable Housing Fund 6,157$ 6,157$ -$
CDBG 132,000$ 61,985$ 70,015$
System Development Chrges 677,000$ 73,412$ 603,588$
Community Services 1,695,661$ 1,632,883$ 62,778$
GO Debt Service 1,166,028$ 1,064,413$ 101,615$
Water/Sewer Utility 4,886,754$ 4,283,002$ 603,752$
Stormwater 774,873$ 625,667$ 149,206$
Utility Construction Fund 1,930,000$ 557,588$ 1,372,412$
Trans line Replacement 1,069,500$ 811,328$ 258,172$
1978 Water Sewer Rev Bond 21,500$ 21,500$ -$
1992/98 WS Revenue Bond Reserve 72,220$ 71,055$ 1,165$
92 Water/Sewer Bond Redemption -$ -$ -$
Equipment Rental 772,223$ 659,922$ 112,301$
Firemen's Pension 64,902$ 53,268$ 11,634$
Memorial Fund -$ -$ -$
Golf Course Fund 18,700$ 7,892$ 10,808$
Maritime Center Fund -$ -$ -$
Capital Improvement 5,706,347$ 4,973,117$ 733,230$
30,837,815$ 26,421,820$ 4,415,995$ D. Assets, Liabilities and Equities
Cash and Equivalents
It is the city's policy to invest all temporary cash surpluses. The amounts are included in the
net cash and investments shown on the statements of fund resources and uses arising from
cash transactions. The interest on these investments is prorated to the various funds. The
city's deposits are entirely covered by federal depository insurance (FDIC and FSLIC) or by
collateral held in a multiple financial institution collateral pool administered by the
Washington Public Deposit Protection Commission (PDPC).
_________________________________________________________________________________________________________
Washington State Auditor's Office 28
Investments See Note 3.
Capital Assets
Capital assets are long-lived assets of the city and are recorded as expenditures when
purchased.
Compensated Absences
Vacation pay, which may be accumulated up to 6 weeks for regular employees and 360
hours for department heads, is payable upon resignation, retirement or death.
Sick leave may be accumulated up to 1440 hours. Upon separation or retirement employees
do not receive payment for unused sick leave.
Long-Term Debt See Note 5.
Other Financing Sources Or Uses
The city’s “Other Financing Sources or Uses” consist of Operating transfers-in, Operating
transfers-out, special assessment bond proceeds, proceeds from refunding bonds, and capital leases.
Risk Management See Note 8.
NOTE 2 - COMPLIANCE AND ACCOUNTABILITY There have been no material violations of finance-related legal or contractual provisions.
NOTE 3 - INVESTMENTS
The city’s investments are insured, registered, or held by the city or its agent in the city’s name. As
required by state law, all investments of the city's funds are obligations of the U S Government, the
State Treasurer's Investment Pool, or deposits with Washington State banks and savings and loan
institutions.
Investments by type at December 31, 2012 are as follows:
Investments
Carrying Amount Market Value
Washington State Treasurer's Investment Pool 6,877,433.79$ 6,877,433.79$
2012 Total Investments 6,877,433.79$ 6,877,433.79$
NOTE 4 - PROPERTY TAXES
The Jefferson County Treasurer acts as agent to collect property taxes levied in the county for all taxing authorities. Collections are distributed after the total collected surpasses $10,000; with any balance left over distributed at month-end.
_________________________________________________________________________________________________________
Washington State Auditor's Office 29
Property tax revenues are recognized when cash is collected. Delinquent taxes are considered fully collectible because a lien affixes to the property when taxes are levied.
The city's regular levy for 2012 was $1.40521 per $1,000.00 on an assessed valuation of
$1,468,539,440 for a total regular levy of $2,063,606.31.
The city also has a special levy for Emergency Medical Services (EMS). The EMS levy rate was
voter approved in 2010 to $ .50 per $1,000 for a total levy of $734,269.72 in 2012.
A Library LID lift was approved by voters in 2008 to be phased in over 2009-2011. For 2012 the
library levy was .65371 per 1,000 for a total of $959,998.92
Voters approved a Fire Lid lift of $.43 per $1,000 for a tax amount of $633,190.31 in 2012.
