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FY2011 Audit Report AirportBlair Airport Authority FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORTS For the year ended September 30, 2011 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT 3 -4 MANAGEMENT'S DISCUSSION AND ANALYSIS 5 - 11 BASIC FINANCIAL STATEMENTS Statement of net assets 12 Statement of activities 13 Balance sheet - governmental funds 14 Reconciliation of the balance sheet of governmental funds to the statement of net assets 15 Statement of revenues, expenditures, and changes in fund balance - governmental funds 16 Reconciliation of the statement of revenues, expenditures and changes in fund balances of governmental funds to the statement of activities 17 NOTES TO FINANCIAL STATEMENTS 18-29 SUPPLEMENTAL INFORMATION Budgetary comparison schedule - general fund 31 Fund balances for the last five years 32 TABLE OF CONTENTS - CONTINUED 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 A UDITING STANDARDS 33 - 3 4 SCHEDULE OF FINDINGS AND RESPONSES 35 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 36 R&— S &ASSOCIATES, L.L.C. Certified Public Accountants I Consultants INDEPENDENT AUDITOR'S REPORT Honorable Chairman and Board Members Blair Airport Authority Blair, Nebraska We have audited the accompanying financial statements of the governmental activities and each major fund, as of and for the year ended September 30, 2011, which collectively comprise the Blair Airport Authority's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Blair Airport 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 standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Blair Airport Authority as of September 30, 2011, and respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Goverw)7ew Auditing Standards, we have also issued our report dated March 27, 2012 on our consideration of the Blair Airport Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit preformed in accordance with Government Auditing Stwidards and should be considered in assessing the results of our audit. r t OEM290.2480 F 402.390.08850 a N E 681 4 T 40.3e e 015 N.98th St..Suite 200 mat 1W stroads Point � 1� � �� Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison information presented on pages 5 through 11 and 31 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's response to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Blair Airport Authority's financial statements as a whole The fund balances for the last five years on page 32 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. The report on fund balances for the last five years has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. r ✓'`� Z.L. �- Hayes & Associates, L.L.C. Omaha, Nebraska March 27, 2012 Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS For the year ended September 30, 2011 As management of the Blair Airport Authority, ("Airport"), we offer readers of the Airport's financial statements this narrative overview and analysis of the financial activities of the Airport for the fiscal year ended September 30, 2011. OVERVIEW OF FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Blair Airport Authority's basic financial statements. The Airport's basic financial statements include three components: 1) government -wide financial statements; 2) fund financial statements; and 3) notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government -wide financial statements The government -wide financial statements are designed to provide readers with a broad overview of the Airport's finances, in a manner similar to a private -sector business. The statement of net assets presents information on all of the Airport'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 economic position of the Airport is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and incurred but unpaid interest). Both of the government -wide financial statements distinguish functions of the Airport that are principally supported by taxes and intergovernmental revenues (governmental activities). The governmental activities are the operations of a municipal airport. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Airport, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. All of the funds of the Airport are governmental funds. -5- Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED For the year ended September 30, 2011 OVERVIEW OF FINANCIAL STATEMENTS - CONTINUED Governmental Funds: Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The majority of the Airport's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method identified as the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted into cash. The governmental fund statements provide a detailed short-term view of the Airport's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the Airport's programs. By comparing information presented for governmental funds with similar information presented for long-term effect of the government's near term financing decisions. The reconciliation between governmental activities (reported in the statement of net assets and the statement of activities) and governmental funds is detailed in a reconciliation following the fund financial statements. The Airport adopts