HomeMy Public PortalAbout2019-03-26 - Audit Review z83.
Watertown Town Council
Administration Building
149 Main Street
Watertown, MA 02472
Phone: 617-972-6470
ELECTED
OFFICIALS:
Committee of the Budget and Fiscal Oversight
Report of the Meeting of March 11, 2019
Council Presid
Marks.sresid,ent Report Date: March 26, 2019
Vincent J.Piccirilli,Jr., The Committee convened at 7:00 pm on Monday, March 11, 2019 in the Louis P.
Vice President& Andrews Third Floor Conference Room. Present were Vincent Piccirilli chair;
District C Councilor > >
Angeline Kounelis, vice chair; Kenneth Woodland, secretary. Staff present were Town
Caroline Bays Manager Michael Driscoll and Assistant Town Manager/Town Auditor Thomas Tracy.
Councilor At Large Representatives from the Town's audit firm Melanson Heath were Scott McIntire and
Anthony J.Donato, Erica Lussier. Also present were Council President Mark Sideris, Councilor Anthony
Councilor At Large Donato, and resident David Stokes.
Susan G.Falkoff,
Councilor At Large The purpose of the meeting was to review and make recommendations on the FY 2018
Audit.
Anthony Palomba,
Councilor At Large
Mr. Tracy stated that the Single Audit Report is not yet completed, as it is awaiting some
Angeline B.Kounelis, information on the school lunch program, but it is expected to be finished by March 18.
District A Councilor
Lisa J.Feltner, Mr. McIntire began the meeting with an overview of the FYI audit. Overall, they
District B Councilor concluded that the Town's books and records are good working order, that
Kenneth M.Woodland, reconciliations are done in a timely and satisfactory manner, and there were no
District D Councilor significant findings warranting attention. All in all, it was a"clean opinion"meaning
that the financials are in accordance with generally accepted accounting principles.
Ms. Lussier presented the following highlights of the Financial Statement:
1. The pension obligation has been reduced by about $22M from FY2017.
2. The net OPEB liability is now presented on the balance sheet for the first time this year as
mandated by GASB 75.
3. Watertown is doing a good job in filing tax liens in a timely manner.
4. The Town's unassigned fund balance has increased(and is about 13.6% of expenditures, which
is comparable to other highly rated communities).
5. Watertown's enterprise funds demonstrate a strong balance with consistent assets and liabilities.
Next, the Management Letter was discussed. Melanson Heath made three recommendations but noted
none of which are considered a substantial deficiency. It was noted that two open items from FY17
were completed.
1. From FYI 7, the recommendation for a more formal risk assessment process and to establish a
formal fraud policy. Mr. Tracy said the fraud policy is currently in the final stages of being
implemented this year.
2. From FY17, the recommendation to prepare for Single Audit changes, which includes cash
management and adopting written policies and procedures to ensure compliance with federal
guidelines. Mr. Tracy said the target to have this done by June 30 of this year.
Page 1 of 2
Committee of the Budget and Fiscal Oversight Report — March 26, 2019
3. There is a new recommendation in FY18 concerning GASB 84 and 87 fiduciary activities. The
GASB changes would not result in a significant deviation from current practice as most of our
fiduciary accounts are already operated to meet these new mandates.
Lastly, there was discussion on the "Side Letter"to the Manager of general, minor housekeeping items
that do not rise to the level of inclusion in the Management Letter. The FYI Side Letter contained 23
items, while this year's contains only seven. These minor issues concerned operations in the
Treasurer/Collector office, Town Clerk's office, Council on Aging and two items that are generally in
nature. The Committee noted the significant progress that the Treasurer/Collector's Office and
Auditor's Office have made in eliminating so many of these items recommended in the prior fiscal
year. Mr. Tracy said his office will send a follow up memo to the Town Council on each of these items
in the Side Letter.
4 Action Item: Councilor Kounelis made a motion, seconded by Councilor Woodland, to
recommend that the Town Council accept the FY 2018 audit report prepared by Melanson
Heath. Voted 3-0.
The Committee also noted that ideally the FYI draft audit report would be given to the Town Council
before the end of December 2019 for review by the Committee in January 2020.
4 Action Item: Councilor Kounelis made a motion, seconded by Councilor Woodland, to
recommend that the Town Council appoint Melanson Health to conduct the FY 2019 audit per
their proposal and in accordance with the aforementioned timeline. Voted 3-0.
Mr. Tracy stated that he will place the FY2018 Annual Financial Statements, Management Letter, and
Single Audit Report on the Town Auditor website for public access after the vote of acceptance by the
Town Council.
The meeting adjourned at 7:55 pm.
Report prepared by Kenneth Woodland
Attachments:
FY2018 Melanson Heath cover letter
FY2018 Annual Financial Statements
FY2018 Management Letter
FY2018 Side Letter to the Town Manager
Page 2 of 2
MELANSON
ACCOUNTANTS•AUDITORS
10 New England Business
Center Dr.•Suite 107
Andover,MA 01810
(978)749-0005
melansonheath.com
Town Council Additional Offices:
Town of Watertown Nashua,NH
149 Main Street Manchester,Greenfield,MA
Watertown, Massachusetts 02472 Ellsworth,ME
Dear Councilors:
We have audited the financial statements of the Town of Watertown, Massachusetts as of
and for the year ended June 30, 2018 and have issued our report thereon dated February 7,
2019. Professional standards require that we advise you of the following matters relating
to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter, our responsibility, as described by profes-
sional standards, is to form and express an opinion about whether the financial state-
ments that have been prepared by management with your oversight are presented fairly,
in all material respects, in conformity with accounting principles generally accepted in the
United States of America. Our audit of the financial statements does not relieve you or
management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit
to obtain reasonable, rather than absolute, assurance about whether the financial state-
ments are free of material misstatement. An audit of financial statements includes con-
sideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity's internal control over financial reporting. Accordingly,
as part of our audit, we considered the internal control of the Town solely for the purpose
of determining our audit procedures and not to provide any assurance concerning such
internal control.
We are also responsible for communicating significant matters related to the audit that
are, in our professional judgment, relevant to your responsibilities in overseeing the finan-
cial reporting process. However, we are not required to design procedures for the purpose
of identifying other matters to communicate to you.
We have provided our findings regarding other matters noted during our audit in a sepa-
rate letter to you dated February 7, 2019.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously com-
municated to you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team and others in our Firm have complied with all relevant ethical
requirements regarding independence. Safeguards that have been applied to eliminate
threats to independence or reduce them to an acceptable level include annual certification
by all Firm staff of independence, or when circumstances change during the year.
Qualitative Aspects of the Entity's Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A
summary of the significant accounting policies adopted by the Town is included in the
notes to the financial statements. There have been no initial selection of accounting poli-
cies and no changes in significant accounting policies or their application during the year
ended June 30, 2018. No matters have come to our attention that would require us, under
professional standards, to inform you about (1) the methods used to account for significant
unusual transactions and (2) the effect of significant accounting policies in controversial
or emerging areas for which there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by man-
agement and are based on management's current judgments.Those judgments are normally
based on knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their sig-
nificance to the financial statements and because of the possibility that future events affecting
them may differ markedly from management's current judgments.
The most sensitive accounting estimates affecting the financial statements are:
• Estimated lives and depreciation methods for depreciable assets.
• Collectability of receivables.
• OPEB liability.
• Net pension liability.
• Estimated liability for potential tax refunds.
Management's estimates of the above are based on various criteria. We evaluated the key
factors and assumptions used to develop these estimates and determined that they are
2
reasonable in relation to the basic financial statements taken as a whole and in relation
to the applicable opinion units.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly
sensitive because of their significance to financial statement users. We noted no partic-
ularly sensitive disclosures affecting the Town's financial statements.
Identified or Suspected Fraud
We have not identified or obtained information that indicates that fraud may have occurred.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the per-
formance of the audit.
Uncorrected and Corrected Misstatements
As an added service to the Town, we assisted in compiling the government-wide financial
statements, including consolidating various funds into governmental activities, converting
to the accrual basis of accounting, and recording all long-term assets, long-term liabilities,
and net position classifcations. This consolidation and conversion process was based on
information from the Town's accounting records.
For purposes of this communication, professional standards require us to accumulate all
known and likely misstatements identified during the audit, other than those that we
believe are trivial, and communicate them to the appropriate level of management. Fur-
ther, professional standards require us to also communicate the effect of uncorrected
misstatements related to prior periods on the relevant classes of transactions, account
balances or disclosures, and the financial statements as a whole and each applicable
opinion unit. Management has corrected all identified misstatements.
In addition, professional standards require us to communicate to you all material, cor-
rected misstatements that were brought to the attention of management as a result of our
audit procedures. None of the misstatements identified by us as a result of our audit pro-
cedures and corrected by management were material, either individually or in the
aggregate, to the financial statements taken as a whole or applicable opinion units.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management
as a matter, whether or not resolved to our satisfaction, concerning a financial accounting,
reporting, or auditing matter, which could be significant to the Town's financial statements or
the auditors' report. No such disagreements arose during the course of the audit.
3
Representations Requested from Management
We have requested certain written representations from management, which are included in
their letter dated February 7, 2019.
Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing
and accounting matters. Management informed us that, and to our knowledge, there were
no consultations with other accountants regarding auditing and accounting matters.
Other Significant Matters, Findings or Issues
In the normal course of our professional association with the Town, we generally discuss a
variety of matters, including the application of accounting principles and auditing standards,
operating and regulatory conditions affecting the entity, and operational plans and strategies
that may affect the risks of material misstatement. None of the matters discussed resulted
in a condition to our retention as the Town's auditors.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as auditors for other information in
documents containing the Town's audited financial statements does not extend beyond
the financial information identified in the audit report, and we are not required to perform
any procedures to corroborate such other information. However, in accordance with such
standards, we have read the information (if applicable) and considered whether such infor-
mation, or the manner of its presentation, was materially inconsistent with the presentation
in the financial statements.
Our responsibility also includes communicating to you any information which we believe
is a material misstatement of fact. Nothing came to our attention that caused us to believe
that such information, or its manner of presentation, is materially inconsistent with the infor-
mation, or manner of its presentation, appearing in the financial statements.
This report is intended solely for the information and use of the governing body and man-
agement of the Town and is not intended to be and should not be used by anyone other
than these specified parties.
Sincerely,
) —e_la�
February 7, 2019
4
TOWN OF WATERTOWN, MASSACHUSETTS
Annual Financial Statements
For the Year Ended June 30, 2018
Town of Watertown, Massachusetts
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS 4
BASIC FINANCIAL STATEMENTS:
Government-Wide Financial Statements:
Statement of Net Position 13
Statement of Activities 14
Fund Financial Statements:
Governmental Funds:
Balance Sheet 15
Reconciliation of Total Governmental Fund Balances to
Net Position of Governmental Activities in the Statement
of Net Position 16
Statement of Revenues, Expenditures, and Changes
in Fund Balances 17
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities 18
Statement of Revenues and Other Sources, and Expenditures
and Other Uses - Budget and Actual - General Fund 19
Proprietary Funds:
Statement of Net Position 20
Statement of Revenues, Expenses, and Changes in Fund
Net Position 21
Statement of Cash Flows 22
Fiduciary Funds:
Statement of Fiduciary Net Position 23
Statement of Changes in Fiduciary Net Position 24
Notes to Financial Statements 25
REQUIRED SUPPLEMENTARY INFORMATION:
Pension:
Schedule of Proportionate Share of the Net Pension Liability (GASB 68) 58
Schedule of Pension Contributions (GASB 68) 59
OPEB:
Schedules of Changes in the Total OPEB Liability and
Contributions (GASB 75) 60
OTHER SUPPLEMENTARY INFORMATION:
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Water Enterprise Fund 61
Schedule of Revenues and Expenditures, and Other Uses -
Budget and Actual - Sewer Enterprise Fund 62
MELANSON
ACCOUNTANTS•AUDITORS
10 New England Business
Center Dr.•Suite 107
Andover,MA 01810
(978)749-0005
melansonheath.com
INDEPENDENT AUDITORS' REPORT
Additional Offices:
To the Town Manager and Town Council Nashua,NH
Town of Watertown, Massachusetts Manchester,Greenfield,MA
Ellsworth,ME
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activi-
ties, the business-type activities, each major fund, and the aggregate remaining fund
information of the Town of Watertown, Massachusetts, as of and for the year ended
June 30, 2018, (except for the Watertown Contributory Retirement System which is
as of and for the year ended December 31, 2017), and the related notes to the financial
statements, which collectively comprise the Town of Watertown's basic financial state-
ments as listed in the Table of Contents.
Management's Responsibility for the Financial Statements
The Town's 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 mainte-
nance 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.
Auditors' Responsibility
Our responsibility is to express opinions on these financial statements based on our
audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America and the standards applicable to financial audits con-
tained 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 assess-
ments, the auditor considers internal control relevant to the entity'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 entity's internal control.Accordingly, we express no such opin-
ion. 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.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material
respects, the respective financial position of the governmental activities, the business-
type activities, each major fund, and the aggregate remaining fund information of the
Town of Watertown, Massachusetts, as of June 30, 2018, (except for the Watertown
Contributory Retirement System which is as of and for the year ended December 31,
2017), and the respective changes in financial position and, where applicable, cash
flows thereof and the respective budgetary comparison for the general fund for the
year then ended in accordance with accounting principles generally accepted in the
United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that
Management's Discussion and Analysis and the Pension and OPEB schedules appear-
ing on pages 58 to 60 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 proce-
dures to the required supplementary information in accordance with auditing stand-
ards 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 evidence sufficient
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 Town's basic financial statements. The accompanying
2
supplementary information appearing on pages 61 and 62 is presented for purposes
of additional analysis and is not a required part of the basic financial statements. Such
information is the responsibility of management and was derived from and relates directly
to the underlying accounting and other records used to prepare the financial statements.