NOTE 5 - LONG-TERM LIABILITIES
The accompanying Schedule of Long-term Liabilities (09) provides a listing of the outstanding debt
of the city and summarizes the City of Port Townsend’s debt transactions for the 2012. The debt
service payments for the year being reported and future payment requirements, including interest,
are as follows:
G.O. Bonds Revenue Bonds Other Debt Total Debt
2013
$ 1,134,391 $ 20,750 $ 291,535 $ 1,446,676
2014
$ 1,132,606
$ 25,000 $ 289,882 $ 1,447,488
2015
$ 1,138,686
$ 24,000 $ 288,229 $ 1,450,915
2016
$ 1,298,436
$ 23,000 $ 286,576 $ 1,608,012
2017
$ 1,284,566
$ 22,000 $ 284,923 $ 1,591,489
2018-
2038
$20,705,474 $ 21,000 $1,368,191 $22,094,665
Totals $26,694,159 $ 135,750 $2,809,336 $29,639,245
_________________________________________________________________________________________________________
Washington State Auditor's Office 30
A. BONDS
The City of Port Townsend issues general obligation and revenue bonds to finance the construction
and remodel of capital assets. Bonded indebtedness has also been entered into to advance refund
revenue bonds. General obligation bonds have been issued for both general government and
business-type activities and are being repaid from the applicable resources. The revenue bonds are
being repaid by proprietary fund revenues.
In 2008 the City issued $7,500,000 in bonds to finance road and sidewalk improvements, as well as
tourism, infrastructure, and waterfront access improvements. In 2010 the City issued an additional
$3,740,000 in Bonds for sidewalks and utilities and street improvements, as well as
funding for the Carnegie library seismic retrofit.
General obligation bonds currently outstanding are as follows:
Issue Date Purpose Original Issue Interest Rate Maturity Date Debt Outstanding
2003 Limited GO Bonds for Skateboard
Park, the Wave Viewing Gallery,
City Hall, Fire Station, Pool &
Pink House Lease settlement.
$2,390,000 1.85-4.60% 2023 $ 125,000
2008 Limited GO Bonds for
construction funds for Civic and
Street Improvements
$7,500,000 4.15-5.00% 2038 $7,500,000
2010 Limited GO Bonds for Street, Sidewalk, Utilities and Historic
District
$3,740,000 2.30-5.00% 2030 $3,740,000
2012 Limited GO Bonds for Refunding
of 1999 Bonds, a portion of the
2002 GO Bonds, a portion of the 2003 Bonds and the 2005 Bonds
$5,530,000 .50-4.25% 2025 $5,460,000
Total $16,825,000
As of December 31, 2012 the long term debt payable from proprietary fund resources consisted of
the following:
Issue Date Purpose Original Issue Interest Rate Maturity Date Debt Outstanding
1978 Water/Sewer Revenue Bonds Water and Sewer Improvements $ 395,000 5% 2018 $ 115,000
Total $ 115,000
_________________________________________________________________________________________________________
Washington State Auditor's Office 31
B. Public Works Trust Fund Loans and State Revolving Fund Loans
State of Washington Public Works Trust Fund (PWTF) Loans are an intergovernmental loan from the
Public Works Board to undertake local public works projects. These loans are a direct responsibility of
the City of Port Townsend. The City currently has six such loans.
State Revolving Fund (SRF) Loans are State of Washington Department of Ecology low interest loans
for projects that protect and improve water quality. The City of Port Townsend currently has one SRF
loan.
As of December 31, 2012 the long-term debt payable for PWTF and SRF loans consisted of the
following:
Issue Date Purpose Original Issue Interest Rate Maturity Date Debt Outstanding
1998 PWTF Loan
CT Pipeline Tri-Area Water Storage
Tri-Area Well Upgrades
(payoff of $1,86,718 with sale of Tri-Area Assets)
$2,172,055 1% 2018 $ 268,308
1999 PWTF Loan
Gaines St Lift Station
San Juan Sewer Trunk Line
$1,434,365 1% 2019 $ 417,163
2001 PWTF Loan Wastewater Treatment
Outfall Expansion
Trunk Sewer Line Replacement
$1,153,350 .5% 2021 $ 497,488
2002 PWTF Loan
Morgan Hill Water System
Improvements
$1,242,742 .5% 2022 $ 667,019
2002 SRF Loan
Wastewater Conveyance
Storm and Sewer Separation
Gaines St Lift Station Phase 2
Trunk Sewer Replacement
$ 856,803 1.5% 2024 $ 557,230
2012 PWTF Loan
City Lake Repair
$1,000,000 .5% 2031 $ 198,568
2012 PWTF Loan
LT2 Federally Mandated Construction of UV and
Chlorination Water Treatment
Facility
$1,896,000 1.5% 2031 $ 268,937
Total $2,874,713
_________________________________________________________________________________________________________
Washington State Auditor's Office 32
C. ADVANCED REFUNDING AND DEFEASED BONDS
In 2012 the City refunded the balance of the 1999 G.O. Bonds and the 2005 G. O. Bonds. As part of
the same refunding $1,505,000 of the 2003 LTGO Bonds were advanced refunded and well as
$2,500,000 of the 2002 LTGO Bonds. The total amount of the 2012 LTGO refunding was
$5,530,000. This refunding saved the City $645,221 over the course of 13 years.
