scarborough sanitary...

To the Board of TrusteesScarborough Sanitary DistrictScarborough, Maine

We have audited the financial statements of the business-type activities of Scarborough Sanitary District (the District) for the year ended December 31, 2015. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated January 12, 2016. Professional standards also require that we communicate to you the following information related to our audit.

Significant Audit Findings

Qualitative Aspects of Accounting Practices

Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by Scarborough Sanitary District are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2015. We noted no transactions entered into by the District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period.

Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was:

Management’s estimate of the District’s depreciation of capital assets, which is based on estimated useful lives. We evaluated the key factors and assumptions used to develop the estimated useful lives and calculation of depreciation in determining that it is reasonable in relation to the financial statements taken as a whole.

Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. We did not consider any disclosures to be significant to the financial statements.

The financial statement disclosures are neutral, consistent, and clear.

Keith H. Allen, C.P.A., M.S.T. Mark R. Carrier, C.P.A. Steven R. Lamontagne, C.P.A.

George A. Roberge, C.P.A.Gary A. Wigant, C.P.A.C. Joseph Wolverton, C.P.A., C.V.A.

1111 Lisbon Street • Lewiston, Maine 04240 • Telephone: (207) 786-0328 • FAX: (207) 783-9377 • www.oacpas.net

Board of Trustees

Difficulties Encountered in Performing the Audit

We encountered no significant difficulties in dealing with management in performing and completing our audit.

Corrected and Uncorrected Misstatements

Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole.

Disagreements with Management

For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit.

Management Representations

We have requested certain representations from management that are included in the management representation letter dated March 17, 2016.

Management Consultations with Other Independent Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the District’s financial statements or a determination of the type of auditors’ opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.

Other Audit Findings or Issues

We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the District’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.

Board of Trustees

Other Matters

We applied certain limited procedures to the Management’s Discussion and Analysis, which is required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI.

We were engaged to report on the Schedule of Operating Expenses, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.

We were not engaged to report on the Superintendent’s Report, which accompanies the financial statements but is not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it.

Restriction on Use

This information is intended solely for the use of the Board of Trustees and management ofScarborough Sanitary District and is not intended to be, and should not be, used by anyone other than these specified parties.

Very truly yours,

Ouellette & Associates, P.A.Certified Public Accountants

Lewiston, MaineMarch 17, 2016

SCARBOROUGH SANITARY DISTRICT

FINANCIAL REPORT

YEARS ENDED DECEMBER 31, 2015 AND 2014


FINANCIAL REPORT

DECEMBER 31, 2015 AND 2014

C O N T E N T S PAGE INDEPENDENT AUDITOR'S REPORT 1 - 2 MANAGEMENT’S DISCUSSION AND ANALYSIS 3 - 9 FINANCIAL STATEMENTS: Statements of Net Position 10 Statements of Revenues, Expenses and Changes in Net Position 11 Statements of Cash Flows 12 - 13 Notes to the Financial Statements 14 - 18 SCHEDULE OF OPERATING EXPENES FOR THE YEAR ENDED DECEMBER 31, 2015 19 SCHEDULE OF OPERATING EXPENES FOR THE YEAR ENDED DECEMBER 31, 2014 20 SUPERINTENDENT’S REPORT FOR 2015 21 - 24

INDEPENDENT AUDITOR'S REPORT

To the Board of TrusteesScarborough Sanitary DistrictScarborough, Maine

We have audited the accompanying financial statements of the business-type activities of Scarborough Sanitary District as of and for the years ended December 31, 2015 and 2014, and the related notes to thefinancial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District’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 District’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 ouraudit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of Scarborough Sanitary District, as of December 31, 2015and 2014, and the changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Keith H. Allen, C.P.A., M.S.T. Mark R. Carrier, C.P.A. Steven R. Lamontagne, C.P.A.

George A. Roberge, C.P.A.Gary A. Wigant, C.P.A.C. Joseph Wolverton, C.P.A., C.V.A.

1111 Lisbon Street • Lewiston, Maine 04240 • Telephone: (207) 786-0328 • FAX: (207) 783-9377 • www.oacpas.net

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Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 9 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 an opinion on the financial statements that collectively comprise the Scarborough Sanitary District’s basic financial statements. The Schedules of Operating Expenses on pages 19 and 20 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Schedules of Operating Expenses 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, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. The Superintendent’s Report 2015, on pages 21 through 24 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. Ouellette & Associates, P.A.

Certified Public Accountants Lewiston, Maine March 17, 2016


MANAGEMENT’S DISCUSSION AND ANALYSIS


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Management’s Discussion and Analysis (MD&A) serves as an introduction to, and should be read in conjunction with, the basic financial statements and supplementary information. The MD&A represents management’s examination and analysis of the Scarborough Sanitary District’s financial condition and performance.

Financial Highlights

Management’s opinion is that the District’s financial condition is sound. The District is well within the more stringent financial policies and guidelines set by the Board of Trustees and management. The following are key financial highlights:

The schedule of user fees the District adopted to provide needed revenue to cover operations, maintenance and debt service are as follows:

RESIDENTIALHouses, apartments, condominiums, mobile homes, seasonal cottages, or other residential dwelling unit, will be charged a flat fee of $396.00 per year. ($257.00 for fixed costs and $139.00 for variable costs).