The information has been subjected to the auditing procedures applied in the audit of
the financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used
to prepare the financial statements or to the financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the
United States of America. In our opinion, the information is fairly stated in all material
respects in relation to the financial statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report
dated February 7, 2019 on our consideration of the Town's internal control over finan-
cial reporting and on our tests of its compliance with certain provisions of laws, regula-
tions, contracts, and grant agreements and other matters. The purpose of that report
is solely to describe the scope of our testing of internal control over financial reporting
and compliance and the results of that testing, and not to provide an opinion on the
effectiveness of the Town's internal control over financial reporting or on compliance.
That report is an integral part of an audit performed in accordance with Government
Auditing Standards in considering Town's internal control over financial reporting and
compliance.
February 7, 2019
3
MANAGEMENT'S DISCUSSION AND ANALYSIS
As management of the Town of Watertown, we offer readers this narrative overview and
analysis of the financial activities of the Town for the fiscal year ended June 30, 2018.
A. OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the basic
financial statements. The basic financial statements comprise three components:
(1) government-wide financial statements, (2) fund financial statements, and (3) notes
to financial statements. This report also contains other supplementary information
in addition to the basic financial statements themselves.
Government-wide financial statements. The government-wide financial state-
ments are designed to provide readers with a broad overview of our finances in a
manner similar to a private-sector business.
The Statement of Net Position presents information on all assets, liabilities, and
deferred outflows/inflows of resources with the difference reported as net position.
Over time, increases or decreases in net position may serve as a useful indicator
of whether the financial position is improving or deteriorating.
The Statement of Activities presents information showing how the Town's net posi-
tion changed during the most recent fiscal year. All changes in net position are
reported as soon as the underlying event giving rise to the change occurs, regard-
less of the timing of related cash flows. Thus, revenues and expenses are reported
in this statement for some items that will only result in cash flows in future fiscal periods
(e.g., uncollected taxes and earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions that are prin-
cipally supported by taxes and intergovernmental revenues (governmental activi-
ties) from other functions that are intended to recover all or a significant portion of
their costs through user fees and charges (business-type activities). The govern-
mental activities include general government, public safety, education, public works,
human services, and culture and recreation. The business-type activities include
water and sewer activities.
Fund financial statements.A fund is a grouping of related accounts that is used
to maintain control over resources that have been segregated for specific activities
or objectives. Fund accounting is used to ensure and demonstrate compliance with
finance-related legal requirements. All of the funds can be divided into three cate-
gories: governmental funds, proprietary funds, and fiduciary funds.
Governmental funds. Governmental funds are used to account for essentially the
same functions reported as governmental activities in the government-wide finan-
4
cial statements. However, unlike the government-wide financial statements, gov-
ernmental fund financial statements focus on near-term inflows and outflows of
spendable resources, as well as on balances of spendable resources available at
the end of the fiscal year. Such information may be useful in evaluating a govern-
ment's near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-
wide financial statements, it is useful to compare the information presented for
governmental funds with similar information presented for governmental activities
in the government-wide financial statements. By doing so, readers may better under-
stand the long-term impact of the government's near-term financing decisions.
Both the governmental fund balance sheet and the governmental fund statement
of revenues, expenditures, and changes in fund balances provide a reconciliation
to facilitate this comparison between governmental funds and governmental activities.
An annual appropriated budget is adopted for the general fund. A budgetary com-
parison statement has been provided for the general fund to demonstrate compli-
ance with this budget.
Proprietary funds. Proprietary fund reporting focuses on the determination of oper-
ating income, changes in net position (or cost recovery), financial position, and cash
flows. The proprietary fund category includes enterprise and internal service funds.
Enterprise funds are used to report activity for which a fee is charged to external users,
and must be used when one of the following criteria are met: (1) activity is financed
with debt that is secured solely by a pledge of the net revenues from fees and charges,
(2) laws or regulations require the activity's costs of providing services be recovered
with fees and charges, and (3) the pricing policies of the activity establish fees and
charges designed to recover its costs, including capital costs such as depreciation
or debt service. The primary focus on these criteria is on fees charged to external
users. Enterprise funds are used to report the same functions presented as business-
type activities in the government-wide financial statements, only in more detail.
Specifically, enterprise funds are used to account for water and sewer operations,
which are considered to be major funds.
Fiduciary funds. Fiduciary funds are used to account for resources held for the
benefit of parties outside the government. Fiduciary funds are not reflected in the
government-wide financial statements because the resources of those funds are
not available to support the Town's own programs. The accounting used for fidu-
ciary funds is much like that used for proprietary funds.
Notes to financial statements. The notes provide additional information that is
essential to a full understanding of the data provided in the government-wide and
fund financial statements.
Other information. In addition to the basic financial statements and accompanying
notes, this report also presents certain required supplementary information which is
5
required to be disclosed by accounting principles generally accepted in the United
States of America.
B. FINANCIAL HIGHLIGHTS
• As of the close of the current fiscal year, the total of assets and deferred out-
flows exceeded liabilities and deferred inflows by$14,270,282 (i.e., net position),
a change of$20,151,912 in comparison to the prior year.
• As of the close of the current fiscal year, governmental funds reported combined
ending fund balances of $54,448,797 a change of $11,854,867 in comparison
to the prior year.
• At the end of the current fiscal year, unassigned fund balance for the general
fund was $16,989,332, a change of $900,644 in comparison to the prior year.
C. GOVERNMENT-WIDE FINANCIAL ANALYSIS
The following is a summary of condensed government-wide financial data for the
current and prior fiscal years.
NET POSITION
Governmental Business-Type
Activities Activities Total
2018 2017 2018 2017 2018 2017
Current and other assets $ 62,076 $ 49,495 $ 20,214 $ 20,101 $ 82,290 $ 69,596
Capital assets 101,847 99,769 15,463 13,525 117,310 113,294
Total assets 163,923 149,264 35,677 33,626 199,600 182,890
Deferred outflows of resources 9,139 16,736 168 261 9,307 16,997
Current liabilities 11,144 10,168 1,007 775 12,151 10,943
Noncurrent liabilities 170,968 108,756 5,882 4,882 176,850 113,638
Total liabilities 182,112 118,924 6,889 5,657 189,001 124,581
Deferred inflows of resources 5,574 1,982 62 19 5,636 2,001
Net position:
Net investment in capital assets 74,696 69,794 13,223 11,571 87,919 81,365
Restricted 13,621 10,251 - - 13,621 10,251
Unrestricted (102,941) (34,951) 15,671 16,640 (87,270) (18,311)
Total net position $ (14,624) $ 45,094 $ 28,894 $ 28,211 $ 14,270 $ 73,305
As noted earlier, net position may serve over time as a useful indicator of a gov-
ernment's financial position. At the close of the most recent fiscal year, total net
position was $14,270,282, a change of $20,151,912 from the prior year.
6
The largest portion of net position $87,919,020 reflects our investment in capital
assets (e.g., land, buildings, machinery, equipment, and infrastructure), less any
related debt used to acquire those assets that is still outstanding. These capital
assets are used to provide services to citizens; consequently, these assets are not
available for future spending. Although the investment in capital assets is reported
net of related debt, it should be noted that the resources needed to repay this debt
must be provided from other sources, since the capital assets themselves cannot
be used to liquidate these liabilities.
An additional portion of net position $13,621,310 represents resources that are
subject to external restrictions on how they may be used. The remaining balance
of unrestricted net position represents a deficit balance of $(87,270,048) primarily
from our total OPEB liability (see Notes 17 and 19).
CHANGES IN NET POSITION
Governmental Business-Type
Activities Activities Total
2018 2017 2018 2017 2018 2017
Revenues:
Program revenues:
Charges for services $ 9,876 $ 9,455 $ 16,753 $ 17,477 $ 26,629 $ 26,932
Operating grants and
contributions 15,886 14,596 - - 15,886 14,596
Capital grants and
contributions 1,021 476 236 248 1,257 724
General revenues:
Property taxes(including
penalties and interest) 102,505 95,419 - - 102,505 95,419
Excises 4,585 4,488 - - 4,585 4,488
Penalties and interest on
taxes 2,425 2,222 - - 2,425 2,222
Grants and contributions
not restricted to specific
programs 11,675 11,209 - - 11,675 11,209
Investment income 654 485 124 14 778 499
Other 3,662 2,382 10 11 3,672 2,393
Total revenues 152,289 140,732 17,123 17,750 169,412 158,482
Expenses:
General government 7,317 7,491 - - 7,317 7,491
Public safety 29,624 30,781 - - 29,624 30,781
Education 71,513 71,555 - - 71,513 71,555
Public works 12,580 13,115 - - 12,580 13,115
Human services 2,021 1,826 - - 2,021 1,826
Culture and recreation 6,437 6,164 - - 6,437 6,164
Interest on long-term debt 1,116 1,195 - - 1,116 1,195
Intergovernmental 2,650 2,553 - - 2,650 2,553
Miscellaneous 340 250 - - 340 250
Water services - - 6,467 6,459 6,467 6,459
Sewer services - - 9,206 8,914 9,206 8,914
Total expenses 133,598 134,930 15,673 15,373 149,271 150,303
(continued)
7
(continued)
Governmental Business-Type
Activities Activities Total
2018 2017 2018 2017 2018 2017
Change in net position
before transfers 18,691 5,802 1,450 2,377 20,141 8,179
Transfers in(out) 146 - (135) - 11 -
Change in net position 18,837 5,802 1,315 2,377 20,152 8,179
Net position-beginning of
year, as restated (33,461) 39,292 27,579 25,834 (5,882) 65,126
Net position-end of year $ (14,624) $ 45,094 $ 28,894 $ 28,211 $ 14,270 $ 73,305
Fiscal year 2017 amounts were not restated as the Town applied GASB 75 prospectively.
Governmental activities. Governmental activities for the year resulted in a change
in net position of$18,836,866. Key elements of this change are as follows:
General fund revenues in excess of
expenditures $ 6,685,701
Nonmajor funds - accrual basis
Community preservation surcharge revenues 1,899,397
Sale of east branch library 1,200,000
Mitigation project contributions 1,788,744
Change in net pension liability 21,964,592
Change in deferred outflows relating to pension (7,596,332)
Change in deferred inflows relating to pension (3,495,447)
Change in total OPEB liability (3,312,229)
Other (297,557)
Total $ 18,836,869
Business-tvae activities. Business-type activities for the year resulted in a change
in net position of$1,315,046, primarily from unspent capital appropriations funded
through rates and charges. A breakdown by fund is as follows:
Water operations $ 889,154
Sewer operations 425,892
Total $ 1,315,046
D. FINANCIAL ANALYSIS OF FUNDS
As noted earlier, fund accounting is used to ensure and demonstrate compliance with
finance-related legal requirements.
8
Governmental funds. The focus of governmental funds is to provide information
on near-term inflows, outflows, and balances of spendable resources. Such infor-
mation is useful in assessing financing requirements. In particular, unassigned fund
balance may serve as a useful measure of a government's net resources available
for spending at the end of the fiscal year.
As of the end of the current fiscal year, governmental funds reported combined ending
fund balances of $54,448,797 a change of $11,854,867 in comparison to the prior
year. Key elements of this change are as follows:
General fund operating results $ 2,864,176
Nonmajor fund results, due primarily from
the timing of the issuance of bonds 8,990,691
Total $ 11,854,867
The general fund is the chief operating fund. At the end of the current fiscal year,
unassigned fund balance of the general fund was $16,989,332, while total fund
balance was $28,918,722. As a measure of the general fund's liquidity, it may be
useful to compare both unassigned fund balance and total fund balance to total
general fund expenditures. Refer to the table below.
% of
Total General
General Fund 6/30/18 6/30/17 Change Fund Expenditures
Unassigned fund balance* $ 16,989,332 $ 16,088,688 $ 900,644 13.6%
Total fund balance $ 28,918,722 $ 26,054,546 $ 2,864,176 23.1%
"These figures include the Town's general stabilization funds
The total fund balance of the general fund changed by $2,864,176 during the current
fiscal year. Key factors in this change are as follows:
Use of free cash as a funding source $ (2,000,000)
Revenue surplus 1,550,929
Appropriation turnbacks by departments 1,496,600
Excess tax collection over budget 24,145
Net unspent appropriation carryforwards 1,485,308
Change in stabilization 307,194
Total $ 2,864,176
9
Included in the total general fund balance are the Town's stabilization accounts with
the following balances:
6/30/18 6/30/17 Chanae
Stabilization $ 1,258,483 $ 1,249,731 $ 8,752
Capital Project Stabilization 1,552,766 1,529,688 23,078
OPEB Stabilization 1,276,697 1,218,163 58,534
Unfunded Pension Stabilization 271,971 520,418 (248,447)
ESCO Capital Project Stabilization 1,198,424 1,090,085 108,339
Collective Bargaining Stabilization 619,057 466,661 152,396
Special Education Stabilization 1,002,690 798,148 204,542
Total $ 7,180,088 $ 6,872,894 $ 307,194
Provietary funds. Proprietary funds provide the same type of information found
in the business-type activities reported in the government-wide financial statements,
but in more detail.
Unrestricted net position of the enterprise funds at the end of the year amounted
to $15,670,992, a change of$(336,641) in comparison to the prior year, as restated.
Other factors concerning the finances of proprietary funds have already been
addressed in the entity-wide discussion of business-type activities.
E. GENERAL FUND BUDGETARY HIGHLIGHTS
Differences between the original budget and the final amended budget resulted in
an overall change in appropriations of $(73,580). Major reasons for these amend-
ments include:
• $(79,115) decrease in town council reserve
• $5,535 increase in other appropriations
Of this change, $(155,920) was from the reduction in real estate and property taxes,
decrease of(16,163) in state aid, and a transfer in from the collective bargaining stabi-
lization fund of$98,503.
F. CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets. Total investment in capital assets for governmental and business-
type activities at year-end amounted to $117,310,207 (net of accumulated depre-
ciation). This investment in capital assets includes land, buildings and system,
improvements, and machinery and equipment.
10
Major capital asset events during the current fiscal year included the following:
• Disposal of fully-depreciated infrastructure assets of $33,400,122
• Construction in progress additions of$3,017,269
• Ongoing street and sidewalk rehabilitation of$3,451,950
• Sewer infrastructure improvements of $1,278,916
• Water infrastructure improvements of $1,120,061
• Public safety vehicle purchases of $462,942
Additional information on capital assets can be found in the Notes to the Financial
Statements.
Lonq-term debt. At the end of the current fiscal year, total bonded debt outstand-
ing was $36,855,372, all of which was backed by the full faith and credit of the
government.
Additional information on long-term debt can be found in the Notes to the Financial
Statements.
G. PENSION FUNDING STATUS
The Watertown Contributory Retirement System's most recent actuarial valuation
is as of January 1, 2018. The following table outlines key elements from the Funding
Valuation and GASB 68 Report:
Funding GASB 68
Valuation Report
1/1/18 1/1/18
Actuarial Accrued Liability (AAL) $ 206,008,967 $ 206,084,943
Actuarial Value of Assets (AVA) $ 181,766,705 $ 185,657,351
Unfunded Accrued Liability (UAAL) $ 24,242,262 $ 20,427,592
Funding Ratio (AVA/AAL) 88.2% 90.1%
Assumed Discount Rate 7.90% 7.90%
11
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the Town of Watertown's
finances for all those with an interest in the government's finances. Questions con-
cerning any of the information provided in this report or requests for additional financial
information should be addressed to:
Assistant Town Manager/Town Auditor
Town of Watertown, Massachusetts
149 Main Street
Watertown, Massachusetts 02472
12
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF NET POSITION
JUNE 30,2018
Governmental Business-Type
Activities Activities Total
ASSETS
Current:
Cash and short-term investments $ 57,353,348 $ 14,852,814 $ 72,206,162
Investments 2,828,922 - 2,828,922
Receivables, net of allowance for uncollectibles:
Property taxes 855,297 - 855,297
Excises 307,737 - 307,737
User fees - 5,360,232 5,360,232
Intergovernmental 54,549 - 54,549
Noncurrent:
Receivables, net of allowance for uncollectibles:
Property taxes 676,371 - 676,371
Capital assets:
Land and construction in progress 11,929,791 - 11,929,791
Other capital assets, net
of accumulated depreciation 89,917,129 15,463,287 105,380,416
DEFERRED OUTFLOWS OF RESOURCES
Related to pensions 9,139,361 168,478 9,307,839
TOTAL ASSETS AND DEFERRED
OUTFLOWS OF RESOURCES 173,062,505 35,844,811 208,907,316
LIABILITIES
Current:
Warrants payable 3,037,853 - 3,037,853
Accounts payable 322,173 - 322,173
Accrued liabilities 1,507,170 45,281 1,552,451
Tax refunds payable 643,394 58,992 702,386
Other current liabilities 517,038 - 517,038
Current portion of long-term liabilities:
Bonds payable 4,976,996 902,876 5,879,872
Compensated absences 138,918 - 138,918
Noncurrent:
Bonds payable,net of current portion 27,620,947 3,872,496 31,493,443
Net pension liability 19,509,479 537,505 20,046,984
Total OPEB liability 121,198,655 1,472,049 122,670,704
Compensated absences,net of current portion 2,639,446 - 2,639,446
DEFERRED INFLOWS OF RESOURCES
Related to pensions 4,955,145 61,706 5,016,851
Other 618,915 - 618,915
TOTAL LIABILITIES AND DEFERRED
INFLOWS OF RESOURCES 187,686,129 6,950,905 194,637,034
NET POSITION
Net investment in capital assets 74,696,104 13,222,916 87,919,020
Restricted for:
Grants and other statutory restrictions 11,032,528 - 11,032,528
Permanent funds:
Nonexpendable 1,043,746 - 1,043,746
Expendable 1,545,036 - 1,545,036
Unrestricted (102,941,038) 15,670,990 (87,270,048)
TOTAL NET POSITION $ (14,623,624) $ 28,893,906 $ 14,270,282
The accompanying notes are an integral part of these financial statements.
13
TOWN OF WATERTOWN,MASSACHUSETTS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30,2018
Program Revenues Net(Expenses)Revenues and Changes in Net Position
Operating Capital Business-
Charges for Grants and Grants and Governmental Type
Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities:
General government $ 7,317,087 $ 1,128,576 $ 180,960 $ - $ (6,007,551) $ $ (6,007,551)
Public safety 29,623,750 4,618,735 280,079 - (24,724,936) (24,724,936)
Education 71,512,816 2,723,189 13,050,412 825,859 (54,913,356) - (54,913,356)
Public works 12,579,665 267,005 1,982,176 195,186 (10,135,298) (10,135,298)
Health and human services 2,021,469 117,897 260,264 - (1,643,308) (1,643,308)
Culture and recreation 6,436,739 1,020,455 132,044 - (5,284,240) (5,284,240)
Intergovernmental 2,650,171 - - - (2,650,171) (2,650,171)
Interest 1,116,453 - - (1,116,453) (1,116,453)
Miscellaneous 340,064 - - - (340,064) (340,064)
Total Governmental Activities 133,598,214 9,875,857 15,885,935 1,021,045 (106,815,377) - (106,815,377)
Business-Type Activities:
Water services 6,466,824 7,322,477 - - - 855,653 855,653
Sewer services 9,205,581 9,430,256 235,800 - 460,475 460,475
Total Business-Type Activities 15,672,405 16,752,733 - 235,800 - 1,316,128 1,316,128
Total $ 149,270,619 $ 26,628,590 $ 15,885,935 $ 1,256,845 (106,815,377) 1,316,128 (105,499,249)
General Revenues and Transfers:
Property taxes 102,504,552 - 102,504,552
Excises 4,585,090 4,585,090
Penalties,interest and other taxes 2,425,195 2,425,195
Grants and contributions not restricted
to specific programs 11,675,405 - 11,675,405
Investment income 653,663 123,870 777,533
Miscellaneous 3,662,495 10,285 3,672,780
Transfers,net 145,843 (135,237) 10,606
Total general revenues 125,652,243 (1,082) 125,651,161
Change in Net Position 18,836,866 1,315,046 20,151,912
Net Position:
Beginning of year,as restated (33,460,490) 27,578,860 (5,881,630)
End of year $ (14,623,624) $ 28,893,906 $ 14,270,282
The accompanying notes are an integral part of these financial statements.
14
TOWN OF WATERTOWN, MASSACHUSETTS
GOVERNMENTAL FUNDS
BALANCE SHEET
JUNE 30, 2018
Nonmajor Total
Governmental Governmental
General Funds Funds
ASSETS
Cash and short-term investments $ 33,448,132 $ 23,905,216 $ 57,353,348
Investments 1,258,540 1,570,382 2,828,922
Receivables:
Property taxes 1,721,280 31,388 1,752,668
Excises 446,737 - 446,737
TOTAL ASSETS $ 36,874,689 $ 25,561,535 $ 62,436,224
LIABILITIES
Warrants payable $ 3,037,853 $ - $ 3,037,853
Accounts payable 322,173 - 322,173
Accrued liabilities 1,123,241 - 1,123,241
Tax refunds payable 643,394 - 643,394
Other liabilities 517,038 - 517,038
TOTAL LIABILITIES 5,643,699 - 5,643,699
DEFERRED INFLOWS OF RESOURCES
Unavailable revenues 2,312,268 31,460 2,343,728
FUND BALANCES
Nonspendable - 1,043,746 1,043,746
Restricted - 18,764,197 18,764,197
Committed 5,921,605 7,197,040 13,118,645
Assigned 6,007,785 - 6,007,785
Unassigned 16,989,332 (1,474,908) 15,514,424
TOTAL FUND BALANCES 28,918,722 25,530,075 54,448,797
TOTAL LIABILITIES, DEFERRED INFLOWS OF
RESOURCES AND FUND BALANCES $ 36,874,689 $ 25,561,535 $ 62,436,224
The accompanying notes are an integral part of these financial statements.
15
TOWN OF WATERTOWN, MASSACHUSETTS
RECONCILIATION OF TOTAL GOVERNMENTAL FUND
BALANCES TO NET POSITION OF GOVERNMENTAL
ACTIVITIES IN THE STATEMENT OF NET POSITION
JUNE 30, 2018
Total governmental fund balances $ 54,448,797
• Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds. 101,846,920
• Revenues are reported on the accrual basis of accounting and are
not deferred until collection. 1,839,478
• Long-term liabilities, including bonds payable, net pension liability
net OPEB liability are not due and payable in the current period
and, therefore, are not reported in the governmental funds. (172,374,890)
• Other (383,929)
Net position of governmental activities $ (14,623,624)
The accompanying notes are an integral part of these financial statements.
16
TOWN OF WATERTOWN,MASSACHUSETTS
GOVERNMENTALFUNDS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30,2018
Nonmajor Total
Governmental Governmental
General Funds Funds
Revenues:
Property taxes $ 100,315,138 $ 1,899,397 $ 102,214,535
Excises 4,554,136 - 4,554,136
Penalties, interest and other taxes 2,425,195 - 2,425,195
Charges for services 4,886,132 3,522,813 8,408,945
Intergovernmental* 17,621,613 5,259,170 22,880,783
Licenses and permits 203,379 - 203,379
Departmental - 679,940 679,940
Fines and forfeitures 583,593 - 583,593
Investment income 628,940 24,723 653,663
Contributions - 2,062,139 2,062,139
Miscellaneous 811,011 2,851,483 3,662,494
Total Revenues 132,029,137 16,299,665 148,328,802
Expenditures:
Current:
General government 4,441,889 892,172 5,334,061
Public safety 18,947,154 2,166,701 21,113,855
Education 44,532,416 9,598,210 54,130,626
Public works 8,431,190 5,030,101 13,461,291
Health and human services 1,299,906 174,053 1,473,959
Culture and recreation 3,546,548 1,125,045 4,671,593
Pension* 21,767,607 - 21,767,607
Employee benefits 13,106,336 - 13,106,336
Miscellaneous 263,898 - 263,898
Debt service
Principal 5,229,000 - 5,229,000
Interest 1,127,321 - 1,127,321
Intergovernmental 2,650,171 - 2,650,171
Total Expenditures 125,343,436 18,986,282 144,329,718
Excess(deficiency)of revenues
over expenditures 6,685,701 (2,686,617) 3,999,084
Other Financing Sources(Uses):
Issuance of bonds - 7,154,951 7,154,951
Bond premiums - 554,989 554,989
Transfers in 570,227 4,776,501 5,346,728
Transfers out (4,391,752) (809,133) (5,200,885)
Total Other Financing Sources(Uses) (3,821,525) 11,677,308 7,855,783
Change in fund balance 2,864,176 8,990,691 11,854,867
Fund Balance, at Beginning of Year 26,054,546 16,539,384 42,593,930
Fund Balance,at End of Year $ 28,918,722 $ 25,530,075 $ 54,448,797
*Includes MTRS in the amount of$4,878,062
The accompanying notes are an integral part of these financial statements.
17
TOWN OF WATERTOWN, MASSACHUSETTS
RECONCILIATION OF THE STATEMENT OF REVENUES,
EXPENDITURES,AND CHANGES IN FUND BALANCES OF
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2018
Net changes in fund balances-total governmental funds $ 11,854,867
• 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 8,396,176
Loss on disposal of assets (76,166)
Depreciation (6,241,747)
• The issuance of long-term debt(e.g., bonds) provides current financial
resources to governmental funds, while the repayment of the principal of
long-term debt consumes the financial resources of governmental funds.
Neither transaction, however, has any effect on net position:
Issuance of debt (7,155,000)
Repayments of debt 5,229,000
Other (470,476)
• Revenues in the Statement of Activities that do not provide current financial
resources are fully deferred in the Statement of Revenues, Expenditures,
and Changes in Fund Balances. Therefore, the recognition of revenue for
various types of accounts receivable (i.e., real estate and personal
property, motor vehicle excise, etc.) differ between the two statements.
This amount represents the net change in deferred revenue. 297,969
• Some expenses reported in the Statement of Activities do not require the
use of current financial resources and, therefore, are not reported as
expenditures in the governmental funds:
Net pension liability and related deferred outflows and inflows of resources 10,872,813
Total OPEB liability and related deferred outflows and inflows of resources (3,312,229)
Other 405,460
• Other differences (963,801)
Change in net position of governmental activities $ 18,836,866
The accompanying notes are an integral part of these financial statements.
