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State of New Mexico City of Lovington. Annual Financial Report For the Year Ended June 30, 2016

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Table of Contents 4-5

Official Roster 6

FINANCIAL SECTION

Independent Auditors' Report 8-10

BASIC FINANCIAL STATEMENTS Government-wide Financial Statements:

Statement of Net Position A-1 12-13

Statement of Activities A-2 14-15

Fund Financial Statements:

Balance Sheet - Governmental Funds B-1 16

Reconciliation of the Balance Sheet to the Statement of Net Position 17

Statement of Revenues, Expenditures, and Changes in Fund

Balances - Governmental Funds B-2 18

Reconciliation of the Statement of Revenues, Expenditures, and Changes in

Fund Balances of Governmental Funds to the Statement of Activities 19

Statement of Revenues, Expenditures, and Changes in Fund Balance- Budget (Non-GAAP Budgetary Basis) and Actual:

General Fund C-1 21

Statement of Net Position - Proprietary Funds D-1 22-25

Statement of Revenues, Expenses, and Change in Net Position - Proprietary Funds D-2 26-27

Statement of Cash Flows - Proprietary Funds D-3 28-29

Statement of Fiduciary Assets and Liabilities - Agency Funds E-1 30

NOTES TO THE FINANCIAL STATEMENTS 31-62

REQUIRED SUPPLEMENTARY INFORMATION Schedule

Schedule of the City's Proportionate Share of the Net Pension Liability of PERA Fund -

Municipal General Division I 64

Municipal Police Division I 65

Municipal Fire Divison I 66

Schedule of the City's Contributions of PERA Fund -

Municipal General Division II 67

Municipal Police Division II 68

Municipal Fire Divison II 69

Notes to Required Supplementary Information 70

SUPPLEMENTARY INFORMATION Statement

Nonmajor Governmental Fund Descriptions 74-75

Combining and Individual Fund Statements and Schedules:

Non-Major Governmental Funds

Combining Balance Sheet - Nonmajor Governmental Funds A-1 76-79

Combining Statement of Revenues, Expenditures, and Changes in

Fund Balances - Nonmajor Governmental Funds A-2 80-83

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Combining and Individual Fund Statements and Schedules: (continued) Statement of Revenues, Expenditures, and Change in Fund Balance - Budget

(Non-GAAP Budgetary Basis) and Actual:

Corrections Special Revenue Fund B-1 84

EMS Grant Special Revenue Fund B-2 85

Fire Protection Special Revenue Fund B-3 86

Law Enforcement Protection Special Revenue Fund B-4 87

Lodger's Tax Special Revenue Fund B-5 88

Gasoline Tax Special Revenue Fund B-6 89

Recreation Special Revenue Fund B-7 90

Senior Citizens Special Revenue Fund B-8 91

Designated Franchise Special Revenue Fund B-9 92

Economic Development Special Revenue Fund B-10 93

TIF Downtown Improvements Special Revenue Fund B-11 94

C.D.B.G Capital Projects Fund B-12 95

Capital Improvement Capital Projects Fund B-13 96

Revenue Bond Debt Service Fund B-14 97

Statement of Revenues, Expenses, and Change in Net Position - Budget (GAAP Budgetary Basis) and Actual:

Solid Waste Proprietary Fund C-1 98

Water and Wastewater Proprietary Fund C-2 99

Ambulance Proprietary Fund C-3 100

Internal Service Funds

Combining Statement of Net Position - Internal Service Funds D-1 102

Combining Statement of Revenues, Expenses, and Change in Net Position -

Internal Service Funds D-2 103

Combining Statement of Cash Flows - Internal Service Funds D-3 104

Statement of Revenues, Expenses, and Change in Net Position - Budget (GAAP Budgetary Basis) and Actual:

Unemployment Compensation Internal Service Fund D-4 105

Pension Internal Service Fund D-5 106

SUPPORTING SCHEDULES Schedule

Schedule of Deposits and Investment Accounts III 108-109

Schedule of Collateral Pledged by Depository for Public Funds IV 111

Schedule of Changes in Fiduciary Assets and Liabilities – Agency Funds V 112-113

Schedule of Memorandums of Understanding VI 114-115

Schedule of Vendor Information for Purchases Exceeding $60,000 (excluding GRT) VII 116-117 COMPLIANCE SECTION

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 120-121

Schedule of Findings and Responses VIII 123-130

OTHER DISCLOSURES 131

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Name Title City Commission Members

Paul Campos Mayor

David Trujillo Mayor Pro Tem

Bernard Butcher Commissioner

Scott Gandy Commissioner

Arthur Sanchez Commissioner

Administration

Gary Lee Chapman Finance Director

James Williams City Manager

Carol Ann Hogue City Clerk

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Timothy Keller

New Mexico State Auditor The City Commission City of Lovington Lovington, New Mexico

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, the aggregate remaining fund information, and the budgetary comparison for the general fund of the City of Lovington (the “City”) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. We also have audited the financial statements of each of the City’s nonmajor governmental funds, and the budgetary comparisons for the major capital projects fund, proprietary funds, and all nonmajor funds presented as supplementary information, as defined by the Government Accounting Standards Board, in the accompanying combining and individual fund financial statements as of and for the year ended June 30, 2016, as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the City of Lovington Housing Authority (the “Authority”), which represent 0%, 0%, and 0.01%, respectively, of the assets, net position, and revenues of the City. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Authority, is based solely on the report of the other auditors. 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 auditors’ 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 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 opinions.