COMMERCIAL AND INSTITUTIONALAnnual charges to commercial and institutional establishments will be computed according to water usage and will be composed of two components:

1) A flat fee of $257.00 per equivalent user will be assessed to recover fixed costs. For the purposes of this computation, the establishment’s highest quarterly water consumption from the previous year will be utilized. For each 1,950 cubic feet of consumption, one equivalent user will be assigned. Fractions will be rounded to the nearest whole number. (1,950 cubic feet represents the average residential use per quarter)

2) The remainder of the user fee will be based on the quarterly water consumption as measured by the water district and will be charged at the rate of $2.08 per 100 cubic feet or fraction thereof.

The user fee will be billed quarterly with a minimum fee of $99.00.

INDUSTRIALBasic annual charges will be computed the same as for commercial and institutional users. For industries that measure their discharge, their meter will be used in determining flow. In addition to this, a surcharge will be added to the basic annual charge to recover the cost of treating a more concentrated waste.

The surcharge will be calculated as follows:

S.C. = 8.34 V [a (BOD – 200) + b (SS – 200) + c (COD – 600)]

Where SC = Surcharge, DollarsWhere V = Wastewater volume, millions gallonsa = $0.23/lb; b = $0.12/lb; c = $0.12/lb.




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Financial Highlights (continued)

The District’s total net position at year-end was approximately $24.2 million. Net position was comprised of approximately $28.8 million in District assets less $4.6 million of associated liabilities. Of the $24.2 million of net position, $20.2 million was invested in capital assets net of related debt, $2.5 million was board designated for debt and fixed asset replacement reserves leaving approximately $1.5 million to support operations.

The District’s total operating expenses of $3.8 million and operating revenue of $3.3 million remained consistent compared to the prior year.

Overview of Annual Financial Report

Under Governmental Accounting Standards Board Statement No.34 (GASB 34), the District presentsonly its government wide financial statements as all governmental activities are accounted for within a single proprietary (enterprise) fund.

The financial statements report information about the District using full accrual accounting methods as utilized by similar business activities in the private sector. The financial statements include the Statements of Net Position; Statements of Revenues, Expenses and Changes in Net Position; Statement of Cash Flows; and Notes to the Financial Statements.

The Statements of Net Position presents the financial position of the District on a full accrual basis of accounting with the capital assets recorded at historical cost. The statements include information on all of the District’s assets and liabilities, with the difference reported as net position. Over time, increases and decreases in net position are one indicator of whether the financial position of the District is improving or deteriorating.

While the Statements of Net Position provides information about the nature and amount of resources and obligations at year-end, the Statements of Revenues, Expenses and Changes in Net Position presents the results of the business activities over the course of the fiscal year and information as to how the Net Position changed during the year. All changes in Net Position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. This statementalso provides certain information about the District’s recovery of its costs. Rate setting policies use different methods of cost recovery not fully provided for by generally accepted accounting principles. The primary objectives of the rate model are to improve equity among customer classes and to ensure that capital costs are allocated on the basis of long-term capacity needs, ensuring that growth pays for growth.

The Statements of Cash Flows presents changes in cash and cash equivalents, resulting from operational, investing, and capital and related financing activities. These statements present cash receipts and cash disbursements information, without consideration of the earnings event, when an obligation arises, or depreciation of capital assets.




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Overview of Annual Financial Report (continued)

The Notes to the Financial Statements provide required disclosures and other information that are essential to a full understanding of material data provided in the statements. The notes present information about the District’s accounting policies, significant account balances and activities, material risks, obligations, commitments, contingencies and subsequent events, if any. Supplementary information detailing operating expenses is also provided.

The financial statements were prepared by the District’s staff from the detailed books and records of the District. The financial statements were audited during the independent external audit process.

Summary of Organization and Business History

1963 - A small collection system and primary treatment plant was constructed in the Oak Hill (formallyPump Station No. 4) area of Scarborough.

1969 – The plant was upgraded to a secondary system by the District’s engineers, Whitman & Howard (formerly Earth Tech, now AECOM). Town residents passed a referendum authorizing the formation of the Scarborough Sanitary District.

1975 – 1980 The District and Whitman & Howard formulated a Town wide wastewater plan consisting of a 1.8 MGD secondary treatment facility, 9 pump stations and 35 miles of gravity sewer lines and force mains. During this same time period an extensive environmental impact study was performed by the U.S.Environmental Protection Agency. The $22,000,000 project was funded through grants by the EPA (75%) and Maine DEP (15%). The remaining 10% was funded through a loan with the Farmers Home Administration.

1984 – In April the treatment facility went on line.

1999 – 2001 An engineering agreement was signed between the Sanitary District and Earth Tech (now AECOM) to develop a basis of design to Upgrade and Expand the Wastewater Treatment Facility(WWTF). The report was completed in November of 2001.

2002 – 2005: The design of the Upgrade and Expansion of the WWTF was completed and bids were submitted by contractors in June 2003. Penta Corp. was awarded the bid, the project was completed inJanuary of 2006.