18
TOWN OF WATERTOWN,MASSACHUSETTS
GENERALFUND
STATEMENT OF REVENUES AND OTHER SOURCES,AND EXPENDITURES AND OTHER USES-
BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30,2018
Budgeted Amounts Variance with
Final Budget
Original Final Actual Positive
Budget Budget Amounts (Negative)
Revenues and Transfers In:
Property taxes $ 100,446,911 $ 100,290,991 $ 100,290,991 $ -
Excise taxes 4,105,000 4,105,000 4,554,136 449,136
Interest,penalties,and other taxes 2,278,405 2,278,405 2,425,195 146,790
Charges for services 4,326,202 4,326,202 4,886,132 559,930
Intergovernmental 12,754,429 12,738,266 12,743,551 5,285
Licenses and permits 205,000 205,000 203,379 (1,621)
Fines and forfeitures 755,000 755,000 583,593 (171,407)
Interest earnings 225,000 225,000 527,793 302,793
Miscellaneous 541,000 541,000 801,023 260,023
Transfers in 4,991,053 5,089,556 5,089,556 -
Total Revenues and Transfers In 130,628,000 130,554,420 132,105,349 1,550,929
Expenditures and Transfers Out:
Town council 1,756,759 154,054 124,188 29,866
Town manager 388,894 394,824 392,605 2,219
Town auditor 443,984 475,829 454,917 20,912
Purchasing 271,437 276,755 270,660 6,095
Assessors 346,356 359,500 319,863 39,637
Treasurer/Collector 386,304 405,927 362,711 43,216
Town attorney 210,000 210,000 209,641 359
Personnel 212,894 215,352 204,354 10,998
Information technology 716,729 724,455 704,554 19,901
Town clerk 204,072 213,379 206,316 7,063
Elections 137,839 141,791 100,665 41,126
Community development and planning 1,217,781 1,288,382 1,189,599 98,783
Town hall maintenance 326,963 304,047 295,785 8,262
Parking lots and meters 263,191 276,533 221,021 55,512
Police department 9,063,741 9,101,331 8,847,193 254,138
Fire department 10,188,094 10,182,953 10,045,013 137,940
Emergency Management 47,100 47,100 38,827 8,273
DPW administration 599,007 618,887 608,423 10,464
DPW central motors 773,838 787,682 764,082 23,600
Highway 1,157,240 1,095,292 1,017,829 77,463
Snow and ice 1,250,000 1,874,736 1,868,425 6,311
Street lighting 239,335 239,335 239,029 306
Solid waste disposal 3,013,658 3,013,658 3,000,615 13,043
Cemetery 383,200 332,700 322,996 9,704
DPW property and buildings 950,578 884,600 772,732 111,868
DPW forestry 369,305 426,305 416,650 9,655
DPW parks 840,524 896,534 883,265 13,269
Health department 741,667 773,472 729,285 44,187
Council on aging 306,151 319,202 307,734 11,468
Veterans services 287,008 289,150 287,789 1,361
Library 2,901,706 2,910,222 2,854,293 55,929
Recreation 337,340 351,437 327,927 23,510
Municipal skating rink 441,934 398,094 373,629 24,465
Debt retirement 8,721,758 8,464,158 8,411,769 52,390
State and county charges 2,646,644 2,650,379 2,650,171 208
Retirement benefits 16,939,961 16,939,961 16,935,674 4,287
Insurance&employee benefits 15,361,601 14,771,601 14,622,561 149,040
Transfers 1,881,158 2,288,754 2,288,754 -
Other 550,391 1,904,191 1,884,166 20,025
Education 45,751,858 45,551,858 45,502,111 49,747
Total Expenditures and Transfers Out 132,628,000 132,554,420 131,057,820 1,496,600
Excess(deficiency)of revenues over (2,000,000) (2,000,000) 1,047,529 3,047,529
expenditures
Other Financing Sources(Uses):
Free Cash and Overlay 2,000,000 2,000,000 2.000,000 -
Total Other Financing Sources(Uses) 2,000,000 2,000,000 2,000,000 -
Excess of revenues and other sources
over expenditures and other uses $ - $ - $ 3,047,529 $ 3,047,529
The accompanying notes are an integral part of these financial statements.
19
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF NET POSITION
JUNE 30,2018
Business-Type Activities- Enterprise Funds
Water Sewer
Fund Fund Total
ASSETS
Current:
Cash and short-term investments $ 5,095,710 $ 9,757,104 $ 14,852,814
User fees, net of allowance for uncollectibles 2,200,935 3,159,297 5,360,232
Total current assets 7,296,645 12,916,401 20,213,046
Noncurrent
Capital assets:
Other capital assets, net
of accumulated depreciation 6,924,921 8,538,366 15,463,287
Total noncurrent assets 6,924,921 8,538,366 15,463,287
DEFERRED OUTFLOWS OF RESOURCES
Related to pensions 97,421 71,057 168,478
TOTAL ASSETS AND DEFERRED
OUTFLOWS OF RESOURCES 14,318,987 21,525,824 35,844,811
LIABILITIES
Current:
Refunds payable 58,059 933 58,992
Accrued liabilities 5,888 12,122 18,010
Accrued payroll 18,179 9,092 27,271
Current portion of long-term liabilities:
Bonds payable 578,386 324,490 902,876
Total current liabilities 660,512 346,637 1,007,149
Noncurrent:
Bonds payable, net of current portion 2,521,336 1,351,160 3,872,496
Net pension liability 339,914 197,591 537,505
Total OPEB liability 1,140,838 331,211 1,472,049
Total noncurrent liabilities 4,002,088 1,879,962 5,882,050
DEFERRED INFLOWS OF RESOURCES
Related to pensions 45,195 16,511 61,706
TOTAL LIABILITIES AND DEFERRED
INFLOWS OF RESOURCES 4,707,795 2,243,110 6,950,905
NET POSITION
Net investment in capital assets 4,516,678 8,706,238 13,222,916
Unrestricted 5,094,514 10,576,476 15,670,990
TOTAL NET POSITION $ 9,611,192 $ 19,282,714 $ 28,893,906
The accompanying notes are an integral part of these financial statements.
20
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION
FOR THE YEAR ENDED JUNE 30, 2018
Business-Type Activities- Enterprise Funds
Water Sewer
Fund Fund Total
Operating Revenues:
Charges for services $ 7,322,477 $ 9,430,256 $ 16,752,733
Other 10,285 - 10,285
Total Operating Revenues 7,332,762 9,430,256 16,763,018
Operating Expenses:
Salaries and benefits 2,033,476 1,091,812 3,125,288
Other operating expenses 834,828 1,577,616 2,412,444
Depreciation 182,398 408,964 591,362
Intergovernmental assessments 3,388,389 6,103,914 9,492,303
Total Operating Expenses 6,439,091 9,182,306 15,621,397
Operating Income 893,671 247,950 1,141,621
Nonoperating Revenues (Expenses):
Intergovernmental - 235,800 235,800
Investment income 53,595 70,275 123,870
Interest expense (27,733) (23,275) (51,008)
Total Nonoperating Revenues(Expenses), Net 25,862 282,800 308,662
Income Before Transfers 919,533 530,750 1,450,283
Transfers:
Transfers out (30,379) (104,858) (135,237)
Change in Net Position 889,154 425,892 1,315,046
Net Position at Beginning of Year, as restated 8,722,038 18,856,822 27,578,860
Net Position at End of Year $ 9,611,192 $ 19,282,714 $ 28,893,906
The accompanying notes are an integral part of these financial statements.
21
TOWN OF WATERTOWN, MASSACHUSETTS
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2018
Business-Type Activities-Enterprise Funds
Water Sewer
Fund Fund Total
Cash Flows From Oueratina Activities:
Receipts from customers and users $ 7,272,680 $ 9,302,662 $ 16,575,342
Payments to vendors and employees (2,823,240) (2,653,055) (5,476,295)
Payments to other governments (3,388,389) (6,103,914) (9,492,303)
Other (93,973) (26,094) (120,067)
Net Cash Provided By Operating Activities 967,078 519,599 1,486,677
Cash Flows From Noncapital Financina Activities:
Transfers out (30,379) (104,858) (135,237)
Intergovernmental receipt - 235,800 235,800
Net Cash Provided By(Used For)Noncapital Financing Activities (30,379) 130,942 100,563
Cash Flows From Capital and Related Financina Activities:
Acquisition and construction of capital assets (1,120,062) (1,409,554) (2,529,616)
Proceeds from issuance of bonds 642,450 853,750 1,496,200
Interest expense (27,733) (23,276) (51,009)
Principal payments on bonds (506,136) (186,300) (692,436)
Net Cash Used For Capital and Related Financing Activities (1,011,481) (765,380) (1,776,861)
Cash Flows From Investina Activities:
Investment income 53,595 70,275 123,870
Net Cash Provided By Investing Activities 53,595 70,275 123,870
Net Change in Cash and Short-Term Investments (21,187) (44,564) (65,751)
Cash and Short-Term Investments, Beginning of Year 5,116,897 9,801,668 14,918,565
Cash and Short-Term Investments, End of Year $ 5,095,710 $ 9,757,104 $ 14,852,814
Reconciliation of ODeratina Income(Loss)to Net Cash
Provided by Oneratina Activities:
Operating income $ 893,671 $ 247,950 $ 1,141,621
Adjustments to reconcile operating income to net
cash provided by operating activities:
Depreciation 182,398 408,964 591,362
Changes in assets,liabilities,and deferred outflows/inflows:
User fees (49,797) (127,594) (177,391)
Inventory
Other assets
Deferred outflows-related to pensions 71,504 20,759 92,263
Accrued liabilities 11,974 10,941 22,915
Net pension liability (206,752) (60,025) (266,777)
Total OPEB liability 31,178 9,052 40,230
Deferred inflows-related to pensions 32,902 9,552 42,454
Net Cash Provided By Operating Activities $ 967,078 $ 519,599 $ 1,486,677
The accompanying notes are an integral part of these financial statements.
22
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET POSITION
JUNE 30, 2018
Pension
Trust Fund Private
(as of Purpose Agency
December 31, 2017) Trust Funds Funds
ASSETS
Cash and short-term investments $ 941,511 $ 231,115 $ (102,455)
Investments 184,249,602 429,150 -
Accounts receivable 513,767 - 278,051
Total Assets 185,704,880 660,265 175,596
LIABILITIES AND NET POSITION
Accrued payroll 13,511 - -
Other liabilities 34,018 - 175,596
Total Liabilities 47,529 - 175,596
NET POSITION
Restricted for pension purposes 185,657,351 - -
Restricted for other purposes - 660,265 -
Total Net Position $ 185,657,351 $ 660,265 $ -
The accompanying notes are an integral part of these financial statements.
23
TOWN OF WATERTOWN, MASSACHUSETTS
FIDUCIARY FUNDS
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
FOR THE YEAR ENDED JUNE 30, 2018
Pension
Trust Fund Private
(year ended Purpose
December 31, 2017) Trust Funds
Additions:
Contributions:
Employers $ 17,173,496 $ -
Plan members 3,403,371 -
Other systems and Commonwealth of Massachusetts 464,834 -
Other 17,037 23,942
Total contributions 21,058,738 23,942
Investment Income:
Interest
Increase (decrease) in fair value of investments 25,718,882 (1,985)
Less: management fees (1,148,040)Net investment income (loss) 24,570,842 (1,985)
Total additions 45,629,580 21,957
Deductions:
Benefit payments to plan members,
beneficiaries and other systems 13,731,369 -
Refunds to plan members 293,943 -
Transfers to other systems 388,015 -
Administrative expenses 271,194 -
Other - 26,651
Total deductions 14,684,521 26,651
Net increase(decrease) 30,945,059 (4,694)
Net position restricted for pensions and other purposes:
Beginning of year 154,712,292 664,959
End of year $ 185,657,351 $ 660,265
The accompanying notes are an integral part of these financial statements.
24
TOWN OF WATERTOWN, MASSACHUSETTS
Notes to Financial Statements
1. Summary of Siqnificant Accountinq Policies
The accounting policies of the Town of Watertown (the Town) conform to gen-
erally accepted accounting principles (GAAP) as applicable to governmental
units. The following is a summary of the more significant policies:
A. Reportina Entitv
The Town is a municipal corporation governed by an elected Town Council.As
required by generally accepted accounting principles, these financial state-
ments present the government and applicable component units for which
the government is considered to be financially accountable.
Blended Component Units: Blended component units are entities that are
legally separate, but are so related that they are, in substance, the same as
the primary government, providing services entirely or almost entirely for the
benefit of the primary government. The following component unit is blended
within the primary government.
In the fiduciary funds: The Watertown Contributory Retirement System
which was established to provide retirement benefits primarily to employ-
ees and their beneficiaries. The System is presented using the accrual
basis of accounting and is reported as a pension trust fund in the fidu-
ciary fund financial statements. Additional financial information of the
System can be obtained by contacting the System located at 149 Main
Street, Watertown, Massachusetts 02472.
B. Government-wide and Fund Financial Statements
Government-wide Financial Statements
The government-wide financial statements (i.e., the Statement of Net Posi-
tion and the Statement of Activities) report information on all of the nonfi-
duciary activities of the primary government. For the most part, the effect of
interfund activity has been removed from these statements. Governmental
activities, which normally are supported by taxes and intergovernmental
revenues, are reported separately from business-type activities, which rely
to a significant extent on fees and charges for support.
The Statement of Activities demonstrates the degree to which the direct
expenses of a given function or segment are 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
25
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.
Fund Financial Statements
Separate financial statements are provided for governmental funds, propri-
etary 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 ofAccountina, and Financial Statement
Presentation
Government-wide Financial Statements
The government-wide financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Reve-
nues are recorded when earned and expenses are recorded when a liability
is incurred, regardless of the timing of related cash flows. Property taxes 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 require-
ments imposed by the provider have been met. As a general rule, the effect
of interfund activity has been eliminated from the government-wide financial
statements.
Amounts reported as program revenues include (1) charges to customers
or applicants for goods, services, or privileges provided, (2) operating grants
and contributions, and (3) capital grants and contributions, including special
assessments. Internally dedicated resources are reported as general reve-
nues rather than as program revenues. Likewise, general revenues include
all taxes and excises.
Fund Financial Statements
Governmental fund financial statements are reported using the current finan-
cial resources measurement focus and the modified accrual basis of account-
ing. Revenues are recognized as soon as they are both measurable and
available. Revenues are considered to be available when they are collect-
ible within the current period or soon enough thereafter to pay liabilities of
the current period. For this purpose, the Town considers property tax reve-
nues to be available if they are collected within 60 days of the end of the
current fiscal period. All other revenue items are considered to be measur-
able and available only when cash is received by the government. Expendi-
tures generally are recorded when a liability is incurred, as under accrual
accounting. However, certain expenditures such as debt service, claims and
judgments, compensated absences, OPEB, and pension are recorded only
when payment is due.