NOTE 6 - PENSION PLANS
Substantially all city full-time and qualifying part-time employees participated in Public Employees’
Retirement System (PERS), Law Enforcement Officers’ and Fire Fighters’ Retirement System
(LEOFF) Volunteer Firemen Relief and Pension Fund, Firemen’s Pension and Relief Fund
administered by the Department of Retirement Systems, under cost-sharing multi-employer public
employee defined benefit and defined contribution employee retirement plans. Actuarial information
is on a system-wide basis and is not considered pertinent to the city’s financial statements.
Contributions to the systems by both employee and employer are based upon gross wages covered
by the plan.
Historical trends or other information regarding each plan is presented in the state Department of
Retirement Systems annual financial report. A copy of this report may be obtained at:
Department of Retirement Systems
Communication Unit
PO Box 48380
Olympia, WA 98504-8380
NOTE 7 - RISK MANAGEMENT
The City of Port Townsend is a member of the Washington Cities Insurance Authority (WCIA).
Utilizing Chapter 48.62 RCW (self-insurance regulation) and Chapter 39.34 RCW (Interlocal
Cooperation Act), nine cities originally formed WCIA on January 1, 1981. WCIA was created for the
purpose of providing a pooling mechanism for jointly purchasing insurance, jointly self-insuring,
and/or jointly contracting for risk management services. WCIA has a total of 150 members.
New members initially contract for a three year term, and thereafter automatically renew on an
annual basis. A one year withdrawal notice is required before membership can be terminated.
Termination does not relieve a former member from its unresolved loss history incurred during
membership.
Liability coverage is written on an occurrence basis, without deductibles. Coverage includes
general, automobile, police, public officials’ errors and omissions, stop gap, and employee benefits
liability. Limits are $4 million per occurrence self insured layer, $16 million per occurrence in the
re-insured excess layer. The excess layer is insured by the purchase of reinsurance and insurance and
is subject to aggregate limits.
Total limits are $20 million per occurrence subject to aggregate sublimits in the excess layers. The
Board of Directors determines the limits and terms of coverage annually.
Insurance coverage for property, automobile physical damage, fidelity, inland marine, and boiler and
machinery are purchased on a group basis. Various deductibles apply by type of coverage. Property
_________________________________________________________________________________________________________
Washington State Auditor's Office 33
insurance and auto physical damage coverage are self- funded up to $750,000, for all perils other than
flood and earthquake, and insured above that amount by the purchase of insurance.
In-house services include risk management consultation, loss control field services, claims and
litigation administration, and loss analysis. WCIA contracts for the claims investigation consultants
for personnel issues and land use problems, insurance brokerage, and lobbyist services.
WCIA is fully funded by its members, who make annual assessments on a prospectively rated basis,
as determined by an outside, independent actuary. The assessment covers loss, loss adjustment, and
administrative expenses. As outlined in the interlocal, WCIA retains the right to additionally assess
the membership for any funding shortfall.
WCIA is governed by a Board of Directors which is comprised of one designated representative
from each member. The Board elects an Executive Committee and appoints a Treasurer to provide
general policy direction for the organization. The WCIA Executive Director reports to the
Executive Committee and is responsible for conducting the day to day operations of WCIA.
NOTE 8 - RESTRICTED FUNDS
In accordance with bond ordinances and certain related agreements, separate restricted funds are
required to be established. The assets held in these funds are restricted for specific uses, including
construction, debt service, and other special reserve requirements.
NOTE 9 – SYTEM DEVELOPMENT CHARGES FUND RESERVE
In accordance with ordinance No. 2666 dated 11/03/98 a low-income deferral account for system
development charges was established. The remaining balance of this account is $11,250 and has
been reflected as a contra asset account in previous years. For 2012 the balance of this account is
reflected in the financials as a “reserved” cash balance in the beginning cash balance. For the 2012
ending cash balance this amount is included in the ending fund balance-unreserved. This will be
reclassified in 2013 financials to the “reserved” part of the ending fund balance.
NOTE 10 - UTILITY RECEIVABLES
All delinquent accounts receivable must receive prior City Council approval before they are written
off.
NOTE 11 - CONTINGENCIES AND LITIGATION
In the opinion of management the city’s self-insurance reserves are adequate to pay all known or
pending claims. (See Note 7.)