2002 – 2005: An agreement was signed between the Town of Scarborough and the Sanitary District to extend sewers to the Haigis Parkway area of Scarborough. Earth Tech (now AECOM) prepared a design report. The design to extend sewers and upgrade some pump stations was completed in 2003 and bids were received from contractors. SCI was awarded the Haigis Parkway Utility Project and the Route One/Oak Hill Sewer Project. APEX was awarded the contract to build 3 new pump stations and rebuild Pump Station No. 4 (old plant). These projects were completed in 2006.

June 2007 – the Board of Trustees formalized its reserve fund polices by approving a Fixed Asset Replacement Reserve Policy, a Debt Retirement Reserve Policy and a Capacity Reserve Fund Policy.These policies clearly outline how reserve funds shall be used.




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Summary of Organization and Business History (continued)

July 2007 – the Board of Trustees awarded the Black Point Road Sewer and Manhole Rehabilitation project to Insituform Technologies, Inc. for $1,176,451. This project relined approximately 6,920 feet of 30” and 36” concrete sewer main that was installed in the early 1980’s. The project was completed in 2008.

August 2008 – The Board of Trustees approved a budget of $12,000 to conduct a feasibility study to construct a new Pump Station (PS) # 11 and eliminate the existing PS # 11 and PS # 4.

September 2009 – The Board of Trustees approved a budget of $200,000 for the design and bidding to construct a new Pump Station (PS) # 11 and eliminate the existing PS # 11 and PS # 4.

December 2010 – The District completed construction of the replacement Pump Station (PS) # 11 on Old County Road and the demolition of PS # 4 on Eastern Road. Total project budget was $3.5 million dollars. A small amount of work remains, final paving and landscaping.

2011 – The District hired a new Superintendent and also completed the remaining paving and landscaping for Pump Station # 11.

2012 – The Board of Trustees approved a rate increase to go into effect in 2013. The current rates went into effect on October 1, 2003. The average residential sewer user rate will be $99/quarter, up from $82.50/quarter.

2013 – The District approved rate increase went into effect. The average residential sewer user rate is now $99/quarter, up from $82.50/quarter

2014 – The District has completed several electrical and operational efficiency upgrades that have resulted in a reduction in operating costs.

2015 – The District continued with many electrical and operational efficiency upgrades that continue to result in a reduction in operating costs. For 2015, the District realized a savings of $30,000 (13%) for electricity and another $15,000 (34%) for propane. Overall the District has realized over $100,000 savings in electricity savings since 2011 (a 33% reduction).

The District has a Board of seven Trustees elected by the citizens of Scarborough for a three-year term. The District has no taxing power. Operational and maintenance costs are funded from customer fees and charges. The acquisition and construction of capital assets are funded by capital, contributions from customers (cash and sewer systems), bonds payable, and customer revenues.




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Financial Analysis

The following comparative condensed financial statements and other selected information serve as the key financial data and indicators for management, monitoring and planning. Comments regarding year-to-year variances are included in each section by the name of the statement or account.

Change

Increase (Decrease)

2015 2014 Dollars %

Assets

Current Assets 4,065,626$ 3,539,860$ 525,766$ 15%

Capital Assets 24,806,676 26,276,874 (1,470,198) -6%

Other Assets 17,489 19,746 (2,257) -11%

Total Assets 28,889,791$ 29,836,480$ (946,689)$ -3%

Liabilities and Net Position

Current Liabilities 870,418$ 830,205$ 40,213$ 5%

Long-Term Liabilities 3,783,743 4,552,563 (768,820) -17%

Total Liabilities 4,654,161 5,382,768 (728,607) -14%

Net Position

Investment in Capital Assets 20,254,113 20,982,372 (728,259) -3%

Unrestricted 3,981,517 3,471,340 510,177 15%

Total Net Position 24,235,630 24,453,712 (218,082) -1%

Total Liabilities and Net Position 28,889,791$ 29,836,480$ (946,689)$ -3%

CONDENSED STATEMENTS OF NET POSITION

DECEMBER 31,

Financial Condition

The District’s financial condition remained sound at year-end with adequate liquid assets, reliable plants and systems to meet demand and a reasonable level of unrestricted net position. The current financial condition, technical support, staff capabilities and operating and expansion plans to meet anticipated customer needs are well balanced and under control.

Capital assets decreased by 6% (approximately $1.5 million) in 2015. This was due mainly to the estimated depreciation of the District’s existing capital assets. There were no significant capital improvements or capital asset additions during the year. Total liabilities also decreased primarily by the required principal payments on the District’s outstanding bonds which totaled approximately $700,000. The District had no borrowing activity during the year as the District’s reserves were used to cover any operational shortfalls. The District currently has no plans for significant borrowing in future years. The District still maintains approximately $2.0 million in board designated reserve accounts for debt service and capital replacement which is a component of unrestricted net position.