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accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of each nonmajor governmental fund of the City as of June 30, 2016, and the respective changes in financial position thereof and the respective budgetary comparisons for the major capital projects fund, proprietary funds, and all nonmajor funds for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Management has omitted the Management’s Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.

Accounting principles generally accepted in the United States of America require Schedules I and II and the Notes to the Required Supplementary Information on pages 64 through 70 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements, the combining and individual fund financial statements, and the budgetary comparisons. Schedules III through VII required by 2.2.2 NMAC are presented for the purposes of additional analysis and are not a required part of the basic financial statements.

The supporting Schedules III through VI required by Section 2.2.2 NMAC are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, Schedules III through VI required by Section 2.2.2 NMAC are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

The introductory section and Schedule VII have 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 them.

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integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

RPC CPAs + Consultants, LLP Albuquerque, New Mexico December 15, 2016

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Governmental Activities

Business-type

Activities Total

Housing Authority Assets

Current assets

Cash and cash equivalents $ 8,458,949 $ 3,423,522 $ 11,882,471 $ - Investments 397,374 129,654 527,028 - Receivables

Taxes 1,096,102 - 1,096,102 - Intergovernmental 40,736 - 40,736 - Other 264,489 1,034,977 1,299,466 - Inventory 212,138 219,534 431,672 - Total current assets 10,469,788 4,807,687 15,277,475 - Noncurrent assets

Restricted cash - 440,544 440,544 -

Capital assets 44,479,632 26,159,186 70,638,818 -

Less: accumulated depreciation (22,476,909) (13,788,158) (36,265,067) - Total noncurrent assets 22,002,723 12,811,572 34,814,295 - Total assets 32,472,511 17,619,259 50,091,770 - Deferred outflows of resources

Change of assumptions 85,549 - 85,549 -

Changes in proportion 358,912 50,919 409,831 -

Difference between expected and actual

experience 237,940 33,756 271,696 -

Employer contributions subsequent to the

measurement date 382,167 54,218 436,385 - Net difference between projected and actual

investment earnings - 111,791 111,791 - Total deferred outflows of resources 1,064,568 250,684 1,315,252 - Total assets and deferred outflows of resources $ 33,537,079 $ 17,869,943 $ 51,407,022 $ -

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Governmental Activities

Business-type

Activities Total

Housing Authority Liabilities

Current liabilities

Accounts payable $ 309,710 $ 332,669 $ 642,379 $ - Accrued payroll 135,083 20,461 155,544 - Current portion of accrued compensated

absences 188,486 38,428 226,914 -

Deposits held in trust - 440,544 440,544 - Accrued interest 14,575 65,101 79,676 - Current portion of bonds payable 600,000 - 600,000 - Current portion of loans payable - 417,483 417,483 - Total current liabilities 1,247,854 1,314,686 2,562,540 - Noncurrent liabilities

Accrued compensated absences 445,229 99,677 544,906 - Bonds payable 2,315,000 - 2,315,000 - Loans payable - 6,583,765 6,583,765 - Net pension liability 6,144,256 215,605 6,359,861 - Total noncurrent liabilities 8,904,485 6,899,047 15,803,532 - Total liabilities 10,152,339 8,213,733 18,366,072 - Deferred inflows of resources

Change of assumptions 65,691 869 66,560 -

Changes in proportion 172,519 24,475 196,994 -

Differences between expected and actual

experience 13,608 1,931 15,539 -

Net difference between projected and actual

investment earnings 123,333 - 123,333 - Total deferred inflows of resources 375,151 27,275 402,426 - Net position

Net investment in capital assets 20,492,798 5,369,780 25,862,578 - Restricted for:

Special revenue 2,261,742 - 2,261,742 - Capital projects 2,093,055 - 2,093,055 - Unrestricted (1,838,006) 4,259,155 2,421,149 - Total net position 23,009,589 9,628,935 32,638,524 - Total liabilities, deferred inflows of resources,

and net position $ 33,537,079 $ 17,869,943 $ 51,407,022 $ -

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Functions/Programs Expenses

Charges for Services

Operating Grants and Contributions

Capital Grants and Contributions Primary Government

Governmental activities:

General government $ 3,873,382 $ 591,704 $ 361,535 $ 49,280 Public safety 5,057,598 48,011 124,170 15,340 Public works 1,525,342 - - - Culture and recreation 2,052,246 5,377 210,574 - Conservation and development 624,411 - - - Interest on long-term debt 92,450 - - - Total governmental activities 13,225,429 645,092 696,279 64,620 Business-type activities:

Solid waste 2,026,167 1,932,661 - -

Water and wastewater 3,219,371 3,009,175 17,984 -

Ambulance 522,248 859,003 75,000 -

Total business-type activities 5,767,786 5,800,839 92,984 - Total primary government $ 18,993,215 $ 6,445,931 $ 789,263 $ 64,620 Component Unit

Housing Authority $ 100,755 $ 72,264 $ 58,605 $ - General revenues

Taxes:

Property taxes, levied for general purposes Gross receipts taxes

Gasoline and motor vehicle taxes Other taxes

Investment income Fines and forfeitures Miscellaneous income Transfers

Transfers to other entitty Total general revenues Change in net position

Net position - beginning of year Restatement (Note 20)

Net position - beginning of year, restated Net position - end of year

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Unit Governmental

Activities

Business-Type

Activities Total

Housing Authority

(2,870,863)

$ $ - $ (2,870,863) $ - (4,870,077)

- (4,870,077) - (1,525,342)

- (1,525,342) - (1,836,295)

- (1,836,295) - (624,411)

- (624,411) - (92,450)

- (92,450) (92,450) (11,819,438)

- (11,819,438) (92,450)

-

(93,506) (93,506) - -

(192,212) (192,212) - -

411,755 411,755 - -

126,037 126,037 - (11,819,438)

126,037 (11,693,401) (92,450)

-

- - 30,114

392,518

- 392,518 - 7,677,193

- 7,677,193 - 230,122

- 230,122 - 339,913

- 339,913 - 6,322

3,693 10,015 93 121,637

- 121,637 - 735,453

5,355 740,808 729 764,078

(754,884) 9,194 - -

- - (447,920) 10,267,236

(745,836) 9,521,400 (447,098) (1,552,202)

(619,799) (2,172,001) (416,984) 24,525,728

10,145,617 34,671,345 416,984 36,063

103,117 139,180 - 24,561,791

10,248,734 34,810,525 416,984 23,009,589

$ $ 9,628,935 $ 32,638,524 $ - Primary Government

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General Fund

Capital Improvement

Other Governmental

Funds Total

Assets

Cash and cash equivalents $ 4,864,103 $ 1,405,075 $ 2,095,264 $ 8,364,442 Investments 366,983 - 30,391 397,374 Receivables:

Taxes 907,645 105,864 82,593 1,096,102 Intergovernmental - - 40,736 40,736 Other 230,231 - 34,258 264,489 Inventory 212,138 - - 212,138 Total assets $ 6,581,100 $ 1,510,939 $ 2,283,242 $ 10,375,281

Liabilities

Accounts payable $ 199,865 $ 93,116 $ 16,729 $ 309,710 Accrued payroll 89,814 - 4,771 94,585

Total liabilities 289,679 93,116 21,500 404,295 Deferred inflows of resources

Unavailable revenue-property taxes 14,287 - - 14,287

Total deferred inflows of resources 14,287 - - 14,287 Fund balances

Nonspendable:

Inventory 212,138 - - 212,138 Spendable:

Restricted:

Public safety - - 116,404 116,404 Tourism - - 11,981 11,981 Public works - - 1,062,242 1,062,242 Culture and recreation - - 31,666 31,666 General government - - 105,602 105,602 Economic development - - 841,522 841,522 Capital improvements - 1,417,823 5 1,417,828 Committed:

Culture and recreation - - 92,320 92,320 Subsequent year's expenditures 211,048 - - 211,048 Unassigned 5,853,948 - - 5,853,948

Total fund balances 6,277,134 1,417,823 2,261,742 9,956,699 Total liabilities, deferred inflows of

resources, and fund balances $ 6,581,100 $ 1,510,939 $ 2,283,242 $ 10,375,281

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Amounts reported for governmental activities in the Statement of Net Position are different because:

Fund balances - total governmental funds $ 9,956,699

The City uses internal service funds to charge the costs of certain activities, such as self-insurance to appropriate functions in other governmental funds. The assets and liabilities of the internal service funds are included in the governmental activities in the Statement of Net Position. The

net effect of this consolidation is to increase (decrease) net position. 54,009 Capital assets used in governmental activities are not financial resources

and, therefore, are not reported in the funds 22,002,723

Deferred outflows and inflows or resources related to pension are applicable to future periods and, therefore, are not reported in the funds:

Employer contributions subsequent to the measurement date 382,167

Change of assumptions 85,549

Changes in proportion 358,912

Difference between expected and actual experience 237,940

Change of assumptions (65,691)

Changes in proportion (172,519)

Difference between expected and actual experience (13,608)

Net difference between projected and actual investment earnings (123,333) Delinquent property taxes not collected within sixty days after year end are not

considered "available" revenues and are considered to be deferred inflows of resources in the fund financial statements, but are considered revenue in the

Statement of Activities 14,287

Certain liabilities, including loans payable, net pension liability, and current and long-term portions of accrued compensated absences, are not due and payable in the current period and, therefore, are not reported in the funds:

Accrued interest payable (14,575)

Accrued compensated absences not due and payable at year end (633,715)

Bonds payable (2,915,000)

Net pension liability (6,144,256)

Total net position of governmental activities $ 23,009,589

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General Fund

Capital Improvement

Governmental

Funds Total

Revenues Taxes:

Property $ 385,415 $ - $ - $ 385,415 Gross receipts 6,573,388 815,469 288,336 7,677,193 Gasoline and motor vehicle taxes 26,853 - 203,269 230,122 Other 216,415 - 123,498 339,913 Intergovernmental income:

Federal operating grants 13,269 - 29,349 42,618 Federal capital grants 49,280 - - 49,280 State operating grants 620,524 - 285,265 905,789 State capital grants - - 15,340 15,340 Charges for services 339,576 - 53,388 392,964 Investment income 6,268 - 54 6,322 Fines and forfeitures 121,637 - - 121,637 Miscellaneous 192,642 - 324,840 517,482 Total revenues 8,545,267 815,469 1,323,339 10,684,075 Expenditures

Current:

General government 3,301,037 - 97,949 3,398,986 Public safety 4,289,111 67,287 146,615 4,503,013 Public works 581,406 - 71,349 652,755 Culture and recreation 1,158,745 - 427,247 1,585,992 Conservation and development 1,899 - 622,512 624,411 Capital outlay 781,740 2,295,902 131,795 3,209,437 Debt service

Principal - - 585,000 585,000 Interest - - 77,875 77,875 Total expenditures 10,113,938 2,363,189 2,160,342 14,637,469 Excess (deficiency) of revenues over

expenditures (1,568,671) (1,547,720) (837,003) (3,953,394) Other financing sources (uses)

Operating transfers in 870,382 50,000 917,161 1,837,543 Operating transfers (out) (323,575) (763,819) (5,321) (1,092,715) Proceeds from debt issuance - 3,500,000 - 3,500,000

Total other financing sources (uses) 546,807 2,786,181 911,840 4,244,828 Net change in fund balances (1,021,864) 1,238,461 74,837 291,434 Fund balances - beginning of year 7,298,998 179,362 2,186,905 9,665,265 Fund balance - end of year $ 6,277,134 $ 1,417,823 $ 2,261,742 $ 9,956,699

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are different because:

Net change in fund balances- total governmental funds $ 291,434

The City uses internal service funds to charge the costs of certain activities primarily to the governmental funds. The net income (loss) of these internal service funds are reported with governmental activities. The net effect of this

consolidation is to increase (decrease) net position. (2,490)

Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense:

Capital outlay 3,209,437

Depreciation expense (1,733,305)

Loss on disposal of capital assets (31,371)

Governmental funds report pension contributions as expenditures.

However, in the Statement of Activities, the cost of pension benefits earned net of employee contributions is reported as pension expense:

Employer contributions 382,167

Pension expense (694,560)

Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenue in the governmental funds:

Change in unavailable revenue related to property taxes receivable 7,103 Expenditures in the Statement of Activities that do not require the use of

current financial resources and therefore are not reported as expenditures in the governmental funds:

Increase in accrued compensated absences (51,042)

Increase in accrued interest (14,575)

The issuance of long-term debt (e.g. bonds, notes, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities:

Principal payments on bonds payable 585,000

Bond proceeds (3,500,000)

(1,552,202)

$

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Actual

Favorable (Unfavorable)

Original Final Amounts Final to Actual

Revenues Taxes:

Property taxes $ 369,140 $ 391,361 $ 391,361 $ - Gross receipts 7,635,329 7,150,633 7,150,633 - Gasoline and motor vehicle 22,600 27,080 27,080 - Other 238,744 207,928 207,928 - Intergovernmental income:

Federal operating grants 66,000 23,455 20,916 (2,539) Federal capital grants - 49,280 49,280 - State operating grants 379,408 305,421 307,960 2,539 Charges for services 73,400 76,660 76,660 - Investment income 2,400 2,594 6,268 3,674 Fines and forfeitures 141,375 114,003 114,003 - Miscellaneous income 724,625 611,312 611,313 1 Total revenues 9,653,021 8,959,727 8,963,402 3,675 Expenditures

Current:

General government 3,720,310 3,537,789 3,201,363 336,426 Public safety 3,946,482 3,966,660 4,064,825 (98,165) Public works 653,404 622,919 526,633 96,286 Culture and recreation 1,154,568 1,091,314 1,087,044 4,270 Conservation and development - - 7,073 (7,073) Capital outlay 840,000 804,293 1,104,223 (299,930) Total expenditures 10,314,764 10,022,975 9,991,161 31,814 Excess (deficiency) of revenues over

expenditures (661,743) (1,063,248) (1,027,759) 35,489 Other financing sources (uses)

Designated cash (budgeted increase in cash) 916,029 1,193,822 - (1,193,822) Operating transfers in - - 870,382 870,382 Operating transfers (out) (254,286) (130,574) (273,575) (143,001) Total other financing sources (uses) 661,743 1,063,248 596,807 (466,441) Net change in fund balance - - (430,952) (430,952) Fund balances - beginning of year - - 5,662,038 5,662,038 Fund balances - end of year $ - $ - $ 5,231,086 $ 5,231,086

Net change in fund balance (non-GAAP budgetary basis) $ (430,952)

Adjustments to revenues for taxes and other receivables (468,135)

Adjustments to expenditures for professional services, utilities, supplies and accrued payroll (122,777) Budgeted Amounts

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Solid Waste

Water and Wastewater Assets

Current assets

Cash and cash equivalents $ 247,453 $ 2,727,905

Investments 59,698 69,956

Receivables:

Other 423,857 525,786

Inventory - 180,207

Total current assets 731,008 3,503,854

Noncurrent assets

Restricted cash - 440,544

Capital assets 437,101 24,886,515

Less: accumulated depreciation (173,731) (13,303,031)