an annual appropriated budget for all governmental funds. A budgetary comparison schedule has been provided for general funds to demonstrate compliance with the state budget statutes. Notes to the financial statements: The notes provide additional infonmation that is essential to a full understanding of the data provided in the government -wide and fund financial statements. Government -wide Financial Analysis: Capital assets (i.e. land, buildings, and equipment) account for over 98% of the total assets. The Airport uses these assets to provide services to its customers. Accordingly, these assets are not an available source for payment of future spending. Of the remaining assets, less than 2% of the governmental assets are cash and equivalents. The following chart shows the Airport's net assets for 2011: SEE TABLE 1 "I Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED SUMMARY OF NET ASSETS September 30, 2011 ASSETS Current and other assets Capital assets Total assets LIABILITIES Other liabilities Long -tern debt outstanding Total liabilities NET ASSETS Invested in capital assets net related debt Unrestricted (deficit) Total net assets TABLE 1 -7- 2011 2010 Change $ 224,713 $ 186,223 $ 38,490 14,726,924 15,001,792 (274,868) $ 14,951,637 $ 15,188,015 $ (236,378) $ 1,395,069 $ 1,296,432 $ 98,637 1,708,945 1,797,765 (88,820) $ 3,104,014 $ 3,094,197 $ 9,817 $ 11,680,755 $ 11,959,372 $ (278,617) 166,868 134,446 32,422 $ 11,847,623 $ 12,093,818 $ (246,195) Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED For the year ended September 30, 2011 OVERVIEW OF FINANCIAL STATEMENTS - CONTINUED At the end of the current fiscal year, the Airport reported a positive balance in both net assets invested in capital assets and in unrestricted net assets. The following chart is a summary of financial information relating to the Airport's statement of activities: SEE TABLE 2 Governmental activities: Governmental activities decreased the Airport's net assets by $246,195. Key elements of the decrease are as follows: ® The decrease is the result of increased depreciation expense, less grant funds received, and land acquisition related costs. The prior year comparative financial data is provided in each table to provide additional inforination. Financial Analysis of the Airport's Funds As mentioned earlier in this analysis, the Airport uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental Funds: The focus of the Airport's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Airport's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the Airport's governmental funds reported combined ending fund balances of ($1,147,273), a decrease of $61.727 from the prior year. The Airport's fund balances for the past five years are presented in a table format on page 32. Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED CHANAGES IN NET ASSETS September 30, 2011 TABLE 2 REVENUES Program revenues 2011 2010 Change Charges for services $ 215,214 $ 179,636 $ 35,578 Capital grants and contributions 49,792 1,906,178 (1,856,386) General revenues Property taxes 141,345 140,704 641 Other taxes 19,591 19,162 429 Interest and other revenue 68,423 18,287 50,136 Total revenues 494,365 2,263,967 (1,769,602) EXPENSES General government 609,344 566,425 42,919 Interest on debt 131,216 138,454 (7,238) Total expenses 740,560 704,879 35,681 CHANGE IN NET ASSETS (246,195) 1,559,088 (1,805,283) NET ASSETS, BEGINNING OF YEAR 12,093,818 10,534,730 1,559,088 NET ASSETS, END OF YEAR $ 11,847,623 $ 12,093,818 $ (246,195) KIM Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED For the year ended September 30, 2011 OVERVIEW OF FINANCIAL, STATEMENTS - CONTINUED Budget variances in the General Fund: The Airport General Fund expenditures did not exceed budget. Significant budget variances are detailed as follow: Variance Positive Account e ative Reason Federal grant income $(1,856,181) Anticipated Grant Funds were not realized due to delay in condemnation appeals. Gas sales $19,219 Airport had increased sales of fuel above projections. Rent income $14,140 Income was higher due to rental of additional property. Miscellaneous income $64,413 We had received a reimbursement on water line project of $50,000 and insurance claim payment for property damages. General governmental ($53,336) Expenses exceeded projections due to increased costs for maintenance and emergency repairs, some of which were covered by insurance. Capital Outlay expense $665,891 Costs were not as high due to delay in condemnation appeals. Debt principle expense ($1,436,927) Costs where not realized as anticipated due to delay in condemnation appeals. Interest expense ($56,681) Interest costs that had not been separately budgeted. For budgeting purposes, interest is lumped into debt principle. Debt proceeds ($161,723) Costs of refinancing weren't as high as anticipated. Capital assets: The Airport's government -wide capital assets, net of accumulated depreciation, decreased due to less new assets than accumulated depreciation. Additional information as well as a detailed classification of the Airport's net capital assets can be found in the notes to the Financial Statements. -10- Blair Airport Authority MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED For the year ended September 30, 2011 OVERVIEW OF FINANCIAL STATEMENTS - CONTINUED Long-term debt: The long-term debt of the Airport decreased by $88,820 due to of the payment of $88,820 of principal on long term debt (bonds and NDA long term loans). The Airport continues to move forward with capital projects that extend from one fiscal year to another that will be financed with short term Bond Anticipation Notes that will be turned into long term debt in two to three years. These projects will provide greater airport safety and expand the necessary facilities to make the airport more viable to business category aircraft, thus increasing the opportunity to increase income and profitability. Next ,year's budget and rates: The property tax levy request for the City of Blair for the fiscal year beginning October 1, 2010, was set at $0.353324 per one hundred dollars of valuation. The property tax levy request for the Airport Authority for the fiscal year beginning October 1, 2010 was set at $0.032614 per one hundred dollars of valuation, or a total City and Airport levy of $0.385938. The Airport levy continues to solely support long term debt and the Airport would anticipate reaching the statutory levy limit of $0.035 per hundred dollars of actual valuation before all capital improvements are completed. Additional Notes: The Airport is still working to complete the acquisition of Tract E (Petersen Property). The condemnation case is still in Washington County District Court. Negotiations for a settlement have not materialized with any success. In addition to the acquisition costs the landowner has appealed the relocation benefit payments. Relocation benefits are currently estimated at approximately $450,000 for personal property and up to $720,000 for business. Federal fund will ultimately cover 90% of the cost. The Airport has recently signed a land lease agreement with Skywerx Aviation, LLC for Skywerx Aviation to build a new hangar for Skywerks own use. Skywerx Aviation will be a fi•anchised Fixed Based Operator (FBO) at the Airport. Skywerx will provide maintenance, fuel sales, and charter flights operating from the airport. A second group is currently negotiating with the airport authority for a land lease to build additional hangars. Request for information: The financial report is designed to provide a general overview of the Airport's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Blair Airport Authority, 218 S. 16th Street, Blair, NE 68008. Blair Airport Authority STATEMENT OF NET ASSETS September 30, 2011 ASSETS Cash and cash equivalents Due from County Treasurer Other receivables Fuel inventory Capital assets Land Buildings and runways Accumulated depreciation Total assets LIABILITIES Accounts payable Accrued interest Deferred revenue Deposits Short term notes payable Long-term debt Due within one year Due in more than a year Total liabilities NET ASSETS; Investment in capital assets net of related debt Unrestricted (deficit) Total net assets Total liabilities and net assets See accompanying notes and independent auditor's report. -12- $ 183,789 16,507 9,258 15,159 5,201,538 10,919,855 (1,394,469) $ 14,951,637 $ 19,268 25,770 8,937 3,870 1,337,224 88,820 1,620,125 3,104,014 11,680,755 166,868 11,847,623 $ 14,951,637 N b 00 0 UO �i U O \O rn N M Vl M of �O --� cr 00 z�"z�� M [� �'� �.o cd 4 4 a G." o (D 4r � O n N o ROS d N ' N pp > r N N c~C N U� crs s9 0UO � � v v. - O uo O M d w 69 64 0 0 �i U O \O Lr)Q N M Vl M of �O --� cr 00 O\ M [� N 0 0 a a� m 0 N G." 4r � O i M N V � Q 0UO uo � ASSETS Cash and cash equivalents Due from County Treasurer Other receivables Fuel inventory Total assets LIABILITIES Accounts payable Accrued interest Deferred revenue Deposits Short term notes payable Total liabilities FUND BALANCE Nonspendable Restricted Unassigned Total fund balance Total liabilities and fund balance Blair Airport Authority BALANCESHEET GOVERNMENTAL FUNDS September 30, 2011 General Debt Fund Fund Total $ 171,481 12,308 $ 183,789 - 16,507 16,507 9,258 - 9,258 15,159 - 15,159 $ 195,898 $ 28,815 $ 224,713 $ 19,268 $ 4,740 3,870 1,337,224 _ 1,365,102 $ 19,268 - 4,740 6,884 6,884 - 3,870 - 1,337,224 6,884 1,371,986 15,159 - 15,159 - 21,931 21,931 (1,184,363) - (1,184,363) (1,169,204) 21,931 (1,147,273) $ 195,898 $ 28,815 $ 224,713 See accompanying notes and independent auditor's report. -14- Blair Airport Authority RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS September 30, 2011 Fund balance of govermnental funds $ 37,090 Amounts reported for governmental activities in the statement of -- net assets are different because: Capital assets, net of depreciation, are not current financial resources and are not included in the governmental funds 14,726,924 Deferred revenues are not a current financial resources and are not included in the government funds. (2,053) Notes and bonds payable are not current financial liabilities. Therefore, they are not included in the governmental funds (1,708,945) Interest accrued on long -tern debt (21,030) Net assets of governmental activities $ 13,031,986 r is See accompanying notes and independent auditor's report. -15- c. H Blair Airport Authority STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS For the