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Change

Increase (Decrease)

2015 2014 Dollars %

Operating Revenues 3,315,902$ 3,260,132$ 55,770$ 2%

Operating Expenses (3,795,672) (3,741,779) (53,893) -1%

Loss From Operations (479,770) (481,647) 1,877 0%

Non-operating Revenues 6,267 3,437 2,830 82%

Non-operating Expenses (161,298)$ (183,506)$ 22,208 12%

Loss from Non-operating (155,031) (180,069) 25,038 14%

Change in Net Position Before

Capital Contributions (634,801) (661,716) 26,915 4%

Capital Contributions 416,719 392,676 24,043 6%

Change in Net Position (218,082) (269,040) 50,958 -19%

Net Position Beginning of Year 24,453,712 24,722,752 (269,040) -1%

Net Position - End of Year 24,235,630$ 24,453,712$ (218,082)$ -1%

CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

YEARS ENDING DECEMBER 31,

Results of Operations

There have been no rate changes since 2013.

The District collects capacity fees in order to ensure that current customers do not bear the entire burden of growth. These fees are paid for units of capacity purchased by residential and commercial real estate developers and wholesale customers. In 2015, we continued to have an increase in the number of commercial and residential applicants subject to these fees. Prior to GASB 33 and 34 implementations, the fees and other contributed systems were recorded as direct contributions to equity. GASB 33 and 34 define these fees and distribution systems as capital contributions and requires reporting the amounts through the Statements of Revenues, Expenses and Changes in Net Position.




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Other Financial Information

The District utilized its designated reserve accounts during the year as follows:

Reserve Account

Balance

Dec. 31, 2015

Debt Retirement Reserve 500,953$ Interest 50$

Fixed Asset Replacement Reserve 457,192$ DepositsTransferred from Capacity Reserve 29,193$ Interest 43

Capacity Reserve Fund 1,519,910$ ExpensesTransferred to Fixed Asset Reserve 29,193$

DepositsM aine M edical Center 87,773$ Little Dolphin Office 3,120 Star Homes 65,190 Cash Energy 3,479 Burnham V illage 93,368 700 Gallary Blvd 52,737 Chickadee Lane 2,918 W ilfork W ay 2,918 9 Forecaster W ay 2,918 63 & 65 Broadturn Rd 5,852 Foster Farm (3 lots) 8,755 Saratoga Lane (2 lots) 5,852 Eastern V illage IIIA 70,226 10 Forecaster 2,934 29 Carpenter Court 2,918 Interest 124

Total Deposits 411,082$

2015 Activity

As of the date of this report we are not aware of any facts, conditions, or planned decisions that will have a significant impact on the financial position and results of operations in the upcoming reporting period.

This financial report is intended to provide readers with a general overview of the District’s finances and show accountability for expenditures related to its business-type activity. If you have questions regarding this report or need additional information, please contact the Superintendent or the Office Manager of the District.

2015 2014

Current Assets

Cash and cash equivalents 528,347$ 459,183$

Municipal money market - reserve funds 2,478,055 2,066,878

Accounts receivable 904,189 847,694

Materials and supplies 110,590 121,049

Prepaid expenses 44,445 45,056

Total Current Assets 4,065,626 3,539,860

Other Assets

Capital assets, net 24,806,676 26,276,874

Bond acquisition fees, net 17,489 19,746

Total Other Assets 24,824,165 26,296,620

Total Assets 28,889,791$ 29,836,480$

Current Liabilities

Current portion of bonds payable 758,016$ 727,978$

Current portion of deferred credits 10,804 13,961

Accounts payable 18,877 19,262

Accrued salaries 12,571 16,394

Accrued compensated absences 39,307 15,703

Accrued interest 30,843 36,907

Total Current Liabilities 870,418 830,205

Long-Term Liabilities

Bonds payable, net of current portion 3,772,476 4,530,492

Deferred credits, net of current portion 11,267 22,071

Total Long-Term Liabilities 3,783,743 4,552,563

Total Liabilities 4,654,161 5,382,768

Net Position

Investment in capital assets, net of debt 20,254,113 20,982,372

Unrestricted 3,981,517 3,471,340

Total Net Position 24,235,630 24,453,712

Total Liabilities and Net Position 28,889,791$ 29,836,480$



STATEMENTS OF NET POSITION

ASSETS

LIABILITIES AND NET POSITION

See independent auditor's report and accompanying notes to the financial statements.

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2015 2014

Operating Revenues

User fees 3,244,950$ 3,187,350$

Permit & inspection fees 9,582 11,423

Septic tank waste fees 46,720 46,784

Sub-meter fees 7,450 7,500

Grease & oil fees 7,200 7,075

Total Operating Revenues 3,315,902 3,260,132

Operating Expenses

Treatment plant 1,072,824 1,078,319

Wastewater pumping 780,162 737,111

Collection system 763,554 746,394

Lab expense 79,630 80,624

Compost sludge 150,110 145,767

Inspections 71,966 80,067

Administrative and general 877,426 873,497

Total Operating Expenses 3,795,672 3,741,779

Operating Loss (479,770) (481,647)