Total noncurrent assets 263,370 12,024,028

Total assets 994,378 15,527,882

Deferred outflows of resources

Changes in proportion - 23,842

Difference between expected and actual experience - 15,806

Net difference between projected and actual earnings - 52,345 Employer contributions subsequent to the measurement date - 25,387 Total deferred outflows of resources - 117,380 Total assets and deferred outflows of resources $ 994,378 $ 15,645,262

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Ambulance Fund Total

Internal Service Funds

448,164

$ $ 3,423,522 $ 94,507 -

129,654 - 85,334

1,034,977 - 39,327

219,534 - 572,825

4,807,687 94,507

-

440,544 - 835,570

26,159,186 - (311,396)

(13,788,158) - 524,174

12,811,572 - 1,096,999

17,619,259 94,507

27,077 50,919 - 17,950 33,756 - 59,446 111,791 - 28,831 54,218 - 133,304

250,684 - 1,230,303

$ $ 17,869,943 $ 94,507

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Solid Waste

Water and Wastewater Liabilities

Current liabilities

Accounts payable $ 145,789 $ 150,020

Accrued payroll 3,719 12,159

Current portion of accrued compensated absences 398 36,883

Deposits held in trust - 440,544

Accrued interest - 65,101

Current portion of loans payable - 417,483

Total current liabilities 149,906 1,122,190

Noncurrent liabilities

Accrued compensated absences 279 83,311

Loans payable - 6,583,765

Net pension liability - 100,955

Total noncurrent liabilities 279 6,768,031

Total liabilities 150,185 7,890,221

Deferred inflows of resources

Change of assumptions - 407

Changes in proportion - 11,460

Difference between expected and actual experience - 904

Total deferred inflows of resources - 12,771 Net position

Net investment in capital assets 263,370 4,582,236

Unrestricted 580,823 3,160,034

Total net position 844,193 7,742,270

Total liabilities and net position $ 994,378 $ 15,645,262

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Ambulance Fund Total

Internal Service Funds

36,860

$ $ 332,669 $ - 4,583

20,461 40,498 1,147

38,428 - -

440,544 - -

65,101 - -

417,483 - 42,590

1,314,686 40,498

16,087

99,677 - -

6,583,765 - 114,650 215,605 - 130,737

6,899,047 - 173,327

8,213,733 40,498

462 869 - 13,015 24,475 - 1,027 1,931 - 14,504

27,275 -

524,174

5,369,780 - 518,298

4,259,155 54,009 1,042,472

9,628,935 54,009 1,230,303

$ $ 17,869,943 $ 94,507

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Solid Waste

Water and Wastewater Operating revenues

Charges for services $ 1,932,661 $ 3,009,175

Operating subsidy - 17,984

Total operating revenues 1,932,661 3,027,159

Operating expenses

Personnel services 89,759 1,328,403

Contractual services 1,788,421 81,047

Supplies 7,446 408,461

Maintenance and materials 16,339 170,507

Utilities 1,089 61,291

Depreciation 53,071 918,680

Other operating expenses 70,042 114,855

Total operating expenses 2,026,167 3,083,244

Operating income (loss) (93,506) (56,085)

Nonoperating revenues (expenses)

Investment income - 3,693

Miscellaneous income 2,300 3,038

Interest expense - (136,127)

Total nonoperating revenues (expenses) 2,300 (129,396) Income (loss) before contributions and transfers (91,206) (185,481) Capital grants and net transfers

Operating transfers in 44,106 45,406

Operating transfers (out) (4,039) (759,670)

Total capital grants and net transfers 40,067 (714,264)

Change in net position (51,139) (899,745)

Net position - beginning of year 819,975 8,614,255

Restatement (Note 20) 75,357 27,760

Net position- beginning of year, restated 895,332 8,642,015

Net position - end of year $ 844,193 $ 7,742,270

Funds

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Activities Ambulance Fund Total

Internal Service Funds

859,003

$ $ 5,800,839 $ 217,971 75,000

92,984 - 934,003

5,893,823 217,971

281,354

1,699,516 - 42,670

1,912,138 - 29,031

444,938 - 38,736

225,582 - -

62,380 - 6,820

978,571 - 123,637

308,534 239,711 522,248

5,631,659 239,711 411,755

262,164 (21,740)

-

3,693 - 17

5,355 - -

(136,127) - 17

(127,079) - 411,772

135,085 (21,740)

-

89,512 19,250 (80,687)

(844,396) - (80,687)

(754,884) 19,250 331,085

(619,799) (2,490)

711,387 10,145,617 20,436

-

103,117 36,063

711,387 10,248,734 56,499

1,042,472

$ $ 9,628,935 $ 54,009 Funds

(28)

Solid Waste

Water and Wastewater Cash Flows From Operating Activities

Cash received from user charges $ 1,912,012 $ 3,079,078

Cash received from subsidy grants - 17,984 Cash payments to employees for services (86,510) (1,326,345) Cash payments to suppliers for goods and services (1,749,082) (823,290) Net cash provided (used) by operating activities 76,420 947,427 Cash Flows From Investing Activities

Interest on investments - 3,693

Net cash provided (used) by investing activities - 3,693 Cash Flows From Noncapital Financing Activities

Miscellaneous income 2,300 3,038

Net cash transfers (4,039) (750,845)