year ended September 30, 2011 General Debt Fund Fund Total REVENUES Taxes $ - $ 159,620 $ 159,620 Charges for services 215,214 - 215,214 Grants 49,792 - 49,792 Interest income 61 - 61 Other revenues 68,362 - 68,362 Total revenues 333,429 159,620 493,049 EXPENDITURES Administration 274,056 2,850 276,906 Capital outlay 57,570 - 57,570 Debt service Principal 23,820 65,000 88,820 Interest 56,909 74,571 131,480 Total expenditures 412,355 142,421 554,776 REVENUES OVER (UNDER) EXPENDITURES (78,926) 17,199 (61,727) FUND BALANCE, BEGINNING OF YEAR (1,090,278) 4,732 (1,085,546) FUND BALANCE, END OF YEAR $ (1,169,204) $ 21,931 $ (1,147,273) 1 r; r 4 See accompanying notes and independent auditor's report. -16- i' Blair Airport Authority RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the year ended September 30, 2011 Net changes in fund balance - total governmental funds Amounts reported for govenunental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as a functional expense when the cost is above the capitalization threshold. The activity is reconciled as follows: Cost of assets capitalized Depreciation expense Revenue reported in the statement of activities that do not provide current financial resources are not reported as revenue in the governmental funds Bonds are reported as expenditures when paid and as revenue when received in the governmental funds. However, there is no impact in the statement of activities when loans are made or repaid. This amount represents the change in the long-term debt Interest accrued on long-term debt does not require the use of current financial resources and is not reported as an expenditure in govermental funds Change in net assets of governmental activities See accompanying notes and independent auditor's report. -17- $ (61,727) (274,868) 1,316 88,820 264 $ (246,195) Blair Airport Authority NOTES TO FINANCIAL STATEMENTS For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies of the Blair Airport Authority (the Airport). 1. Description of the ReportingEntity ntity This report includes all funds of the Airport, which is the "primary govermnent." The Airport operates under a Board of Trustees form of government and provides airport services. The Airport is a body corporate and politic, constituting a public corporation and an agency of the City. The Board has full and exclusive jurisdiction and control. The Board and its corporate existence shall continue only for a period of twenty years and therein after until all its liabilities have been met and its bonds paid in full. All administrative duties are handled by the City Administration until such time as the Airport can hire its own staff. As per Nebraska Statues, the Airport Board has appointed the City Treasurer, as treasurer for the Airport. 2. Basis of Accounting/Measurement Focus The accounts of the Airport are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Government -Wide Financial Statements The Airport government -wide financial statements include a statement of net assets and a statement of activities (including changes in net assets). These statements are prepared using the standards of the Governmental Accounting Standards Board (GASB), General Accepted Accounting Principles (GAAP), as well as FASB pronouncements issued through November 30, 1989. These statements present summaries of governmental activities for the Airport. Fiduciary activities of the Airport are not included in these statements. Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Basis of Accounting/Measurement Focus - Continued Government -Wide Financial Statements - Continued These statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the Airport's assets and liabilities including capital assets and infrastructure as well as long-term debt, are included in the accompanying statement of net assets. The statement of activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function. The types of transactions reported as program revenues for the Airport are reported in three categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Charges for services include revenues fi•om customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function. Grant and contributions include revenues restricted to meeting the operational or capital requirements of a particular function. Taxes or other items not included among program revenues are reported instead as general revenues. All internal balances in the statement of net assets and internal transactions in the statement of activities have been eliminated. Governmental Fund Financial Statements Governmental fund financial statements include a balance sheet and a statement of revenues, expenditures, and changes in fund balances for all major governmental funds. An accompanying schedule is presented to reconcile and explain the differences in net assets as presented in these statements to the net assets presented in the government -wide financial statements. The Airport has presented all major funds that met the qualifications of GASB Statement No. 34. -19- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Basis of Accounting/Measurement Focus - Continued All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the balance sheet. The statement of revenues, expenditures and changes in fund balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses in net current assets). Under modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 days after year-end) are recognized when due. The primary sources susceptible to accrual are property tax, investment income, and grant revenues. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. An exception to this general rule is principal and interest on general long-term debt which is recognized when due. The Airport reports the following major governmental funds: The general fund is the government's primary operating fund. It is a governmental fund that is used to account for all financial resources except those required to be accounted for in another fund. The debt service fund is a governmental fund that is used to account for funds needed to make principal and interest payments on outstanding debt issues. -20- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Budgetary Policy and Control Budgetary Basis of Accounting The Airport's legally adopted budget is not in conformity with accounting principles generally accepted in the United States of America. The budget is prepared and adopted using the cash basis of accounting whereby revenues budgeted are expected to be received rather than earned and expenditures budgeted are expected to be disbursed rather than incurred. Differences between the budgeted basis of accounting and the generally accepted basis are reconciled in the budget to actual schedule in the required supplementary information. The Board sets the property tax levy needed to support the coming year's budget in August of each year and submit its budget as required by State statute. Budgetary Control Each funds appropriated budget is prepared on a detailed line item basis. Revenues are budgeted by source. Expenditures are budgeted by department. Expenditures at the fund level constitute the legal level of control. Expenditures may not exceed appropriations at this level. All budget revisions at this level are subject to final review by the Board. 4. Use of Estimates 1 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 5. Deposits and Investments The Airport's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. -21 - Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. Capital Assets Capital assets, which include land, buildings, machinery and equipment (furniture, vehicles, computers, etc.) and infrastructure assets (runways), are reported in Governmental Activities column of the Government -Wide Financial Statement. Capital assets are defined by the Airport as assets with an initial, individual cost of more than $5,000. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated or annexed capital assets are recorded at estimated market value at the date of donation or annexation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. The Airport qualifies for the exemption under GASB 34 to not retroactively apply the capitalization requirements of general infrastructure assets. The requirement to capitalize and depreciate these assets has been applied as of October 1, 2003. Depreciation is recorded in the Government -Wide Financial Statements on a straight-line basis over the useful life of the assets as follows: Assets Years Buildings and runways 40 Machinery and equipment 10 Vehicles 5 7. Property Taxes Property tax revenue is recognized when collected by the County as the Airport's agent when measurable and available. There are no property taxes due which are not delinquent and all delinquent taxes are considered collectible. The Airport's December 31, 2010 valuation was included with the City of Blair's valuation of $465,374,213. The levy for the Airport for the year ending September 30, 2011 was $0.032614 per $100 of value. The total tax levy was $151,776. Property taxes are collected by the County and are due December 31 of each year and delinquent in halves at May 1 and September 1 of the following year. In -lieu of tax receipts are equivalent in value to payments for services provided. -22- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 8. Claims and Judgments Payable The Airport records a liability for litigation, judgments, and claims when it is probable that an asset has been impaired or a liability has been incurred prior to year-end and the probable amount of loss (net of any insurance coverage) can be reasonably estimated. The liability, if any, is reported in the Government -Wide Statement of Net Assets. The portion of the liability, which will be liquidated with expendable, available financial resources, if any, is reflected as a liability of applicable governmental funds. 9. Restricted Assets Assets are reported as restricted when limitations on their use change the nature or normal understanding of the availability of the asset. Such constraints are either externally imposed by creditors, contributions, grantors, or laws of other governments, or are imposed by law through constitutional provisions or enabling legislation. The Airport's policy is to first apply restricted resources to an expense when incurred for purposes for which both restricted and unrestricted net assets are available. 