Non-operating Revenues

Investment return 218 444

Miscellaneous non-operating revenue and credits 6,049 2,993

Total Non-operating Revenues 6,267 3,437

Non-operating Expenses

Interest and loan fees 159,041 185,749

Amortization 2,257 2,257

Gain on disposal of capital assets - (4,500) Total Non-operating Expenses 161,298 183,506

Change in Net Position Before Capital Contributions (634,801) (661,716)

Capital Contributions

Capacity upgrade fees 416,719 392,676

Change in Net Position (218,082) (269,040)

Net Position - Beginning of Year 24,453,712 24,722,752

Net Position - End of Year 24,235,630$ 24,453,712$


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION



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2015 2014

Cash flows from operating activities:

Cash received from customers 3,259,407$ 3,274,912$

Cash paid to vendors for goods and services (1,244,042) (1,171,294)

Cash paid to employees for services (843,985) (869,481)

Net cash flows from operating activities 1,171,380 1,234,137

Cash flows from investing activities:

Investment return 218 444

Capacity upgrade fees 416,719 392,676

Miscellaneous non-operating revenue and credits 6,049 2,993

Net cash flows from investing activities 422,986 396,113

Cash flows from capital and related financing activities:

Purchase of capital assets (206,981) (131,317)

Principal payments on bonds payable (727,978) (699,942)

Interest and loan fees (179,066) (208,365)

Net cash flows from capital and related financing activities (1,114,025) (1,039,624)

Net change in cash and cash equivalents 480,341 590,626

Cash and cash equivalents at beginning of year 2,526,061 1,935,435

Cash and cash equivalents at end of year 3,006,402$ 2,526,061$

Reconciliation to statement of net position:

Unrestricted cash and cash equivalents

Cash and cash equivalents 528,347$ 459,183$

Municipal money market - special funds 2,478,055 2,066,878

Total cash and cash equivalents 3,006,402$ 2,526,061$


STATEMENTS OF CASH FLOWS



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STATEMENTS OF CASH FLOWS


2015 2014

Reconciliation of operating loss to net cash flows from

operating activities:

Operating loss (479,770)$ (481,647)$

Adjustments to reconcile operating loss to net cash flows

from operating activities:

Depreciation 1,677,179 1,682,023

(Increase) decrease in operating assets:

Accounts receivable (56,495) 14,780

Materials and supplies 10,459 13,518

Prepaid expenses 611 10,807

Increase (decrease) in operating liabilities:

Accounts payable (385) 615

Accrued salaries (3,823) (6,424)

Accrued compensated absences 23,604 2,334

Accrued retirement - (1,869)

Net cash flows from operating activities 1,171,380$ 1,234,137$

Cash paid During the Year For:Interest 179,066$ 208,365$


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NOTES TO THE FINANCIAL STATEMENTS


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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business Scarborough Sanitary District (the District), a quasi-municipal entity, is responsible for the operation and construction of sewerage facilities for the Town of Scarborough, Maine. The District is a special purpose governmental entity engaged in business-type activities. Reporting Entity In evaluating how to define the District for financial reporting purposes, management has considered all potential component units. Based on the applicable criteria, there are no other entities within the District that should be included as part of these financial statements. Basis of Presentation The District complies with Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting. As permitted by GASB No. 20, the District has elected not to comply with Financial Accounting Standards Board Statements and Interpretations issued after November 30, 1989. All activities of the District are accounted for within a single proprietary (enterprise) fund. The statements of net position and statements of revenues, expenses and changes in net position display information about the District's business-type activities. These statements reflect the financial activity of the District's governmental program. The governmental activity is generally financed through user charges. Measurement Focus, Basis of Accounting The District's financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. The District distinguishes operating revenue and expenses from non-operating activity. Operating revenues arise from providing wastewater treatment and other related services to the general public for a fee (user charge). The intent of the District is that the operating costs of providing wastewater treatment and other related services to the general public on a continuing basis be financed or recovered primarily through these user charges. Revenues and expenses that are not derived directly from operations are reported as non-operating revenue and expenses. The District bills customers on a quarterly basis for services. Revenue is recognized as the service is provided. Budgets The District adopts an annual operating budget. The budget is adopted on a basis consistent with accounting principles generally accepted in the United States of America. The current operating budget details the District's plans to earn and expend funds for charges incurred for operation, maintenance, certain interest and general functions, and other charges for the fiscal year. All unexpended and unencumbered appropriations in the operating budget lapse at the end of the fiscal year. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


NOTES TO THE FINANCIAL STATEMENTS (Continued)