Net cash provided (used) by noncapital financing activities (1,739) (747,807) Cash Flows From Capital and Related Financing Activities

Interest paid - (140,056)

Principal payments on long-term debt - (409,751)

Acquisition of capital assets (17,217) (619,431)

Net cash provided (used) by capital and related financing activities (17,217) (1,169,238) Net increase (decrease) in cash and cash equivalents 57,464 (965,925) Cash and cash equivalents - beginning of year 189,989 4,134,374 Cash and cash equivalents - end of year $ 247,453 $ 3,168,449 Reconciliation of operating income (loss) to

net cash provided (used) by operating activities

Operating income (loss) $ (93,506) $ (56,085)

Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities

Restatement 75,357 27,760

Depreciation 53,071 918,680

Net pension expense - 21,733

Changes in assets and liabilities

Receivables (96,006) 20,410

Inventory - 8,109

Employer contributions subsequent to the measurement date - (12,583)

Accounts payable 134,255 (6,886)

Accrued payroll 3,604 17,672

Current portion of accrued compensated absences (355) (3,031)

Deposits held in trust - 11,648

Net cash provided (used) by operating activities $ 76,420 $ 947,427

(29)

Ambulance Fund Total

Internal Service Funds 794,564

$ $ 5,785,654 $ - 75,000

92,984 - (323,002)

(1,735,857) 217,971 (197,214)

(2,769,586) (240,845) 349,348

1,373,195 (22,874)

-

3,693 - -

3,693 -

17

5,355 - -

(754,884) 19,250 17

(749,529) 19,250

-

(140,056) - -

(409,751) - (214,340)

(850,988) - (214,340)

(1,400,795) - 135,025

(773,436) (3,624) 313,139

4,637,502 98,131 448,164

$ $ 3,864,066 $ 94,507

411,755

$ $ 262,164 $ (21,740)

-

103,117 - 6,820

978,571 - 24,681

46,414 (77,556)

(153,152) - (11,564)

(3,455) - (28,831)

(41,414) - 36,860

164,229 - 6,007

27,283 (1,134) (18,824)

(22,210) - -

11,648 - 349,348

$ $ 1,373,195 $ (22,874) Funds

(30)

Assets

Cash $ 26,150

Accounts receivable 1,945

Total assets $ 28,095

Liabilities

Deposits held in trust $ 28,095

Total liabilities $ 28,095

(31)

The City of Lovington (the “City”) was incorporated in 1918 under the laws of the State of New Mexico. The City operates under a Commission-Mayor form of government and provides the following services as authorized by its charter: public safety (police, ambulance, and fire), streets, sanitation, culture-recreation, education, public improvements, planning and zoning, and general administrative services.

The City of Lovington is a body politic and corporate under the name and form of government selected by its qualified electors. The City may:

1. Sue or be sued;

2. Enter into contracts and leases;

3. Acquire and hold property, both real and personal;

4. Have common seal, which may be altered at pleasure;

5. Exercise such other privileges that are incident to corporations of like character or degree that are not inconsistent with the laws of New Mexico;

6. Protect generally the property of its municipality and its inhabitants;

7. Preserve peace and order within the municipality; and

8. Establish rates for services provided by municipal utilities and revenue-producing projects, including amounts which the governing body determines to be reasonable in the operation of similar facilities.

This summary of significant accounting policies of the City is presented to assist in the understanding of the City’s financial statements. The financial statements and notes are the representation of City’s management who is responsible for their integrity and objectivity. The financial statements of the City have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units.

During the year ended June 30, 2016, the City adopted GASB Statements No. 72, Fair Value Measurement and Application, a portion of No 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, No. 79, Certain External Investment Pools and Pool Participants and No. 82 Pension Issues-an amendment of GASB Statement No. 67, No. 68, and No.73. These five Statements are required to be implemented as of June 30, 2016, if applicable.

GASB Statement No. 72 addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement will enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. This Statement also will enhance fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government’s financial position.

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GASB Statement No. 73 establishes accounting and financial reporting standards for defined benefit pensions and defined contribution pensions that are not provided to employees of state and local government employers and are not within the scope of Statement 68. A portion of this pronouncement is effective for June 30, 2016 year end and a portion is effective for June 30, 2017 year end. Effective for June 30, 2016 are the amendments for Statement No.s 67 and 68 and assets accumulated for pensions not administered as trusts. The amendments of this pronouncement clarifies application of certain provisions of GASB 67 and 68 with regards to the following issues: (1) Information that is required to be presented as notes to the 10-year schedules of RSI about investment-related factors that significantly affect trends in reported amounts; (2) Accounting and financial reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities for defined benefit pensions; and (3) Timing of employer recognition of revenue for the support of nonemployer contributing entities not in a special funding situation.

In addition, effective for June 30, 2016 year ends, the requirements of this Statement extend the approach to accounting and financial reporting established in Statement 68 to all pensions, with modifications as necessary to reflect that, for accounting and financial reporting purposes, any assets accumulated for pensions that are provided through pension plans that are not administered through trusts that meet the criteria specified in Statement 68 should not be considered pension plan assets. It also requires that information similar to that required by Statement 68 be included in notes to financial statements and required supplementary information by all similarly situated employers and nonemployer contributing entities.