NOTE 12 – INTERFUND LOANS
In March 2010, City Council authorized short term interfund loans up to the amount of $150,000
from the OGWS Transmission Pipeline Fund or the Equipment Rental Fund to the General Fund to
cover short term cash flow needs in anticipation of property tax collections.
In April 2012, City Council authorized an interfund loan from the Transmission Line Replacement
Fund to the General Fund in the amount of $100,000 for the purpose of startup funding for the Main
Street excise tax credit program.
_________________________________________________________________________________________________________
Washington State Auditor's Office 34
The following table displays interfund loan activity during 2012:
Borrowing Lending Balance New 2012Balance
FundFund1/1/2012LoansRepayments12/31/2012
EMS equip 010500 75,000$ 75,000$ -$
Golf Bldg 199 417 83,508$ -$ 83,508$
Park land 199 417 185,571$ -$ 185,571$
Maint St 10 417 -$ 100,000$ -$ 100,000$
NOTE 13 – NEW PUBLIC ENTITY FORMED
On September 08, 2009 the City of Port Townsend authorized the creation of a public corporation
known as the Port Townsend Public Development Authority. A charter and bylaws were adopted for
the entity, but no other activity took place in 2009. In September 2011 the Council amended the
authority’s charter to change the name to the Fort Worden Lifelong Learning Center Public
Development Authority. Its purpose was amended to focus solely on the Park.
In 2012 the city paid $63,000 to the FWPDA per an agreement amendment dated February 28, 2012.
These expenses were for professional services.
NOTE 14 – EQUIPMENT RENTAL FUND ALLOCATION
During 2012, the City reviewed the Equipment Rental Fund balance and annual contributions.
It was determined that the police department annual contribution was overestimated. Consequently,
the City suspended 52% of the police annual contribution for 2012 and established an updated
contribution plan for 2013.
NOTE 15 – INTERLOCAL AGREEMENT WITH EAST JEFFERSON FIRE RESCUE
On June 20, 2012 the city amended the agreement with East Jefferson Fire Rescue (District) to
reimburse the district for the purchase of a third fire engine. The city will be paying the district a
total of $392,080.77 (which includes interest). The payment schedule is as follows:
Interest Principal Yr Total
5/31/2013 11,320$ 11,320$
5/31/2014 11,320 11,320
5/31/2015 9,883 177,199 187,082
5/31/2016 2,615 179,744 182,359
Totals 35,137$ 356,943$ 392,080$
_________________________________________________________________________________________________________
Washington State Auditor's Office 35
MCAG NO.
ID. No.Description Maturity/Payment
Due Date
Beginning Balance
January 1, 2012
Additions Reductions BARS Code for
Redemption of
Debt Only
Ending Balance
December 31, 2012
251.11 1999 bond 12/1/2016 220,000 0 220,000 59119 0
251.11 2002 Bond 12/1/2022 2,635,000 0 2,635,000 59119 0
251.11 2003 Bond 12/1/2023 1,750,000 0 1,625,000 59119 125,000
251.11 2005 Bond 12/1/2025 1,360,000 0 1,360,000 59119 0
263.81 PWTF Loan 7/1/2012 20,500 0 20,500 59173 0
251.11 2008 Bond 12/1/2038 7,500,000 0 0 59119 7,500,000
251.11 2010 Bond 12/1/2030 3,740,000 0 0 59119 3,740,000
251.11 2012 Refunding Bond 12/1/2025 0 5,530,000 70,000 59119 5,460,000
251.11 EASJFIRE Equipment Loan 5/31/2016 0 392,080 0 59111 392,080
259.11 Compensated Absences 450,509 0 14,832 435,677
17,676,009 5,922,080 5,945,332 17,652,757
252.11 1978 Water Revenue Bond 3/1/2018 130,000 0 15,000 58234 115,000
263.82 DOE Wastewater 10/31/2023 599,311 0 42,081 58235 557,230
263.82 1998 PWTF Loan 7/1/2018 313,026 0 44,718 58234 268,308
263.82 1999 PWTF Loan 7/1/2019 476,758 0 59,595 58235 417,163
263.82 2001 PWTF Loan 7/1/2021 552,766 0 55,276 58235 497,490
263.82 2002 PWTF Loan 7/1/2022 733,721 0 66,702 58235 667,019
263.82 2012 PWTF Loan LT2 6/1/2023 0 268,938 0 58234 268,938
263.82 2012 PWTF Loan City Lake 6/1/2031 0 198,568 0 58234 198,568
259.12 Compensated Absences 105,675 2,291 0 107,966
2,911,257 469,797 283,372 3,097,682
20,587,266 6,391,877 6,228,704 20,750,439
Total Revenue Obligations:
Total Liabilities:
City of Port Townsend
For the year ended December 31, 2012
Schedule of Liabilities
0364 Schedule 09
Debt Type
General Obligations
Total General Obligations:
Revenue Obligations
__
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
Wa
s
h
i
n
g
t
o
n
St
a
t
e
Au
d
i
t
o
r
'
s
Of
f
i
c
e
36
MCAG NO. 0364 SCHEDULE 16
Federal Agency Name