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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Cash Equivalents For purposes of the statements of cash flows, the District considers all highly liquid debt instruments purchased with an initial maturity of three months or less and money market accounts to be cash equivalents. Custodial Credit Risk – Deposits Custodial risk is the risk that, in an event of bank failure, the District’s deposits may not be returned to it. The District does not have a depository policy for custodial credit risk. As of December 31, 2015 and 2014, the District’s deposits were collateralized with securities pledged by the bank to cover deficiencies in excess of FDIC insurance. Accounts Receivable Trade accounts receivable are stated at the amount management expects to collect from balances outstanding at year-end. Based on management's assessment of the credit history with customers having outstanding balances and current relationships with them, it has concluded that realization losses on balances outstanding at year-end will be immaterial. The District's policy is to consider all customer accounts with one or more quarters unpaid as delinquent and the District has the ability to place a lien on property for customers with past due balances. Materials and Supplies Inventory of material and supplies is valued at the lower of cost or market. The cost basis is the most recent purchase cost. Compensated Absences The District reports compensated absences in accordance with the provisions of GASB No. 16, Accounting for Compensated Absences. Vacation and sick time benefits are accrued as a liability as the benefits are earned and if the employees' rights to receive compensation are attributable to services already rendered and it is probable that the District will compensate the employees for the benefits through paid time off or some other means. Income Taxes The District, being a quasi-municipal entity, is not subject to federal or state income taxes. Capital Assets Capital assets are stated at cost if purchased or constructed. Assets acquired through contribution from developers or other customers are capitalized at their estimated fair market value as of the date of contribution. Maintenance and repairs, which do not significantly extend the value or life of property, plant and equipment, are expensed as incurred. Depreciation has been provided over the estimated useful lives ranging from five to fifty years using the straight-line method. Bond Acquisition Fees Bond acquisition fees have been amortized over the life of each bond issued.




16

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Income Deferred credits consist of bond refinancing proceeds received from the Maine Municipal Bond Bank. Deferred credits are being recognized over the original remaining term of the refinanced bonds. Reclassifications Certain reclassifications have been made to the 2014 financial statement presentation to correspond to the current year’s format. Total net position and changes in net position are unchanged due to these reclassifications. NOTE 2: CAPITAL ASSETS A summary of changes in capital assets is as follows for the year ended December 31, 2015: Beginning

Balance Additions

Retirements Ending Balance

Land $ 749,979 $ - $ - $ 749,979Treatment plant 17,124,578 132,715 - 17,257,293Pumping station 12,448,328 - - 12,448,328Sewer system 19,663,981 - - 19,663,981Interceptor 10,561,284 - - 10,561,284Equipment 231,882 - - 231,882Vehicles 273,347 52,452 62,125 263,674Other 601,799 21,814 3,406 620,207 61,655,178 206,981 65,531 61,796,628Less: Accumulated Depreciation 35,378,304 $1,677,179 $65,531 36,989,952Total Capital Assets, Net $26,276,874 $24,806,676

A summary of changes in capital assets is as follows for the year ended December 31, 2014: Beginning

Balance

Additions

Retirements Ending Balance

Land $ 749,979 $ - $ - $ 749,979Treatment plant 17,075,520 49,058 - 17,124,578Pumping station 12,375,480 72,848 - 12,448,328Sewer system 19,663,981 - - 19,663,981Interceptor 10,561,284 - - 10,561,284Equipment 231,882 - - 231,882Vehicles 273,347 - - 273,347Other 598,511 13,911 10,623 601,799 61,529,984 135,817 10,623 61,655,178Less: Accumulated Depreciation 33,706,904 $1,682,023 $10,623 35,378,304Total Capital Assets, Net $27,823,080 $26,276,874




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NOTE 3: BONDS PAYABLE Bonds are payable to the Maine Municipal Bond Bank. The bonds are secured by the District’s facilities and revenues. Details of the bonds are as follows: Balance

12/31/13 Reductions Balance 12/31/14 Reductions

Balance 12/31/15

Scarborough Sanitary - 2003C Bond payable to Maine Municipal

Bond Bank, interest and principal to maturity in 2023. Blended interest rate of 2.25%. $4,164,398 $ 386,868 $ 3,777,530 $ 393,079 $3,384,451

Scarborough Sanitary – 1988B Note payable to Maine Municipal

Bond Bank, interest and principal to maturity in 2018. Blended interest rate varying from 5.0% to 7.85%. 1,794,014 313,074 1,480,940 334,899 1,146,041

5,958,412 $699,942 5,258,470 $727,978 4,530,492Less: Current Portion 699,942 727,978 758,016Total long-term debt $5,258,470 $4,530,492 $3,772,476

The following is a schedule of the maturities per year on bonds payable:

For the Years Ending December 31, Principal Interest Total

2016 $ 758,016 $130,434 $ 888,450 2017 786,538 90,678 877,216 2018 820,949 52,522 873,471 2019 420,951 28,127 449,078 2020 428,748 19,039 447,787

2021 - 2025 1,315,290 27,235 1,342,525 $4,530,492 $348,035 $4,878,527

During 2015 and 2014, the Maine Municipal Bond Bank awarded certain principal refunding and debt service credits to the District on both of its outstanding bonds. The 2003C bonds received debt service credits of $12,951 and $12,967 in 2015 and 2014, respectively. The 1988B bonds received debt service credits of $11,125 and $12,598 in 2015 and 2014, respectively. These credits directly reduced the amount the District was required to pay for debt service and was recorded as a component of the interest and loan fees as a non-operating expense.