The objective of GASB Statement No. 76 is to identify-in the context of the current governmental financial reporting environment-the hierarchy of generally accepted accounting principles (GAAP). The “GAAP hierarchy” consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The requirements in this Statement improve financial reporting by (1) raising the category of GASB Implementation Guides in the GAAP hierarchy, thus providing the opportunity for broader public input on implementation guidance; (2) emphasizing the importance of analogies to authoritative literature when the accounting treatment for an event is not specified in authoritative GAAP; and (3) requiring the consideration of consistency with the GASB Concepts Statements when evaluating accounting treatments specified in nonauthoritative literature. As a result, governments will apply financial reporting guidance with less variation, which will improve the usefulness of financial statement information for making decisions and assessing accountability and enhance the comparability of financial statement information among governments.

GASB Statement No. 79 addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool for measuring all of its investments at amortized cost for financial reporting purposes. Professional judgement is required to determine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant. This Statement will enhance comparability of financial statements among governments by establishing specific criteria used to determine whether a qualifying external investment pool may elect to use an amortized cost exception to fair value measurement.

Those criteria will provide for qualifying external investment pools and participants in those pools with consistent application of an amortized cost-based measurement for financial reporting purposes. That measurement approximates fair value and mirrors the operations of external investment pools that transact with participants at a stable net asset value per share.

(33)

The objective of GASB Statement No. 82 is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information; (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and; (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements.

A Financial Reporting Entity

The financial reporting entity consists of (a) the primary government, (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete.

In evaluating how to define the City for financial reporting purposes, management has considered all potential component units. The decision to include any potential component units in the financial reporting entity was made by applying the criteria set forth in GASB Statement No. 14, as amended by GASB Statement No. 39 and GASB Statement No. 61. Blended component units, although legally separate entities, are in substance, part of the government’s operations. Each discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the government.

The basic, but not the only, criterion for including a potential component unit within the reporting entity is the governing body’s ability to exercise oversight responsibility. The most significant manifestation of this ability is financial interdependency. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of governing authority, the designation of management, the ability to significantly influence operations, and accountability for fiscal matters.

A second criterion used in evaluating potential component units is the scope of public service.

Application of this criterion involves considering whether the activity benefits the government and/or its citizens.

A third criterion used to evaluate potential component units for inclusion or exclusion from the reporting entity is the existence of special financing relationships, regardless of whether the government is able to exercise oversight responsibilities. Finally, the nature and significance of a potential component unit to the primary government could warrant its inclusion within the reporting entity.

Based upon the application of these criteria, the City has one component unit required to be reported under GASB Statements No. 14, No. 39, or No. 61.

On November 5, 2014, the City of Lovington Housing Authority entered into an agreement for the City of Lovington Authority (Component Unit of City of Lovington) to take over the operations of the City of Lovington’s Housing Authority on January 1, 2016. The City’s financial statements include the financial operations of the Authority for the six months ended December 31, 2015.

Separate financial statements for the six month period January 1, 2016 through June 30, 2016, are available at request of the City of Lovington 214 S. Love St. Lovington, NM 88260.

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B. Government-wide and Fund Financial Statements

The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government.

Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities (also known as proprietary or enterprise funds), which rely to a significant extent on fees and charges for support.

The Statement of Net Position and the Statement of Activities were prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions.

In the government-wide Statement of Net Position, both the governmental and business-type activities columns (a) are presented on a consolidated basis by column, and (b) are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The City’s net position is reported in three parts: net investment in capital assets, restricted net position, and unrestricted net position.

The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focusand the accrual basis of accounting, as are the proprietary funds (business-type activities and enterprise) and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes, net of estimated refunds, are recognized as revenues in the year for which they are levied.

Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements are reported using the current financial resources measurement focusand the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period.

For this purpose, the government considers revenues to be available if they are collected within sixty (60) days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

(35)

C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (continued)

Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period, subject to the availability criterion. Sales and use taxes are classified as derived tax revenues and are recognized as revenue when the underlying exchange takes place and the revenues are measurable and available. All other revenue items are considered to be measurable and available only when cash is received by the government.

Program revenues included in the Statement of Activities are derived directly from the program itself or from parties outside the City’s taxpayer or citizenry, as a whole; program revenues reduce the cost of the function to be financed from the City’s general revenues. Program revenues are categorized as (a) charges for services, which include revenues collected for fees and use of City facilities, etc., (b) program-specific operating grants, which include revenues received from state and federal sources such as small cities assistance to be used as specified within each program grant agreement, and (c) program-specific capital grants and contributions, which include revenues from state sources to be used for capital projects. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes.

The City reports all direct expenses by function in the Statement of Activities. Direct expenses are those that are clearly identifiable with a function. The City does not currently employ indirect cost allocation systems. Depreciation expense is specifically identified by function and is included in the direct expense of each function. Interest on general long-term debt is considered an indirect expense and is reported separately on the Statement of Activities.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues include activities that have the characteristics of an exchange transaction, such as a) sales and services and b) contracts and grants. Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as a) investment income and b) miscellaneous.