10. Inventory Inventories are valued at cost which approximates market, using the first-in/first- out (FIFO) method. The costs of inventories are recorded as expenditures when used (consumption method). 11. Transfers Transfers are used to move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them and to move unrestricted revenue collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. -23 - Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 12. Interfund Receivables and Payables During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as "due to and from other funds." Short- term interfund loans are reported as "interfund receivables and payables." Long- term interfund loans (noncurrent portion) are reported as "advances from and to other funds." Interfund receivables and payables between funds are eliminated in the statement of net assets. NOTE B. DEPOSITS Deposits consist of demand deposits and certificates of deposit with current maturities. These deposits have no restrictions. The deposits are entirely insured or collateralized with securities held by the entity's agent. Custodial credit risk is the risk that in the event of a bank failure, the Airport's deposits may not be returned. The statutes of the State of Nebraska require that local governmental units follow the "prudent man" rule with deposits, and that deposits be secured by collateral valued at market or par whichever is lower less the amount insured by the Federal Deposit Insurance Corporation. The Airport has no investment policy that would further limit its deposits. The carrying amount of bank balances at September 30, 2011, was $184,548. NOTE C. RELATED PARTIES The Airport's operating, administrative, and accounting functions are performed by the administrative offices of the City of Blair. The Airport incurs no cost for the resources used by the City of Blair in performing these functions. -24- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE D. CAPITAL ASSETS NOTE E. RISK MANAGEMENT The Airport is exposed to various risks of loss related to torts; theft; damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by the purchase of commercial insurance. The Airport assumes liability for any deductibles and claims in excess of coverage limitations. Settled claims from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE F. NET ASSET CATEGORIES In the government -wide financial statements net assets are classified in the following categories: Invested in Capital Assets This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation on these assets reduces this category. -25- Balance Balance September September 30, 2010 Increases Decreases 30, 2011 Capital assets not depreciated Land $ 5,201,538 $ - $ - $ 5,201,538 Construction in Progress - - - - Total capital assets not depreciated 5,201,538 - - 5,201,538 Other capital assets Buildings and runways 10,919,855 - - 10,919,855 Less accumulated depreciation Buildings and runways (1,119,601) (274,868) - (1,394,469) Other capital assets, net 9,800,254 (274,868) - 9,525,386 Governmental activities capital assets, net $ 15,001,792 $ (274,868) $ - $ 14,726,924 Depreciation expense of $274,868 was charged to general government expenses on the statement of activities. NOTE E. RISK MANAGEMENT The Airport is exposed to various risks of loss related to torts; theft; damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by the purchase of commercial insurance. The Airport assumes liability for any deductibles and claims in excess of coverage limitations. Settled claims from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE F. NET ASSET CATEGORIES In the government -wide financial statements net assets are classified in the following categories: Invested in Capital Assets This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation on these assets reduces this category. -25- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE F. NET ASSET CATEGORIES - CONTINUED Restricted Net Assets This category presents external restrictions imposes by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Assets This category represents the net assets of the Airport that are not restricted for any project or other purpose. In the governmental fund financial statements, reserves and designations segregate portions of fund balance that are either not available or have been earmarked for specific purposes. The various reserves and designations are established by actions of the Airport Board and Management and can be increased, reduced, or eliminated by similar actions. NOTE G. SHORT-TERM DEBT On April 22, 2009 and August 1, 2009, the Airport entered into an agreement with Washington County Bank in which the financial institution would provide up to $500,000 in each of two bond anticipation notes to manage the temporary cash flow deficits that occur due to the timing of expenditures related to federal funds received which do not coincide with the timing of reimbursement on these projects. A bond anticipation note was issued on January 20, 2010 in the amount of $2,500,000. Proceeds from the note issued January 20, 2010 were applied to pay off the April 22, 2009 and August 1, 2009 notes. An additional anticipation note was issued on January 20, 2011 in the amount of $3,000,000. Proceeds from this note were applied to