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NOTE 4: PENSION PLANS The District has a 401(a) profit sharing plan which is a defined contribution plan that covers essentially all employees. The District contributes 6.5% of each eligible employee's compensation to the plan. In addition, the District matches 100% of employee contributions that exceed the above 6.5% not to exceed 10% of compensation. The District's contributions totaled $71,981 and $67,328 in 2015 and 2014, respectively. NOTE 5: BUSINESS AND CREDIT CONCENTRATIONS All of the District's customers are located within the Town of Scarborough and City of South Portland, Maine. No single customer accounted for more than five percent of the District's revenue in 2015 and 2014, and no outstanding balance from any customer exceeded five percent of the District's total accounts receivable.

Treatment

Plant

Wastewater

Pumping

Collection

System Lab Expense

Compost

Sludge Inspections

Administrative

and General Totals

Salaries and wages 181,143$ 73,576$ 92,023$ 58,447$ 71,900$ 63,050$ 323,627$ 863,766$

Employee pension and benefits 31,538 13,041 13,880 10,379 11,008 4,770 389,572 474,188

Contractual services 27,963 38,580 28,238 581 3,569 - 34,630 133,561

Maintenance and supplies 69,962 52,718 23,090 1,072 342 1,678 23,401 172,263

Professional dues and education 666 - 930 120 - 216 7,238 9,170

Office expense 2,035 - - - 929 - 23,109 26,073

Utilities 121,423 102,112 - - - - 8,225 231,760

Professional fees - accounting - - - - - - 11,750 11,750

Professional fees - legal - - - - - - 3,103 3,103

Insurance - - - - - - 49,434 49,434

Chemicals 68,938 21,513 334 9,031 - - - 99,816

Composting - - - - 43,609 - - 43,609

Depreciation 569,156 478,622 605,059 - 18,753 2,252 3,337 1,677,179

Total Expenses 1,072,824$ 780,162$ 763,554$ 79,630$ 150,110$ 71,966$ 877,426$ 3,795,672$


SCHEDULE OF OPERATING EXPENSES

YEAR ENDED DECEMBER 31, 2015


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Treatment

Plant

Wastewater

Pumping

Collection

System Lab Expense

Compost

Sludge Inspections

Administrative

and General Totals

Salaries and wages 183,930$ 68,724$ 99,724$ 57,558$ 68,574$ 63,566$ 321,446$ 863,522$

Employee pension and benefits 29,214 12,160 14,091 10,169 9,791 11,296 384,841 471,562

Contractual services 25,134 15,556 11,037 290 5,803 - 29,469 87,289

Maintenance and supplies 62,141 36,154 7,363 324 147 5,130 26,605 137,864

Professional dues and education 120 - 240 195 - 75 7,394 8,024

Office expense 1,851 - - - 877 - 19,255 21,983

Utilities 137,718 104,376 - - - - 9,128 251,222

Professional fees - accounting - - - - - - 11,750 11,750

Professional fees - legal - - - - - - 11,677 11,677

Insurance - - - - - - 48,595 48,595

Chemicals 71,203 24,142 171 12,088 51 - - 107,655

Composting - - - - 38,613 - - 38,613

Depreciation 567,008 475,999 613,768 - 21,911 - 3,337 1,682,023

Total Expenses 1,078,319$ 737,111$ 746,394$ 80,624$ 145,767$ 80,067$ 873,497$ 3,741,779$

YEAR ENDED DECEMBER 31, 2014


SCHEDULE OF OPERATING EXPENSES


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SCARBOROUGH SANITARY DISTRICT 415 Black Point Road, Scarborough, Maine 04074

TEL. (207)883-4663 – FAX (207)883-7083 http://scarboroughsanitarydistrict.com/

David W. Hughes, PE Gary T. Howard Wendy Frazier Superintendent Chief Operator Office Manager [email protected] [email protected] [email protected]

March17,2016

Unaudited 21

TotheBoardofTrusteesoftheScarboroughSanitaryDistrictandtheCitizensofScarborough:I am pleased to submit the Annual Report of the Scarborough Sanitary District for thecalendaryear2015.In 2015, the District provided wastewater collection and treatment services to 5,106accounts, an increaseof66accounts, ofwhich4,681were residential and the remaining425 were commercial. Through these accounts we provide service to 5,788 residentialequivalent users and 2,634 commercial equivalent users. In addition to those that areconnected to theDistrict’s collection system, theDistrict provides treatment for another397 customers that utilized the Sanitary District’s wastewater treatment facility todischargeseptictankwasteandanother26forthedisposalofportapottywaste.In2015,theDistrictissuedatotalof120sewerpermits:

PermitType SingleFamily 91SingleFamilyw/AccessoryUnit 1Residential/Duplex 10AccessoryUnit 1Demolition/Disconnect 7Repair/Replace/Reconnect 1Commercial 5Industrial 0SewerExtension 4Total 120

Once accepted, the sewer extensions approved in 2015 will add the followinginfrastructuretotheDistrictscollectionsystem:

1,291feetofgravitysewermain 3,814feetforcemain 12manholes 37sewerserviceconnections