Pass-Through Agency Federal Program Name From Pass-
Through From Direct
Name Awards Awards
Department of Interior-National Parks Service Save America's Treasures 15-929 11,051.92
Department of Interior 11,051.92
Department of Justice-Office of Violence Against Women Grants to Encourage Arrest Policies & Enf 16-590 2010-WE-AX-0020 145,018.42 145,018.42 3
Department of Justice-Office of Community Oriented Policing
Services Public Safety Partnership & Community P 16-710 2012-UM-WX-0173 24,000.00 24,000.00
Department of Justice-Office of Violence Against Women-
Department of Commerce 16-588 F-12-31103-017 6,200.00
Department of Justice 175,218.42
Department of Labor/O3A Olympic Area Agency on Aging Senior Community Service Employment 17-235 11,215.61 11,215.61
Department of Labor 11,215.61
Department of Transportation-Federal Highway Administration Highway Planning & Construction 20-205 LA-7571 248,499.79 248,499.79
Department of Transportation 248,499.79
Environmental Protection Agency Office of Water-Public Works Board Loan 66-468 69,527.30 69,527.30
Environmental Protection Agency 69,527.30
Department of Homeland Security-State of Washington Military Hazard Mitigation Grant/FEMA 97-039 FEMA-1734-DR-WA 821,396.10
Department of Homeland Security-State of Washington Military Hazard Mitigation Grant/FEMA 97-039 FEMA-1825-DR-WA 746,779.73 1,568,175.83 *
Department of Homeland Security-State of Washington Military Pre-Disaster Mitigation 97-047 E10-115 340,968.81 340,968.81
Department of Homeland Security-State of Washington Military Pre-Disaster Mitigation 97-047 E12-175 182,809.92 182,809.92
Department of Homeland Security Sub-Total 2,091,954.56
Revised Grand Total 2,607,467.60
Notes to schedule of Expenditure of Federal Awards for the year ended December 31, 2012:
Note 1 - Basis of Accounting
This schedule is prepared on the same basis of accounting as the City of Port Townsend's financial statements. The City of Port Townsend uses the cash basis accounting.
Note 2 - Program Costs
The amounts shown as current year expenditures represent only the federal portion of the program costs. Entire program costs, including the city of Port Townsend's portion, are more than shown.
Note 3 - Amounts Awarded to Sub Recipients
Included in the total amount expended for this program is $120,620.11 that was passed through to a sub recipient that administered its own project.
Violence Against Women Formula
Grants
Capitalization Grants for Drinking Water
State Revolving Funds
City of Port Townsend
Footnote
Reference
Current Year Expenditures
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
For the Year Ended December 31, 2012
Total Other I.D. Number CFDA Number
_________________________________________________________________________________________________________
Washington State Auditor's Office 37
ABOUT THE STATE AUDITOR'S OFFICE
The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and
serves four-year terms.
Our mission is to work with our audit clients and citizens as an advocate for government
accountability. As an elected agency, the State Auditor's Office has the independence
necessary to objectively perform audits and investigations. Our audits are designed to comply
with professional standards as well as to satisfy the requirements of federal, state, and local
laws.
The State Auditor's Office employees are located around the state to deliver services effectively and efficiently.
Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
governments and fraud, whistleblower and citizen hotline investigations.
The results of our work are widely distributed through a variety of reports, which are available
on our Web site and through our free, electronic subscription service.
We take our role as partners in accountability seriously. We provide training and technical
assistance to governments and have an extensive quality assurance program.
State Auditor Troy Kelley Chief of Staff Doug Cochran
Director of State and Local Audit Chuck Pfeil, CPA
Deputy Director of State and Local Audit Kelly Collins, CPA Deputy Director of State and Local Audit Jan M. Jutte, CPA, CGFM Deputy Director of State and Local Audit Sadie Armijo
Deputy Director of Quality Assurance Barb Hinton
Deputy Director of Communications Thomas Shapley Local Government Liaison Mike Murphy
Public Records Officer Mary Leider
Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900
Website www.sao.wa.gov Subscription Service www.sao.wa.gov/EN/News/Subscriptions