26
The Town 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 proprietary fund financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Under
this method, revenues are recognized when earned and expenses are
recorded when liabilities are incurred.
Proprietary funds distinguish operating revenues and expenses from non-
operating items. Operating revenues and expenses generally result from pro-
viding services and producing and delivering goods in connection with a
proprietary fund's principal ongoing operations. The principal operating rev-
enues of the enterprise fund are charges to customers for sales and ser-
vices. Operating expenses for enterprise funds include the cost of sales and
services, administrative expenses, and depreciation on capital assets.All reve-
nues and expenses not meeting this definition are reported as nonoperating
revenues and expenses.
The Town reports the following major proprietary funds:
• The water fund is used to report the Town's water enterprise fund
operations.
• The sewer fund is used to report the Town's sewer enterprise fund
operations.
The fiduciary fund financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Under
this method, revenues are recognized when earned and expenses are
recorded when liabilities are incurred.
The Town reports the following fiduciary funds:
• The pension trust fund accounts for the activities of the Employees
Contributory Retirement System, which accumulates resources for
pension benefit payments to qualified employees.
• The private-purpose trust fund is used to account for trust arrange-
ments, other than those properly reported in the pension trust fund
or permanent fund, under which principal and investment income exclu-
sively benefit individuals, private organizations, or other governments.
• The agency funds account for fiduciary assets held by the Town in a
custodial capacity as an agent on behalf of others.Agency funds report
only assets and liabilities, and therefore, have no measurement focus.
27
D. Cash and Short-Term Investments
Cash balances from all funds, except those required to be segregated by law,
are combined to form a consolidation of cash. Cash balances are invested
to the extent available, and interest earnings are recognized in the general
fund. Certain special revenue, proprietary, and fiduciary funds segregate cash,
and investment earnings become a part of those funds.
Deposits with financial institutions consist primarily of demand deposits, cer-
tificates of deposits, and savings accounts. A cash and investment pool is
maintained that is available for use by all funds. Each fund's portion of this
pool is reflected on the combined financial statements under the caption
"cash and short-term investments". The interest earnings attributable to each
fund type are included under investment income.
For purpose of the statement of cash flows, the proprietary funds consider
investments with original maturities of three months or less to be short-term
investments.
E. Investments
State and local statutes place certain limitations on the nature of deposits and
investments available. Deposits in any financial institution may not exceed
certain levels within the financial institution. Non-fiduciary fund investments
can be made in securities issued by or unconditionally guaranteed by the
U.S. Government or agencies that have a maturity of one year or less from
the date of purchase and repurchase agreements guaranteed by such secu-
rities with maturity dates of no more than 90 days from the date of purchase.
Investments for the Contributory Retirement System and Trust Funds consist
of marketable securities, bonds, and short-term money market investments.
Investments are carried at fair value.
F. Property Tax Limitations
Legislation known as "Proposition 2Y2" has limited the amount of revenue
that can be derived from property taxes. The prior fiscal year's tax levy limit
is used as a base and cannot increase by more than 2.5 percent (excluding
new growth), unless an override is voted. The actual fiscal year 2018 tax
levy reflected an excess capacity of$3,924.
G. Capital Assets
Capital assets, which include property, plant, equipment, and infrastructure
assets are reported in the applicable governmental or business-type activi-
ties columns in the government-wide financial statements. Capital assets
are defined by the Town as assets with an initial individual cost of more than
$15,000 and an estimated useful life in excess of two years. Such assets
are recorded at historical cost or estimated historical cost if purchased or
28
constructed. Donated capital assets are recorded at acquisition value at the
date of donation.
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.
Major outlays for capital assets and improvements are capitalized as projects
are constructed. Interest incurred during the construction phase of capital
assets of business-type activities is included as part of the capitalized value
of the assets constructed.
Capital assets are depreciated using the straight-line method over the fol-
lowing estimated useful lives:
Assets Years
Buildings 40
Building improvements 20
Infrastructure 20 - 50
Vehicles 5
Office equipment 5
Computer equipment 5
H. Compensated Absences
It is the Town's policy to permit employees to accumulate earned but unused
vacation and sick pay benefits. All vested sick and vacation pay is accrued
when incurred in the government-wide, proprietary, and fiduciary fund finan-
cial statements. A liability for these amounts is reported in governmental
funds only if they have matured, for example, as a result of employee res-
ignations and retirements.
1. Long-Term Obligations
In the government-wide financial statements, and proprietary fund types in
the fund financial statements, long-term debt, and other long-term obliga-
tions are reported as liabilities in the applicable governmental activities,
business-type activities, or proprietary fund type Statement of Net Position.
J. Fund Ecluity
Fund equity at the governmental fund financial reporting level is classified as
"fund balance". Fund equity for all other reporting is classified as "net position".
Fund Balance - Generally, fund balance represents the difference between
the current assets/deferred outflows and current liabilities/deferred inflows.
The Town reserves those portions of fund balance that are legally segregated
for a specific future use or which do not represent available, spendable
resources and therefore, are not available for appropriation or expenditure.
Unassigned fund balance indicates that portion of fund balance that is avail-
able for appropriation in future periods.
29
When an expenditure is incurred that would qualify for payment from multi-
ple fund balance types, the Town uses the following order to liquidate liabil-
ities: restricted, committed, assigned, and unassigned.
Net Position - Net position represents the difference between assets/deferred
outflows and liabilities/deferred inflows. Net investment in capital assets,
consists of capital assets, net of accumulated depreciation, reduced by the
outstanding balances of any borrowing used for the acquisition, construc-
tion or improvement of those assets. Net position is reported as restricted
when there are limitations imposed on their use either through the enabling
legislation adopted by the Town or through external restrictions imposed by
creditors, grantors, or laws or regulations of other governments. The remaining
net position is reported as unrestricted.
K. Use of Estimates
The preparation of basic financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures for contingent assets and liabilities at the date of the basic
financial statements and the reported amounts of the revenues and expend-
itures/expenses during the fiscal year.Actual results could vary from estimates
that were used.
2. Stewardship, Compliance, and Accountability
A. Budaetary Information
During the fiscal year, the Town Manager submits to the Town Council an
operating budget for the proposed expenditures for the fiscal year com-
mencing the following July 1 st. The budget, as enacted by the Town Council,
also establishes that certain appropriations are to be funded by particular
revenues. The original budget is amended during the fiscal year as required
by changing conditions. Formal budgetary integration is employed as a man-
agement control device during the year for the general fund.Although formal
budgetary integration is not employed for special revenue funds, effective budg-
etary control is alternatively achieved through provisions of the Massachusetts
General Laws and the Town's Code of Ordinances.
Departments are limited to the line items as voted. Certain items may exceed
the line item budget as approved if it is for an emergency and for the safety
of the general public. These items are limited by the Massachusetts General
Laws and must be raised in the next year's tax rate.
Formal budgetary integration is employed as a management control device
during the year for the general fund and proprietary funds.
At year-end, appropriation balances lapse, except for certain unexpended capi-
tal items and encumbrances which will be honored during the subsequent year.
30
B. Budaetary Basis
The general fund final appropriation appearing on the "Budget and Actual"
page of the fund financial statements represents the final amended budget
after all reserve fund transfers and supplemental appropriations.
C. Budaet/GAAP Reconciliation
The budgetary data for the general fund is based upon accounting principles
that differ from generally accepted accounting principles (GAAP). Therefore, in
addition to the GAAP basis financial statements, the results of operations of
the general fund are presented in accordance with budgetary accounting prin-
ciples to provide a meaningful comparison to budgetary data.
The following is a summary of adjustments made to the actual revenues and
other sources, and expenditures and other uses, to conform to the budget-
ary basis of accounting.
Revenues Expenditures
and Other and Other
General Fund Financina Sources Financina Uses
Revenues/Expenditures
(GAAP basis) $ 132,029,137 $ 125,343,436
Other financing sources/uses
(GAAP basis) 570,227 4,391,752
Subtotal (GAAP Basis) 132,599,364 129,735,188
Excess tax collection over budget (24,145) -
Reverse expenditures of prior-year
appropriation carryforwards - (1,278,378)
Add end-of-year appropriation carryforwards - 2,763,686
To record use of free cash 2,000,000 -
To reverse the effect of nonbudgeted
State contributions for teachers retirement (4,878,062) (4,878,062)
To remove unbudgeted stabilization fund 1,260,104 1,567,298
Overhead cost reclass 3,148,088 3,148,088
Budgetary basis $ 134,105,349 $ 131,057,820
D. Deficit Fund Eauity
Certain individual funds reflected deficit balances as of June 30, 2018.
It is anticipated that the deficits in these funds will be eliminated through future
departmental revenues, bond proceeds, and transfers from other funds.
31
3. Cash and Short-Term Investments
Custodial Credit Risk-Deposits. Custodial credit risk is the risk that in the event
of a bank failure, the Town's and Contributory Retirement System's (the System)
deposits may not be returned. Massachusetts General Law Chapter 44, Section 55,
limits the Town's deposits "in a bank or trust company or banking company to
an amount not exceeding sixty percent of the capital and surplus of such bank
or trust company or banking company, unless satisfactory security is given to it
by such bank or trust company or banking company for such excess." Massa-
chusetts General Law Chapter 32, Section 23, limits the System's deposits "in
a bank or trust company to an amount not exceeding ten percent of the capital
and surplus of such bank or trust company."The Town and System do not have
a deposit policy for custodial credit risk.
As of June 30, 2018 and December 31, 2017, $43,216,387 and $676,868 of the
Town's and System's bank balances of$76,232,380 and $1,182,543, respectively,
were exposed to custodial credit risk as uninsured or uncollateralized. $32,648,008
of the Town's uninsured and uncollateralized amount is on deposit with the
Massachusetts Municipal Depository Trust.
4. Investments
A. Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill
its obligation to the holder of the investment. For short-term investments
that were purchased using surplus revenues, Massachusetts General Law,
Chapter 44, Section 55, limits the Town's investments to the top rating issued
by at least one nationally recognized statistical rating organization (NRSROs).
Presented below (in thousands) is the actual rating as of year-end for each
investment of the Town. (All federal agency securities have an implied credit
rating of AAA.):
Exempt Rating as of Year End
From
Investment Twe Amount Disclosure AAA Aa2-A3 Baa3-B2 Caa2-C
Debt-related securities:
U.S treasury notes $ 568 $ - $ 568 $ - $ - $ -
Federal agency securities 601 - 601 - - -
Corporate bonds 375 - - 197 178 -
Fixed income mutual funds 340 39 213 9 77 2
Total debt securities 1,884 39 1,382 206 255 2
Equity securities:
Equity mutual funds 313 313 - - - -
Corporate equity bonds 997 997 - - - -
Other stocks and bonds 64 64 - - - -
Total equity securities 1,374 1,374 - - - -
Total investments $ 3,258 $ 1,413 $ 1,382 $ 206 $ 255 $ 2
32
Massachusetts General Law, Chapter 32, Section 23, limits the investment
of System funds, to the extent not required for current disbursements, in the
PRIT Fund or in securities, other than mortgages or collateral loans, which
are legal for the investment of funds in savings banks under the laws of the
Commonwealth, provided that no more than the established percentage of
assets is invested in any one security.
Presented below is the actual rating as of year-end of the System (in thousands):
Minimum Exempt Ratina as of Year End
Legal From Not
Investment Tvae Amount Ratina Disclosure Aaa Aa Rated
Corporate bonds $ 30,514 $ - $ - $ 30,514 $ -
Domestic stock funds 10,942 N/A 10,942 - -Mutual funds 67,701 N/A 67,701 - - -
PRIT External investment pool* 75,093 N/A 75,093 - - -
Total investments $ 184,250 $ 153,736 $ - $ 30,514 $ -
*Fair value is the same as the value of the pool share. The Pension Reserves Investment
Trust was created under Massachusetts General law, Chapter 32, Section 22, in December
1983. The Pension Reserves Investment Trust (PRIT) is operated under contract with a
private investment advisor, approved by the Pension Reserves Investment Management
Board. The Pension Reserves Investment Management Board shall choose an investment
advisor by requesting proposals from advisors and reviewing such proposals based on
criteria adopted under Massachusetts General Law, Chapter 30B.
B. Custodial Credit Risk
The custodial credit risk for investments is the risk that, in the event of the
failure of the counterparty (e.g., broker-dealer) to a transaction, a govern-
ment will not be able to recover the value of its investment or collateral
securities that are in the possession of another party. The Town and System
do not have policies for custodial credit risk.
The Town's investments are subject to custodial credit risk exposure because
the related securities are uninsured, unregistered and/or held by the Town's
brokerage firm, which is also the Counterparty to these securities. The Town
manages this custodial credit risk with SIPC, excess SIPC, and by maintain-
ing investments in the Town's name.
The System's investments are subject to custodial credit risk exposure
because the related securities are uninsured, unregistered and/or held by
the System's brokerage firm, which is also the Counterparty to these securi-
ties. The System manages this custodial credit risk with SIPC, excess SIPC
coverage and by holding the assets in separately identifiable trust accounts.
In addition, $75,092,430 of the pooled funds are invested in PRIT.
33
C. Concentration of Credit Risk
The Town places no limit on the amount the Town may invest in any one issuer.
The Town does not have an investment in one issuer greater than 5% of total
investments.
Massachusetts General Law Chapter 32, Section 23 limits the amount the
System may invest in any one issuer or security type, with the exception of
the PRIT Fund. Investments in any one issuer(other than U.S. Treasury secu-
rities and mutual funds) that represent 5% or more of total investments are
as follows:
%of
Total
Investment Issuer Amount Investments
IRM core bond fund $ 30,514,039 20%
Earnest Partners International 16,959,123 11%
Total $ 47,473,162
D. Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely
affect the fair value of an investment. Generally, the longer the maturity of
an investment, the greater the sensitivity of its fair value to changes in mar-
ket interest rates. The Town and System do not have a formal investment
policy that limits investment maturities as a means of managing its exposure
to fair value losses arising from increasing interest rates.