Unaudited 22

Asof2015theDistrictownedandoperatesapproximately68.4milesofgravitysewerand23.5milesofforcemains,2,025manholes,23pumpstations,anda2.5million‐gallonperdaywastewatertreatmentfacility.InadditiontotheDistrictownedinfrastructure,thereisapproximately6.1milesofprivategravitysewerlines,6.6milesofprivateforcemains,and34private/associationpumpstationsconnectedtotheDistrict’ssystem.TheDistrictemploys13fulltimeemployees,whoareresponsibleforthecollectionsystem,treatment plant operation, responding to customers’ needs, inspecting all new sewerinstallationsandconductingtheDistrict’sfinancialactivities.Inordertoassistwithyourreviewoftheproposedbudget,Ihavepreparedthefollowingcommentstoexplainthemajorchangesonanaccountbyaccountbasis.Theaccountsarelisted in thesameorderas shownon thebudget.Overall, theproposedbudget reflectsatotal decrease before capital expenditures of $41,093.41 from the 2015 budget, whichtranslates to a ‐1.30% decrease. The operating budget including capital expendituresfundedfromoperatingrevenuesisdown$10,093.41fromthe2015budget,adecreaseof‐0.31%. The total budget, including capital expenditures is $3,440,497; down $3,093.41fromthe2015budget,adecreaseof0.09%.The wastewater treatment facility processed on average 1.36 million gallons per day(MGD).Overallwetreated455.4milliongallonsofwastewater(501.3in2014,429.5MGin2013,431MGin2012)fromwhichweremoved95%and98%oftheBiochemicalOxygenDemand(BOD)andTotalSuspendedSolids(TSS),respectively.Acomparisonofflowwithprioryearsisprovidedinthetablebelow.

Year

AverageDailyInfluentFlow

(MGD)

Year

AverageDailyInfluentFlow

(MGD)2015 1.25 2010 1.222014 1.36 2009 1.332013 1.17 2008 1.362012 1.18 2007 1.322011 1.21 2006 1.52

Thevariationinflowfromyeartoyearwesuspectisduetotheimpactsofinfiltrationandinflow. Yearlywe now targeted specific areas to aggressively pursue the infiltration andinflowsuchthattheappropriatesystemrepairscanbemade.Wedonotexpectanincreaseinthenumberofnewprojectsbeingproposedthatwilldramaticallyimpactflow.

Unaudited 23

Thetotalseptagereceivedin2015was408,960gallons.Acomparisonofseptagereceivedwithprioryearsisprovidedinthetablebelow.

Year

SeptageReceived(Gallons)

Year

SeptageReceived(Gallons)

2015 408,960 2010 523,6852014 480,040 2009 583,9162013 515,650 2008 587,9762012 493,670 2007 505,9602011 449,700 2006 639,715

TheDistrictcompoststhesludgegeneratedforbeneficialreuse.ThemostcommonuseforScarborough’scompost is toblend itwithtopsoil tocreatean improvedproduct. During2015,weproduced2,665cubicyardsofsludge,mixedthesludgewith2,590cubicyardsofamendmentsandcompostedthismixtureusingaeratedstaticpiles.A“ClassA”compostistheresultof theseoperations.Acomparisonofourcompostactivitieswithprioryears isprovidedinthetablebelow.

Year

Sludge(cubicyards)

Amendment(cubicyards)

Year

Sludge(cubicyards)

Amendment(cubicyards)

2015 2,665 2,590 2010 2,780 3,5752014 2,460 2,770 2009 2,860 4,1002013 2,427 3,300 2008 3,310 3,2002012 2,782 4,370 2007 3,285 2,9002011 2,900 4,230 2006 2,960 2,850

Majorcapitalimprovementprojectscompletedoverthelastfewyearsinclude:

2015: Computer upgrades including Supervisory Control and Data Acquisition(SCADA) computers and the purchase of aeration tank mixers to improveoperations.

2013‐14: Aeration Improvements including dissolve oxygen probes, electricactuators,andmodificationstothedissolveoxygencontrols.

2012:Replacementofthesludgepressfeedpumptoreducepulsationandimprovedewateringefficiencies.

2010:Theconsolidation/replacementofPumpStationNumbers4and11intooneonOldCountyRoad.

2007:ThelargeconcretesewermainalongBlackPointRoadfromHighlandAve.toOldNeckRoadwasrelined

2006:Theupgradeatthewastewatertreatmentfacility increasingdesigncapacityandenergyefficiency.

2006:Installationofanewseptagereceivingstationandstorage

Unaudited 24

Thestaffcontinuestotrytofindwaystocutcostswithout jeopardizingtheintegrityandefficiencyofoursystem.Wehave implementedseveralprocessmodificationsto improveefficienciesincluding:

Providedsupplementalmixingwithintheleadaerationbasins. InitiatedtheuseofMagnesiumHydroxideasasourceforsupplementalalkalinity. Continuetopilottestequipmentpriortopurchase. Testedseveralnewpolymerswiththeintentonimprovingsludgedewatering.

In closing, the District remains dedicated to the efficient treatment of Scarborough’swastewaterandtheprotectionofourmarshes,riversandtheocean.Iwouldliketoexpressmy appreciation to the Trustees, the SanitaryDistrict’s staff, the TownManager and hisstaffandthecitizensofScarboroughfortheirsupportduring2015.Respectivelysubmitted,DavidW.Hughes,Superintendent

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