pay off the January 20, 2010 note. The remaining bond anticipation note is due within one year of issuance. -26- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE G. SHORT-TERM DEBT - CONTINUED Short term debt activity for the year ended September 30, 2011, was as follows: Interest Beginning Ending Dated Description Rate Balance Additions Reductions Balance 01/20/2010 Note 2010 4.50% $1,244,655 78,492 (1,323,147) 01/20/2011 Note 2011 4.40% - 1,337,224 - 1,337,224 Total $1,244,655 $ 1,415,716 $(1,323,147) $ 1,337,224 The 2011 note is secured by a pledge of the revenues and all monies derived from the operation of the Airport's facility, including the authorized levy of taxes. NOTE H. LONG TERM DEBT Long term debt at September 30, 2011 consisted of the following: 4/23/2003 Refunding Bonds 12/1/09-12/1/16 1.40-4.35% $ 245,000 $ - $ (30,000) $ 215,000 11/6/2006 Refunding Bonds 12/1/09-12/1/26 4.00-5.25% 1,320,000 - (35,000) 1,285,000 Monthly 8/23/2006 Project F-29 Note through 2017 0% 67,375 - (10,500) 56,875 Monthly 8/23/2006 Project H-01 Note through 2023 0% 165,390 - (13,320) 152,070 $1,797,765 $ - $ (88,820) $1,708,945 -27- Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE H. LONG TERM DEBT - CONTINUED The 2003 and 2006 bonds are secured by a pledge of the revenues, income, receipts, profits and other monies derived by the Airport for the operation, management, and ownership of its airport facility, including monies derived from the authorized levy of taxes. As of September 30, 2011, annual debt service requirements of governmental activities to maturity are as follows: Year ending September Principle hnterest 30, Requirements Requirements Total 2012 $ 88,820 $ 73,399 $ 162,219 2013 93,820 70,714 164,534 2014 93,820 67,941 161,761 2015 98,820 64,984 163,804 2016 98,820 61,834 160,654 2017-2021 515,975 258,754 774,729 2022-2026 583,870 141,561 725,431 2027-2030 135,000 13,913 148,913 $ 1,708,945 $ 753,100 $ 2,462,045 NOTE I. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Airport uses the direct write-off for uncollectable accounts. While the direct write-off method is not GAAP, management has determined that there is no material difference between the direct write-off method and the allowance method. There were no significant doubtful accounts at September 30, 2011, NOTE J. CONCENTRATION OF CREDIT RISK All of the revenue from charges for services of the Airport is from the local Blair area therefore creating a concentration of credit risk. If the Blair area economy was depressed this could have an adverse effect on the collection of the revenue. Blair Airport Authority NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2011 NOTE K. FUND BALANCES As of October 1, 2010, the Airport implemented GASB Number 54 (Fund Balance Reporting and Governmental Fund Type Definitions) for the classification of fund balances in governmental funds. This standard became effective for periods beginning after June 15, 2010. Fund balances for each of the Airport's governmental funds (general fund, and debt service fund) are displayed in the following classifications depicting the relative strength of the spending constraints placed on the purposes for which resources can be used; Non -spendable fund balance - amounts that cannot be spent because they are either not in a spendable form (such as inventories and prepaid amounts) or are legally or contractually required to be maintained intact. Restricted fund balance - amounts that can be spent only for specific purposes because of constraints imposed by external providers (such as grantors, bondholders, and higher levels of government), or imposed by constitutional provisions or enabling legislation. Committed fund balance - amounts that can be spent only for specific purposes determined by a formal action of the government's highest level of decision-making authority. Assigned fund balance - amounts the government intends to use for specific purposes that do not meet the criteria to be classified as restricted or committed. Unassigned fund balance - amounts that are available for any purpose; these amounts can be reported only in the Airport's General Fund. NOTE L. CONTINGENCIES The Airport participates in a federal programs, which are subject to financial and compliance audits by the granting agencies. The amount of expenses, if any, which may be disallowed by the granting agencies, is not determinable at this time; however, management does not believe that such amount, if any, would be significant. The Airport is currently involved in a condemnation action to acquire land necessary to complete a plan for expansion of the airport. The condemnation is currently in active litigation and management intends to pursue the case vigorously. At this point, management believes that any estimate of a potential loss would be highly speculative; as such, no estimate for any future potential loss as a result of the condemnation has been made. -29- SUPPLEMENTAL INFORMATION Blair Airport Authority BUDGETARY COMPARISON SCHEDULE - GENERAL FUND For the year ended September 30, 2011 REVENUES Rent income Gas sales Interest Grants Miscellaneous income Total revenues EXPENDITURES General government Capital outlay Debt principal Interest