Information about the sensitivity of the fair values of the Town's investments
to market interest rate fluctuations is as follows (in thousands):
Investment Maturities
Less
Investment Tvoe Amount Than 1 1-5 6-10
Debt related securities:
U.S.treasury notes $ 568 $ 25 $ 409 $ 134
Federal agency securities 601 200 256 145
Corporate bonds 375 20 260 95
Fixed income mutual funds 340 - 315 25
Total $ 1,884 $ 245 $ 1,240 $ 399
Information about the sensitivity of the fair values of the System's invest-
ments to market interest rate fluctuations is as follows (in thousands):
Investment Maturities(in Years)
Less
Investment Tvoe Amount Than 1 1-5 6-10
Debt Related Securities:
Corporate bonds $ 30,514 $ - $ - $ 30,514
Total $ 30,514 $ - $ - $ 30,514
34
E. Foreian Currencv Risk
Foreign currency risk is the risk that changes in foreign exchange rates will
adversely affect the fair value of an investment. The Town and System do
not have policies for foreign currency risk.
F. Fair Value
The Town categorizes its fair value measurements within the fair value hier-
archy established by Governmental Accounting Standards Board State-
ment No. 72 Fair Value Measurement and Application (GASB 72). The hier-
archy is based on the valuation inputs used to measure the fair value of the
asset. Level 1 inputs are quoted prices in active markets for identical assets;
Level 2 inputs are significant other observable inputs; Level 3 inputs are
significant unobservable inputs.
The Town has the following fair value measurements as of June 30, 2018 (in
thousands):
Fair Value Measurements Usinq:
Quoted prices in Significant Significant
active markets observable unobservable
identical assets inputs inputs
Description Level1 Level2 (Level3)
Investments by fair value level:
Debt securities
U.S. Treasury notes $ 568 $ - $ 568 $ -
Federal agency securities 601 - 601 -
Corporate bonds 375 - 375 -
Bond mutual funds 340 - 340 -
Equity securities
Equity mutual funds 313 313 - -
Corporate equity funds by sector
Utilities 87 87 - -
Information technology 63 63 - -
Telecommunication services 160 160 - -
Industrials 104 104 - -
Healthcare 132 132 - -
Consumer staples 136 136 - -
Consumer discretionary 75 75 - -
Energy 38 38 - -
Financial 124 124 - -
Materials 40 40 - -
Other 102 102 - -
Total $ 3,258 $ 1,374 $ 1,884 $ -
35
The System has the following fair value measurements as of December 31, 2017
(in thousands):
Fair Value Measurements Using:
Quoted prices
in active Significant Significant
markets for observable unobservable
identical assets inputs inputs
Description Value Level1 (Level2) Level3
Investments by fair value level:
Debt securities
Corporate bonds $ 30,514 $ - $ 30,514 $ -
Equity securities
Equity mutual funds 67,701 67,701 - -
Domestic stock funds 10,942 10,942 - -
Subtotal 109,157 $ 78,643 $ 30,514 $ -
Redemption
Investments measured at Unfunded Frequency (If Redemption
the net asset value (NAV): Commitments Currently Eliaible) Notice Period
External Investment Pools:
Monthly 30 days
Vintage N/A
PRIT 52,154 $ 8,225 Year:
Limited Partnerships
Arsenal real estate fund 282 - Illiquid N/A
Auda partners 292 795 Illiquid N/A
Earnest partners international 16,959 - Monthly 5 days
Guggenheim high yield fund 4,525 - Monthly 30 days
RCP Fund 881 - Illiquid N/A
Subtotal 75,093
Total $ 184,250
5. Property Taxes and Excises Receivable
Real estate and personal property taxes are levied and based on values assessed
on January 1 of every year. Assessed values are established by the Board of
Assessor's for 100% of the estimated fair market value. Taxes are due on a
quarterly basis and are subject to penalties and interest if they are not paid by
the respective due date. Real estate and personal property taxes levied are
recorded as receivables in the fiscal year they relate to.
The day after the final tax bill is due, a demand notice may be sent to the delin-
quent taxpayer. Fourteen days after the demand notice has been sent, the tax
collector may proceed to file a lien against the delinquent taxpayers' property.
The Town has an ultimate right to foreclose on property for unpaid taxes. Personal
property taxes cannot be secured through the lien process.
36
Motor vehicle excise taxes are assessed annually for every motor vehicle and
trailer registered in the Commonwealth. The Registry of Motor Vehicles annually
calculates the value of all registered motor vehicles for the purpose of excise
assessment. The amount of motor vehicle excise tax due is calculated using a
fixed rate of$25 per $1,000 of value.
Boat excise taxes are assessed annually for all water vessels, including docu-
mented boats and ships, used or capable of being used for transportation on
water.A boat excise is assessed by the community where the vessel is moored.
July 1 is the assessing date for all vessels, and the boat excise due is calculated
using a fixed rate of $10 per $1,000 of value.
Property taxes receivable at June 30, 2018 consist of the following (in thousands):
Gross Allowance Net Amount
Amount for Doubtful (accrual
Receivables: (fund basis) Accounts basis)
Real estate taxes $ 762 $ (73) $ 689
Personal property taxes 151 (73) 78
Tax liens 758 (75) 683
Other 82 - 82
Total property taxes $ 1,753 $ (221) 1,532
Less current portion 856
Noncurrent taxes receivable $ 676
Motor vehicle excise $ 445 $ (139) $ 306
Boat excise 2 - 2
Total excises $ 447 $ (139) $ 308
6. User Fee Receivables
Receivables for user charges at June 30, 2018 consist of the following (in
thousands):
Allowance
Gross for Doubtful Net
Receivables: Amount Accounts Amount
Water $ 2,251 $ (50) $ 2,201
Sewer 3,247 (88) 3,159
Total $ 5,498 $ (138) $ 5,360
37
7. Interfund Fund Accounts
Transfers
The Town reports interfund transfers between various funds. Most transfers result
from budgetary or statutory actions, whereby funds are moved to accomplish
various expenditure purposes. The following is an analysis of interfund transfers:
Governmental Funds: Transfers In Transfers Out
General Fund $ 570,227 $ 4,391,752
Nonmajor Funds:
Special Revenue Funds: 296,289 794,133
Capital Project Funds 4,480,212 -
Trust Funds - 15,000
Subtotal Nonmajor Funds 4,776,501 809,133
Business-Tvpe Funds:
Sewer Fund - 104,858
Water Fund - 30,379
Subtotal Business-Type Funds: - 135,237
Grand Total $ 5,346,728 $ 5,336,122
Of the transfer into the non-major capital project funds, $2,238,858 was trans-
ferred from the general fund for street and sidewalk repair, $867,503 was trans-
ferred from the general fund for school improvements, and $370,308 was
transferred from the general fund for the purchase of DPW equipment. The
Town's other routine transfers include transfers made to move (1) unrestricted
revenues or balances that have been collected or accumulated in the general
fund to other funds based on budgetary authorization, and (2) revenues from a
fund that by statute or budgetary authority must collect them to funds that are
required by statute or budgetary authority to expend them.
Transfers between governmental activities and business-type activities do not
offset by $10,606. This is due to transfers between governmental activities and
the student activity funds.
38
8. Capital Assets
Capital asset activity for the year ended June 30, 2018 was as follows (in
thousands):
Beginning Ending
Balance Increases Decreases Balance
Governmental Activities:
Capital assets, being depreciated:
Buildings and improvements $ 120,471 $ 147 $ - $ 120,618
Machinery, equipment, and furnishings 6,246 1,014 - 7,260
Infrastructure 65,420 3,452 (25,434) 43,438
Vehicles 9,410 766 (1,065) 9,111
Total capital assets, being depreciated 201,547 5,379 (26,499) 180,427
Less accumulated depreciation for:
Buildings and improvements (61,867) (3,825) - (65,692)
Machinery, equipment, and furnishings (5,291) (277) - (5,568)
Infrastructure (36,355) (1,520) 25,434 (12,441)
Vehicles (7,177) (621) 989 (6,809)
Total accumulated depreciation (110,690) (6,243) 26,423 (90,510)
Total capital assets, being depreciated, net 90,857 (864) (76) 89,917
Capital assets, not being depreciated:
Land 8,810 - - 8,810
Construction in progress 102 3,018 - 3,120
Total capital assets, not being depreciated 8,912 3,018 - 11,930
Governmental activities capital assets, net $ 99,769 $ 2,154 $ (76) $ 101,847
Beginning Ending
Balance Increases Decreases Balance
Business-Type Activities:
Capital assets, being depreciated:
Machinery, equipment, and furnishings $ 2,788 $ 17 $ - $ 2,805
Infrastructure 23,024 2,399 (7,966) 17,457
Vehicles 1,178 114 (45) 1,247
Total capital assets, being depreciated 26,990 2,530 (8,011) 21,509
Less accumulated depreciation for:
Machinery, equipment, and furnishings (2,042) (122) - (2,164)
Infrastructure (10,400) (382) 7,966 (2,816)
Vehicles (1,023) (88) 45 (1,066)
Total accumulated depreciation (13,465) (592) 8,011 (6,046)
Business-type activities capital assets, net $ 13,525 $ 1,938 $ - $ 15,463
39
Depreciation expense was charged to functions of the Town as follows (in
thousands):
Governmental Activities:
General government $ 504
Public safety 876
Education 1,807
Public works 2,270
Health and human services 98
Culture and recreation 688
Total depreciation expense - governmental activities $ 6,243
Business-Type Activities:
Water $ 183
Sewer 409
Total depreciation expense - business-type activities $ 592
9. Deferred Outflows of Resources
Deferred outflows of resources represent the consumption of net position by the
Town that is applicable to future reporting periods. Deferred outflows of resources
have a positive effect on net position, similar to assets. Deferred outflows of
resources related to pensions, in accordance with GASB Statement No. 68, are
more fully discussed in the corresponding pension note.
10. Warrants Pavable
Warrants payable represent 2018 expenditures paid by July 15, 2018.
11. Accrued Liabilities
This balance consists primarily of salaries earned but unpaid at June 30, 2018,
accrued interest on bonds, and other accrued liabilities.
12. Tax Refunds Pavable
This balance consists of an estimate of refunds due to property taxpayers for
potential abatements. These cases are currently pending with the state Appellate
Tax Board.
40
13. Lonq-Term Debt
A. General Obligation Bonds
The Town issues general obligation bonds to provide funds for the acquisi-
tion and construction of major capital facilities. General obligation bonds
have been issued for both governmental and business-type activities. General
obligation bonds currently outstanding are as follows:
Amount
Serial Outstanding
Maturities Interest as of
Governmental Activities: Throu h Rate(s) % 6/30/18
General obligation bonds 11/1/20 3.80% $ 300,000
General obligation bonds 6/15/25 1.19% 3,075,000
General obligation bonds 6/15/27 1.80% 1,405,000
General obligation bonds 6/15/27 3.31% 2,520,000
General obligation bonds 7/15/28 4.00% 5,500,000
General obligation bonds 11/1/28 3.31% 150,000
General obligation bonds 11/1/28 2.00% 7,105,000
General obligation bonds 6/30/32 2.02% 7,155,000
General obligation bonds 4/15/33 3.00% 4,625,000
General obligation bonds 4/15/33 3.31% 245,000
Total Governmental Activities $ 32,080,000
Amount
Serial Outstanding
Maturities Interest as of
Business-Tvpe Activities: Through Rate(s) % 6/30/18
Sewer
Sewer bond (MWRA) 11/28/21 0.00% $ 242,000
Sewer bond (MWRA) 2/15/23 0.00% 288,200
Sewer bond (MWRA) 8/15/25 0.00% 174,900
General obligation bond 1/15/28 2.02% 565,550
General obligation bond 11/1/23 2.00% 405,000
Total Sewer 1,675,650
Water
Water bond (MWRA) 5/15/20 0.00% 347,272
Water bond (MWRA) 11/15/20 0.00% 400,000
Water bond (MWRA) 11/28/21 0.00% 450,000
Water bond (MWRA) 5/15/23 0.00% 750,000
General obligation bond 11/1/23 2.00% 405,000
General obligation bond 6/30/25 1.19% 105,000
General obligation bond 1/15/28 2.02% 164,450
Water bond (MWRA) 2/15/28 0.00% 478,000
Total Water: 3,099,722
Total Business-Type Activities $ 4,775,372
41
B. Future Debt Service
The annual payments to retire all general obligation long-term debt outstanding
as of June 30, 2018 are as follows:
Governmental Principal Interest Total
2019 $ 4,940,000 $ 1,228,043 $ 6,168,043
2020 4,825,000 1,028,051 5,853,051
2021 3,740,000 818,326 4,558,326
2022 3,205,000 670,063 3,875,063
2023 2,585,000 544,276 3,129,276
2024 - 2028 9,555,000 1,432,681 10,987,681
2029 - 2033 3,230,000 258,259 3,488,259
Total $ 32,080,000 $ 5,979,699 $ 38,059,699
Business-Tvpe Principal Interest Total
2019 $ 902,876 $ 68,033 $ 970,909
2020 882,876 58,225 941,101
2021 704,240 47,325 751,565
2022 640,940 37,075 678,015
2023 580,440 26,875 607,315
2024 -2028 1,064,000 41,325 1,105,325
Total $ 4,775,372 $ 278,858 $ 5,054,230
C. Chanaes in General Lona-Term Liabilities
During the year ended June 30, 2018, the following changes occurred in
long-term liabilities (in thousands):
Equals
Total Total Less Long-Term
Balance Balance Current Portion
7/1/17 Additions Reductions 6/30/18 Portion 6/30/18
Governmental Activities
Bonds payable $ 30,154 $ 7,155 $ (5,229) $ 32,080 $ (4,940) $ 27,140
Unamortized premium - 555 (37) 518 (37) 481
Subtotal 30,154 7,710 (5,266) 32,598 (4,977) 27,621
Net pension liability 41,474 - (21,965) 19,509 - 19,509
Total OPEB liability 117,886 3,313 - 121,199 - 121,199
Other:
Compensated absences 3,184 - (406) 2,778 (139) 2,639
Subtotal-other 3,184 - (406) 2,778 139 2,639
Totals $ 192,698 $ 11,023 $ (27,637) $ 176,084 $ (5,116) $ 170,968
Business-Type Activities
Bonds payable $ 3,972 $ 1,496 $ (693) $ 4,775 $ 903 $ 3,872
Subtotal 3,972 1,496 (693) 4,775 (903) 3,872
Net pension liability 804 - (266) 538 - 538
Total OPEB liability 1,432 40 - 1,472 - 1,472
Totals $ 6,208 $ 1,536 $ (959) $ 6,785 $ (903) $ 5,882
42
14. Deferred Inflows of Resources
Deferred inflows of resources are the acquisition of net position by the Town
that are applicable to future reporting periods. Deferred inflows of resources
have a negative effect on net position, similar to liabilities. Deferred inflows of
resources related to pension will be recognized as expense in future years and
is more fully described in the corresponding pension note. Unavailable revenues
are reported in the governmental funds balance sheet in connection with receiv-
ables for which revenues are not considered available to liquidate liabilities of
the current year.