Operating expenses include activities that have the characteristics of an exchange transaction, such as a) employee salaries, benefits, and related expenses; b) utilities, supplies, and other services; c) professional fees; d) repairs and maintenance; and e) depreciation expenses related to City capital assets and long-term debt. Nonoperating expenses include activities that have the characteristics of nonexchange transactions, such as interest on capital assets-related debt that are defined as nonoperating expenses by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Non- expendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB Statement No. 34. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed.

(36)

C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (continued)

Under the requirements of GASB Statement No. 34, the City is required to present certain of its governmental funds as major based upon certain criteria. The major funds presented in the fund financial statements include the following, which include funds that were not required to be presented as major but were at the discretion of management:

The City reports the following major governmental funds:

The General Fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The Capital Improvement Capital Project Fund accounts for the repair, maintenance, construction, and improvements to water, sewer, road systems, buildings, and grounds.

Financing is provided by the City’s hold harmless gross receipt taxes and bonds. (City Ordinance 528).

The City reports the following major proprietary funds:

The Solid Waste Fund accounts for all activities necessary to provide solid waste refuse collection services provided by the City. (City Ordinance 445)

The Water and Wastewater Fund accounts for all activities necessary to provide water and sewer services for the residents of the City. (Section 3-27-2, NMSA 1978)

The Ambulance Fund accounts for the provision of ambulance service to the residents of the City. All activities necessary to provide such service are accounted for in this fund including, but not limited to, administration, operations, billing and maintenance.

Additionally, the government reports the following fund types:

The Fiduciary Funds account for resources held for others. They are purely custodial in nature (assets equal liabilities) and do not involve measurement of results of operations.

These funds are used to account for assets that the City holds for others in an agency capacity.

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the government’s enterprise funds and various other functions of the government.

Elimination of these charges would distort the direct costs and program revenues reported in the Statement of Activities.

(37)

D. Assets, Liabilities, Deferred Outflows and Inflows of Resources, and Net Position or Fund Balance Deposits and investments:The City’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. Both unrestricted and restricted cash are included in the Statement of Cash Flows.

State statutes authorize the City to invest in certificates of deposit, obligations of the U.S.

Government, and the State Treasurer’s Investment Pool.

Investments for the City are reported at fair market value, which is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. Income, gains, and losses on investments are reported as a component of investment income on the Statement of Activities.

Receivables and payables: Interfund activity is reported as loans, services provided, reimbursements, or transfers. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements are when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement.

All other interfund transactions are treated as transfers. Transfers between governmental or between proprietary funds are netted as part of the reconciliation to the government-wide financial statements.

Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources in the event they are not received within sixty (60) days of year end.

All receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. Payables are comprised of unpaid vendor and supplier invoices and are recognized when incurred. In the government-wide and governmental fund financial statements, delinquent property taxes are recorded when levied. Property taxes are considered to be 100% collectible.

Property taxes are levied on November 1st based on the assessed value of property as listed on the previous January 1st and are due in two payments by November 10thand April 10th. Property taxes uncollected after November 10thand April 10thare considered delinquent, and the City may assess penalties and interest. The taxes attach as an enforceable lien on property thirty (30) days thereafter, at which time they become delinquent. Property taxes are collected by Lea County and remitted monthly to the City.

Prepaid expenses:Prepaid expenses include insurance and contract payments to vendors that reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. For the year ended June 30, 2016, there were none.

Restricted assets: Restricted assets consist of those funds expendable for operating purposes but restricted by donors or outside agencies as to the specific purpose for which they may be used and restricted for future debt service payments.

(38)

D. Assets, Liabilities, Deferred Outflows and Inflows of Resources, and Net Position or Fund Balance (continued)

Inventory: The City’s method of accounting for inventory is the consumption method. Under the consumption approach, governments report inventory they purchase as an asset and defer the recognition of the expenditures until the period in which the inventory is actually consumed.

Inventory is valued at cost and consists of supplies and materials. The cost of purchased supplies and materials is recorded as an expenditure at the time individual inventory items are consumed.

Capital assets: Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are defined by the City as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of one year.

Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. The City of Lovington was a Phase III government for purposes of implementing GASB Statement No.

34, and therefore, was not required to include the historical cost of infrastructure assets retroactive to 1980. Information technology equipment including software is being capitalized and included in furniture, fixtures, and equipment in accordance with NMAC 2.20.1.9C(5). Donated capital assets are recorded at estimated fair market value at the date of donation. There were no assets donated to the City for the year ended June 30, 2016.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

Property, plant, and equipment of the primary government are depreciated using the straight line method over the following estimated useful lives:

Buildings and improvements 40-50

Infrastructure 20-30

Library collection 15

Machinery and equipment 5-10

Vehicles 5-10

Accrued expenses: Accrued expenses are comprised of accrued payroll and payroll expenditures based on amounts earned by the employees through June 30, 2016, along with the applicable Public Employees Retirement Association (PERA) and other pension costs.

Deferred outflows of resources:In addition to assets, the balance sheet reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a use of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expenditure) until that time. The City has five types of items that qualifies for reporting in this category: change of assumptions in the amount of $85,549, changes in proportion in the amount of $409,831, difference between expected and actual experience in the amount of $271,696, employer contributions subsequent to the measurement date in the amount of

$436,385 and net difference between projected and actual investment earnings in the amount of

$111,791. These amounts are reported in the Statement of Net Position.

References

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