expense Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Debt proceeds REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR An explanation of the differences between budgetary inflows and outflows and revenues and expenditures determined in accordance with generally accepted accounting principles follows: The budget fund balance at the beginning of the year is a based on cash reserves rather than fund balance. Accrual adjustments made because the Authority budgets for revenues and expenditures on the cash basis, rather than on the modified accrual basis. General Fund balance See independent auditor's report. -31- (1,939,849) (77,755) S (1,169,204) Variance Original/Final Favorable Budget Actual (Unfavorable) S 103,640 117,780 14,140 80,000 99,219 19,219 120 61 (59) 2,007,635 53,741 (1,953,894) 0 64,413 64,413 2,191,395 335,214 (1,856,181) 236,008 289,344 (53,336) 725,000 59,109 665,891 4,061,455 2,624,528 1,436,927 - 56,681 (56,681) 5,022,463 3,029,662 1,992,801 (2,831,068) (2,694,448) 136,620 2,855,000 2,693,277.00 (161,723) 23,932 (1,171) $ (25,103) 170,578 849,571 $ 194,510 S 848,400 An explanation of the differences between budgetary inflows and outflows and revenues and expenditures determined in accordance with generally accepted accounting principles follows: The budget fund balance at the beginning of the year is a based on cash reserves rather than fund balance. Accrual adjustments made because the Authority budgets for revenues and expenditures on the cash basis, rather than on the modified accrual basis. General Fund balance See independent auditor's report. -31- (1,939,849) (77,755) S (1,169,204) k rY Lr) O N 00 b N O O\ M O V') V') O\ O N 00 � V'1 U N O O a� TIP O U coco 0 O� l-- Lr) r-- N O M — O\ N O 00 M [— 00 N N �10 M N W*) O, kf-) �.c 00 tr) N O a ,--i 0o N 00 N t� — — N O� •-� It Vl 00 O 0 0 0 (01 O N N v) h �10 �10 [�06O\kroo0� Vn ON N to v) N 01 t-- O\ N kn rl- --� N N 00 ,1 - CD w O M 4. N h 00 O� O .--� O O O O Cl O N N N N N CIO ww l� "&- S &ASSOCIATES, L.L.C. Certified Public Accountants ( Consultants INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS Honorable Chairman and Board Members Blair Airport Authority Blair, Nebraska We have audited the financial statements of the governmental activities and each major fund of the Blair Airport Authority, Nebraska, as of and for the year ended September 30, 2011, which collectively comprise the Blair Airport Authority's, basic financial statements and have issued our report thereon dated March 27, 2012. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In plaruiing and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion of the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Westroads Pointe ( 1015 N.98th St. Suite 200 Omaha, NE 68114 T402,390.2480 ( 402.390.0885 MIMI Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Blair Airport Authority, Nebraska's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management, Blair Airport Authority Board, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Hayes & Associates, L.L.C. Omaha, Nebraska March 27, 2012 -34- Blair Airport Authority SCHEDULE OF FINDINGS AND RESPONSES For the year ended September 30, 2011 No current ,year findings report. -35- Blair Airport Authority SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS For the year ended September 30, 2011 Finding 10-01: Condition - The Airport keeps it books on a cash basis and has not developed the expertise and controls to prepare the financial statements. Recommendation - The Airport may consider gathering the necessary expertise to prepare a required set of financial statements in a format acceptable for GAAP reporting. Officials Response — The Airport Treasurer has started a process to develop government - wide and fund financial statements using its accounting software for fund financials and an excel worksheet for government -wide financials. This process should be in place for next year's financial statement preparation. Current Status — Prior year finding appears adequately resolved. Finding 10-02: Condition - Employees do not have documentation of key procedures to support their job duties. Recommendation - We recommend that the Airport formalize and maintain a policies and procedures manual for key activities. This manual should include all areas of activities, including administration and operations. A policy and procedures manual will document how the Airport operates and will support cross -training and reduce training issues relating to employee turnover. Officials Response — The Airport has drafted up formal policy and procedure documents in the current fiscal year. These documents are still in draft stage but the Airport anticipates that they will be formally adopted during the next fiscal year. Current Status - The Airport utilizes the City of Blair to do all accounting and therefore follows the City of Blair accounting procedures. The City has completed the drafting of a formal policy and procedure manual. The manual was implemented by the City during the year ended December 31, 2011 and was formally adopted by the city council in April of 2012. The City Treasurer reviewed all procedures with office and accounting personnel for implementation and clarity of use. -36-