15. Governmental Funds - Balances
Fund balances are segregated to account for resources that are either not avail-
able for expenditure in the future or are legally set aside for a specific future use.
The Town implemented GASB Statement No. 54(GASB 54), Fund Balance Report-
ing and Governmental Fund Type Definitions, which enhances the usefulness of
fund balance information by providing clearer fund balance classifications that can
be more consistently applied and by clarifying existing governmental fund type
definitions.
The following types of fund balances are reported at June 30, 2018:
Nonsaendable - Represents amounts that cannot be spent because they are
either (a) not in spendable form or (b) legally or contractually required to be main-
tained intact. This fund balance classification includes general fund reserves for
prepaid expenditures and nonmajor governmental fund reserves for the principal
portion of permanent trust funds.
Restricted - Represents amounts that are restricted to specific purposes by con-
straints imposed by creditors, grantors, contributors, or laws or regulations of
other governments, or constraints imposed by law through constitutional pro-
visions or enabling legislation. This fund balance classification includes general
fund encumbrances funded by bond issuances, various special revenue funds,
and the income portion of permanent trust funds.
Committed - Represents amounts that can only be used for specific purposes pur-
suant to constraints imposed by formal action of the Town's highest level of decision-
making authority. This fund balance classification includes general fund encum-
brances for non-lapsing, special article appropriations and stabilization funds.
Assianed - Represents amounts that are constrained by the Town's intent to use
these resources for a specific purpose. This fund balance classification includes
general fund encumbrances that have been established by various Town depart-
ments for the expenditure of current year budgetary financial resources upon
vendor performance in the subsequent budgetary period.
Unassianed - Represents amounts that are available to be spent in future periods.
43
Following is a breakdown of the Town's fund balances at June 30, 2018:
Nonmajor Total
General Governmental Governmental
Fund Funds Funds
Nonspendable
Nonexpendable permanent funds $ - $ 1,043,746 $ 1,043,746
Total Nonspendable - 1,043,746 1,043,746
Restricted
Bonded projects
Street and sidewalk repair - 2,010,011 2,010,011
DPW equipment purchases - 1,336,437 1,336,437
Other bonded projects - 2,367,076 2,367,076
Special revenue funds
Community preservation - 1,899,397 1,899,397
Circuit breaker - 1,338,981 1,338,981
Sale of town property - 1,201,898 1,201,898
O'Neill property charitable contributions - 1,196,449 1,196,449
Other special revenue funds - 5,868,912 5,868,912
Expendable permanent funds - 1,545,036 1,545,036
Total Restricted - 18,764,197 18,764,197
Committed
NESWC/Capital project stabilization 1,552,766 - 1,552,766
OPEB stabilization 1,276,697 - 1,276,697
Unfunded pension stabilization 271,971 - 271,971
ESCO capital project stabilization 1,198,424 - 1,198,424
Collective bargaining stabilization 619,057 - 619,057
Special education stabilization 1,002,690 - 1,002,690
Capital project funds
Street and sidewalk repair - 2,836,164 2,836,164
Mitigation projects - 2,191,339 2,191,339
DPW equipment purchases - 789,413 789,413
Other capital project funds - 1,380,124 1,380,124
Total Committed 5,921,605 7,197,040 13,118,645
Assigned
Encumbrances -
General government 713,388 - 713,388
Public safety 143,990 - 143,990
Education 833,001 - 833,001
Public works 1,679,844 - 1,679,844
Health and human services 51,274 - 51,274
Culture and recreation 86,288 - 86,288
For next years'expenditures 2,500,000 - 2,500,000
Total Assigned 6,007,785 - 6,007,785
Unassigned
Special revenue funds - (313,992) (313,992)
Capital project funds - (1,160,916) (1,160,916)
General stabilization fund 1,258,483 - 1,258,483
General fund 15,730,849 - 15,730,849
Total Unassigned 16,989,332 (1,474,908) 15,514,424
Total Fund Balances $ 28,918,722 $ 25,530,075 $ 54,448,797
44
16. General Fund Unassigned Fund Balance
The unassigned general fund balance reported on the balance sheet is stated
in accordance with generally accepted accounting principles (GAAP), which
differs in certain respects from the Massachusetts Uniform Municipal Accounting
System (UMAS). The following paragraphs summarize the major differences.
The accompanying financial statements include an estimate for future potential
tax refunds, which is not recognized under UMAS.
The following summarizes the specific differences between GAAP basis and
budgetary basis of reporting the general fund unassigned fund balance:
GAAP basis balance $ 16,989,332
Tax refund estimate 643,394
Less general stabilization (1,258,483)
Statutory (UMAS) Balance $ 16,374,243
17. Watertown Contributory Retirement Svstem
The Town follows the provisions of GASB Statement No. 68 Accounting and Finan-
cial Reporting for Pensions — an amendment of GASB Statement No. 27, with
respect to the employees' retirement funds.
A. Plan Description and Contribution Information
Substantially all employees of the Town (except teachers and administrators
under contract employed by the School Department) are members of the
Watertown Contributory Retirement System (WCRS), a cost-sharing, multiple-
employer defined benefit PERS. Eligible employees must participate in the
WCRS. The pension plan provides pension benefits, deferred allowances,
and death and disability benefits. Chapter 32 of the Massachusetts General
Laws establishes the authority of the WCRS Retirement Board. Chapter 32
also establishes contribution percentages and benefits paid. The WCRS
Retirement Board does not have the authority to amend benefit provisions.
As required by Massachusetts General Laws, the System issues a separate
report to the Commonwealth's Public Employee Retirement Administration
Commission.
Participant Retirement Benefits
The System provides for retirement allowance benefits up to a maximum of
80% of a member's highest 3-year average annual rate of regular compen-
sation for those hired prior to April 2, 2012 and the highest five-year average
annual rate of regular compensation for those first becoming members of
the Massachusetts System on or after that date. However, per Chapter 176
45
of the Acts of 2011, for members who retire on or after April 2, 2012, if in the
5 years of creditable service immediately preceding retirement, the differ-
ence in the annual rate of regular compensation between any 2 consecutive
years exceeds 100 percent, the normal yearly amount of the retirement allow-
ance shall be based on the average annual rate of regular compensation
received by the member during the period of 5 consecutive years preceding
retirement. Benefit payments are based upon a member's age, length of
creditable service, level of compensation and group classification.
If a participant was a member prior to February 2012, a retirement allow-
ance may be received at any age, upon attaining 20 years of service. The
plan also provides for retirement at age 55 if the participant was a member
prior to January 1, 1978, with no minimum vesting requirements. If the par-
ticipant was a member on or after January 1, 1978 and a member of Groups 1
or 2, then a retirement allowance may be received if the participant (1) has
at least 10 years of creditable service, (2) is age 55, (3) voluntarily left Town
employment on or after that date, and (4) left accumulated annuity deductions
in the fund. Members of Group 4, have no minimum vesting requirements,
however, must be at least age 55. Groups 2 and 4 require that participants
perform the duties of the Group position for at least 12 months immediately
prior to retirement.
A participant who became a member on or after April 2, 2012 is eligible for
a retirement allowance upon 10 years creditable service and reaching ages 60
or 55 for Groups 1 and 2, respectively. Participants in Group 4 must be at
least age 55. Groups 2 and 4 require that participants perform the duties of
the Group position for at least 12 months immediately prior to retirement.
A retirement allowance consists of two parts: an annuity and a pension. A
member's accumulated total deductions and a portion of the interest they
generate constitute the annuity. The difference between the total retirement
allowance and the annuity is the pension. The average retirement benefit is
approximately 80-85% pension and 15-20% annuity.
Participant Refunds
Employees who resign from service and who are not eligible to receive a
retirement allowance are entitled to request a refund of their accumulated
total deductions. Members voluntarily withdrawing with at least 10 years of
service or involuntarily withdrawing, receive 100% of the regular interest that
has accrued on those accumulated total deductions. Members voluntarily
withdrawing with less than 10 years of service get credited interest each year
at a rate of 3%.
Participants Contributions
Participants contribute a set percentage of their gross regular compensation
annually. Employee contribution percentages are specified in Chapter 32 of
46
the Massachusetts General Laws. The employee's individual contribution
percentage is determined by their date of entry into the system. In addition,
all employees hired on or after January 1, 1979 contribute an additional 2%
on all gross regular compensation over the rate of $30,000 per year. The
percentages are as follows:
Before January 1, 1975 5%
January 1, 1975 - December 31, 1983 7%
January 1, 1984 - June 30, 1996 8%
Beginning July 1, 1996 9%
For those members entering a Massachusetts System on or after April 2, 2012
in Group 1, the contribution rate will be reduced to 6% when at least 30 years
of creditable service has been attained.
Emplover Contributions
Employers are required to contribute at actuarially determined rates as accepted
by the Public Employee Retirement Administration Commission (PERAC).
The Town's contribution to the System for the year ended June 30, 2018 was
$16,853,521, which was equal to its annual required contribution.
B. Summary of Significant Accounting Policies
For purposes of measuring the net pension liability, deferred outflows of
resources and deferred inflows of resources related to pensions, and pen-
sion expense, information about the fiduciary net position of the System and
additions to/deductions from System's fiduciary net position have been deter-
mined on the same basis as they are reported by System. For this purpose,
benefit payments (including refunds of employee contributions) are recognized
when due and payable in accordance with benefit terms. Investments are
reported at fair value.
C. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources
and Deferred Inflows of Resources Related to Pensions
At June 30, 2018, the Town reported a liability of$20,046,985 for its propor-
tionate share of the net pension liability. The net pension liability was meas-
ured as of December 31, 2017, and the total pension liability used to calculate
the net pension liability was determined by an actuarial valuation as of that
date. The Town's proportion of the net pension liability was based on a
projection of the Town's long-term share of contributions to the pension plan
relative to the projected contributions of all participating employers, actuarially
determined.At December 31, 2017, the Town's proportion was 98.14 percent.
For the year ended June 30, 2018, the Town recognized pension expense
of$6,321,544. In addition, the Town of Watertown reported deferred outflows
47
of resources and deferred inflows of resources related to pensions from the
following sources:
Deferred Deferred
Outflows of Inflows of
Resources Resources
Difference between expected and actual
experience $ 9,150,405 $ -
Changes of assumptions - 1,057,789
Difference between projected and actual
earnings on pension plan investments - 3,955,574
Changes in proportion and differences
between contributions and proportionate
share of contributions 157,434 3,488
Total $ 9,307,839 $ 5,016,851
Amounts reported as deferred outflows of resources and deferred inflows of
resources related to pensions will be recognized in pension expense as follows:
Deferred Outflows
(Inflows)
Year ended June 30: of Resources
2018 $ 3,393,892
2019 2,914,842
2020 113,887
2021 (2,131,633)
Total $ 4,290,988
D. Actuarial Assumptions
The total pension liability in the January 1, 2018 actuarial valuation was deter-
mined using the following actuarial assumptions, applied to all periods included
in the measurement:
Investment rate of return 7.90%
Projected salary increases 3.50%
Inflation rate 3.00%
Post-retirement cost-of-living adjustment 3.00%
Mortality rates were based on both pre-retirement and beneficiary RP-2014
Blue Collar Mortality Table for males and females, adjusted to Scale MP-2016.
Mortality for disabled members is represented by the RP-2000 Mortality
48
Table set forward two years for all disabled members. Generational adjusting
is based on Scale MP-2016.
The actuarial assumptions used in the January 1, 2018 valuation were based
on the results of the most recent actuarial experience study, which was for
the period ended December 31, 2017.
The long-term expected rate of return on pension plan investments was selected
from a best estimate range determined using the building block approach.
Under this method, an expected future real return range (expected returns,
net of pension plan investment expense and inflation) is calculated sepa-
rately for each asset class. These ranges are combined to produce the long-
term expected rate of return by weighting the expected future real rates of
return net of investment expenses by the target asset allocation percentage
and by adding expected inflation. The target allocation and best estimates
of geometric average real rates of return for each major class are summa-
rized in the following table:
Long-term
Target Expected
Asset Real Rate
Asset Class Allocation of Return
Core Fixed Income 19.00% 1.65%
High Yield Fixed Income 2.50% 3.05%
Global Fixed Income 4.00% 1.85%
Domestic Large Cap 25.00% 5.55%
Domestic Small Cap 5.00% 6.00%
International Equity 22.00% 5.55%
Real Estate 10.00% 4.20%
Hedge Funds 7.50% 3.45%
Private Equity 5.00% 7.05%
Total 100.00%
E. Discount Rate
The discount rate used to measure the total pension liability was 7.90%. The
projection of cash flows used to determine the discount rate assumed that
the plan member contributions will be made at the current contribution rate
and that employer contributions will be made at contractually required rates,
actuarially determined. Based on those assumptions, the pension plan's
fiduciary net position was projected to be available to make all projected future
benefit payments to current active and inactive plan members. Therefore,
the long-term expected rate of return on pension plan investments was applied
to all periods of projected benefit payments to determine the total pension
liability.
49
F. Sensitivity of the Proportionate Share of the Net Pension Liability to Changes
in the Discount Rate
The following presents the Town's proportionate share of the net pension
liability calculated using the discount rate of 7.90 percent, as well as what
the Town's proportionate share of the net pension liability would be if it were
calculated using a discount rate that is 1 percentage-point lower (6.90%) or
1 percentage-point higher (8.90%) than the current rate:
Current
Discount 1%
1% Decrease Rate Increase
(6.90%) (7.90%) (8.90%)
$ 40,434,130 $ 20,046,984 $ 2,659,764
G. Pension Plan Fiduciary Net Position
Detailed information about the pension plan's fiduciary net position is avail-
able in the separately issued System financial report.
18. Massachusetts Teachers' Retirement Svstem (MTRS)
A. Plan Description
The Massachusetts Teachers' Retirement System (MTRS) is a public employee
retirement system (PERS) that administers a cost-sharing, multi-employer
defined benefit plan, as defined in Governmental Accounting Standards Board
(GASB) Statement No. 67, Financial Reporting for Pension Plans. MTRS is
managed by the Commonwealth on behalf of municipal teachers and munic-
ipal teacher retirees. The Commonwealth is a nonemployer contributor and
is responsible for all contributions and future benefit requirements of the
MTRS. The MTRS covers certified teachers in cities (except Boston), towns,
regional school districts, charter schools, educational collaboratives, and Quincy
College. The MTRS is part of the Commonwealth's reporting entity and
does not issue a stand-alone audited financial report.
Management of MTRS is vested in the Massachusetts Teachers' Retire-
ment Board (MTRB), which consists of seven members, two elected by the
MTRS members, one who is chosen by the six other MTRB members, the
State Treasurer (or their designee), the State Auditor (or their designee), a
member appointed by the Governor, and the Commissioner of Education
(or their designee), who serves ex-officio as the Chairman of the MTRB.
B. Benefits Provided
MTRS provides retirement, disability, survivor, and death benefits to members
and their beneficiaries. Massachusetts General Laws (MGL) establishes
50
uniform benefit and contribution requirements for all contributory PERS. These
requirements provide for superannuation retirement allowance benefits up
to a maximum of 80% of a member's highest three-year average annual rate
of regular compensation. For employees hired after April 1, 2012, retirement
allowances are calculated on the basis of the last five years or any five
consecutive years, whichever is greater in terms of compensation. Benefit
payments are based upon a member's age, length of creditable service, and
group creditable service, and group classification. The authority for amending
these provisions rests with the Legislature.
Members become vested after ten years of creditable service. A superan-
nuation retirement allowance may be received upon the completion of twenty
years of creditable service or upon reaching the age of 55 with ten years of
service. Normal retirement for most employees occurs at age 65. Most
employees who joined the system after April 1, 2012 cannot retire prior to
age 60.
The MTRS' funding policies have been established by Chapter 32 of the
MGL. The Legislature has the authority to amend these policies. The annuity
portion of the MTRS retirement allowance is funded by employees, who
contribute a percentage of their regular compensation. Costs of adminis-
tering the plan are funded out of plan assets.
C. Contributions
Member contributions for MTRS vary depending on the most recent date of
membership:
Membership Date % of Compensation
Prior to 1975 5% of regular compensation
1975 - 1983 7% of regular compensation
1984 to 6/30/1996 8% of regular compensation
7/1/1996 to present 9% of regular compensation
7/1/2001 to present 11% of regular compensation (for teachers
hired after 7/1/01 and those accepting provi-
sions of Chapter 114 of the Acts of 2000)
1979 to present An additional 2% of regular compensation in
excess of$30,000
D. Actuarial Assumptions
The total pension liability for the June 30, 2017 measurement date was
determined by an actuarial valuation as of January 1, 2017 rolled forward
to June 30, 2017. This valuation used the following assumptions:
• (a) 7.50% investment rate of return, (b) 3.50% interest rate credited to the
annuity savings fund, and (c) 3.00% cost of living increase on the first
$13,000 per year.
51
• Salary increases are based on analyses of past experience but range
from 4.00% to 7.50% depending on length of service.
• Experience study is dated July 21, 2014 and encompasses the period
January 1 , 2006 to December 31, 2011.
• Mortality rates were as follows:
— Pre-retirement — reflects RP-2014 Employees table projected gen-
erationally with Scale BB and a base year of 2014 (gender distinct)
— Post-retirement—reflects RP-2014 Healthy Annuitant table projected
generationally with Scale BB and a base year of 2014 (gender distinct)
— Disability — assumed to be in accordance with the RP-2014 Healthy
Annuitant table projected generationally with Scale BB and a base year
of 2014 set forward 4 years.
Investment assets of the MTRS are with the Pension Reserves Investment
Trust (PRIT) Fund. The long-term expected rate of return on pension plan
investments was determined using a building-block method in which best-
estimate ranges of expected future rates of return are developed for each
major asset class. These ranges are combined to produce the long-term
expected rate of return by weighting the expected future rates of return by
the target asset allocation percentage. Best estimates of geometric rates of
return for each major asset class included in the PRIT Fund's target asset
allocation as of June 30, 2017 are summarized in the following table:
Target Long-Term Expected
Asset Class Allocation Real Rate of Return
Global equity 40.00% 5.00%
Portfolio completion strategies 13.00% 3.60%
Core fixed income 12.00% 1.10%
Private equity 11.00% 6.60%
Real estate 10.00% 3.80%
Value added fixed income 10.00% 3.60%
Timber/natural resources 4.00% 3.20%
Hedge funds 0.00% 3.60%
Total 100.00%
E. Discount Rate
The discount rate used to measure the total pension liability was 7.50%. The
projection of cash flows used to determine the discount rate assumed that
plan member contributions will be made at the current contribution rates and
the Commonwealth's contributions will be made at rates equal to the differ-
ence between actuarially determined contribution rates and the member
rates. Based on those assumptions, the net position was projected to be
52
available to make all projected future benefit payments of current plan mem-
bers. Therefore, the long-term expected rate of return on pension plan invest-
ments was applied to all periods of projected benefit payments to determine
the total pension liability.
F. SensitivitvAnalvsis
The following illustrates the sensitivity of the collective net pension liability
to changes in the discount rate. In particular, the table presents the MTRS
collective net pension liability assuming it was calculated using a single dis-
count rate that is one-percentage-point lower or one-percentage-point higher
than the current discount rate (amounts in thousands):
1% Decrease Current Discount 1% Increase
to 6.50% Rate 7.50% to 8.50%
$ 28,424,300 $ 22,885,391 $ 18,193,400
G. Special Funding Situation
The Commonwealth is a nonemployer contributor and is required by statute to
make all actuarial determined employer contributions on behalf of the member
employers. Therefore, these employers are considered to be in a special fund-
ing situation as defined by GASB Statement No. 68, Accounting and Financial
Reporting for Pensions (GASB 68) and the Commonwealth is a nonemployer
contributing entity in MTRS. Since the employers do not contribute directly to
MTRS, there is no net pension liability to recognize for each employer.
H. Town Proportions
In fiscal year 2017 (the most recent measurement period), the Common-
wealth's proportionate share of the MTRS' collective net pension liability
and pension expense that is associated with the Town was $90,356,138 and
$9,430,733 respectively, based on a proportionate share of 0.394820%. As
required by GASB 68, the Town has recognized its portion of the collective
pension expense as both a revenue and expenditure in the general fund.
19. Other Post-Employment Benefits (GASB 75)
GASB Statement No. 75, Accounting and Financial Reporting for Postemploy-
ment Benefits Other Than Pensions, replaces the requirements of Statement
No. 45, Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Than Pensions. The Statement establishes standards for recog-
nizing and measuring liabilities, deferred outflows of resources, deferred inflows
of resources, and expense/expenditures. This Statement identifies the methods
and assumptions that are required to be used to project benefit payments, dis-
counted projected benefit payments to their actuarial present value, and attrib-
ute that present value to periods of employee service.
53
All the following OPEB disclosures are based on a measurement date of June 30,
2018.
A. General Information about the OPEB Plan
Plan Description
The Town provides post-employment healthcare benefits for retired employees
through the Town's plan. The Town provides health insurance coverage
through Fallon Direct Care, Fallon Select Care, Harvard Pilgrim Independence,
Health New England, Navigator by Tufts Health Plan, NHP Care, UniCare
Basic with CIC, UniCare Basic without CIC, UniCare Choice, UniCare Plus,
Fallon Senior Plan, Harvard Medicare Enhance, Tufts Medicare Complement,
Tufts Medicare Preferred, and UniCare OME with CIC. The benefits, benefit
levels, employee contributions, and employer contributions are governed by
Chapter 32 of the Massachusetts General Laws. The OPEB plan is not admin-
istered through a trust that meets the criteria in paragraph 4 of GASB 75.
Benefits Provided
The Town provides medical and prescription drug insurance to retirees and
their covered dependents. All active employees who retire from the Town
and meet the eligibility criteria will receive these benefits.
Plan Membership
At June 30, 2018, the following employees were covered by the benefit terms:
Inactive employees or beneficiaries
currently receiving benefit payments 663
Active employees 879
Total 1,542
B. Actuarial Assumptions and Other Inputs
The total OPEB liability was determined by an actuarial valuation as of July 1,
2017, using the following actuarial assumptions, applied to all periods included
in the measurement, unless otherwise specified:
Inflation 4.50%
Discount rate 3.75%
Healthcare cost trend rates 4.50%
Mortality rates for both pre-retirement mortality and beneficiary mortality are
represented by the RP-2014 Blue Collar Mortality with Scale MP-2017, fully
generational. Mortality for retired members for Group 1 and 2 is represented
54
by the RP-2014 Blue Collar Mortality Table set forward five years for males
and three years for females, fully generational. Mortality for retired members
for Group 4 is represented by the RP-2014 Blue Collar Mortality Table set
forward three years for males and six years for females, fully generational.
Mortality for disabled members for Group 1 and 2 is represented by the RP-
2000 Mortality Table set forward two years. Generational adjusting is based
on Scale MP-2017.
C. Discount Rate
The discount rate used to measure the total OPEB liability was 3.75%. The
projection of cash flows used to determine the discount rate assumed that
contributions from plan members will be made at the current contribution
rate.
D. Total OPEB Liabilitv
The Town's total OPEB liability of$122,670,704 was measured as of June 30,
2018, and was determined by an actuarial valuation as of July 1, 2017.
E. Chanaes in the Total OPEB Liabilitv
Total OPEB
Liabilitv
Balances, beginning of year $ 119,318,245
Changes for the year:
Service cost 3,277,660
Interest 4,514,861
Benefit payments (4,440,062)
Net Changes 3,352,459
Balances, end of year $ 122,670,704
F. Sensitivity of the Total OPEB Liabilitv to Changes in the Discount Rate
The following presents the total OPEB liability, as well as what the total OPEB
liability would be if it were calculated using a discount rate that is one
percentage-point lower or one percentage-point higher than the current dis-
count rate:
Current
1% Discount 1%
Decrease Rate Increase
$ 143,447,415 $ 122,670,704 $ 106,530,072
55
G. Sensitivity of the Total OPEB Liabilitv to Changes in the Healthcare Cost Trend
Rates
The following presents the total OPEB liability, as well as what the total OPEB
liability would be if it were calculated using healthcare cost trend rates that
are one percentage-point lower or one percentage-point higher than the
current healthcare cost trend rates:
Current
Healthcare
1% Cost Trend 1%
Decrease Rates Increase
$ 103,908,218 $ 122,670,704 $ 147,255,048
H. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows
of Resources Related to OPEB
For the year ended June 30, 2018, the Town recognized an OPEB expense of
$7,792,521. At June 30, 2018, the Town did not report deferred inflows and
outflows of resources related to OPEB.
20. Commitments and Continqencies
Outstandinq Legal Issues - On an ongoing basis, there are typically pending legal
issues in which the Town is involved. The Town's management is of the opinion
that the potential future settlement of these issues would not materially affect
its financial statements taken as a whole.
Abatements—There are several cases pending before the Appellate Tax Board
in regard to alleged discrepancies in property assessments. The Town reports
an estimated liability for the probable outcome of these cases.
Grants -Amounts received or receivable from grantor agencies are subject to
audit and adjustment by grantor agencies, principally the federal government.
Any disallowed claims, including amounts already collected, may constitute a
liability of the applicable funds. The amount of expenditures which may be dis-
allowed by the grantor cannot be determined at this time, although the Town
expects such amounts, if any, to be immaterial.
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21. Beginninq Net Position Restatement
The beginning (July 1, 2017) net position of the Town has been restated as follows:
Government-Wide Financial Statements:
Governmental Business-Type Activities
Water Fund Sewer Fund Total
As previously reported $ 45,093,646 $ 9,287,452 $ 18,923,690 $ 28,211,142
Implementation of GASB 75 OPEB (78,554,136) (565,414) (66,868) (632,282)
As restated $ (33,460,490) $ 8,722,038 $ 18,856,822 $ 27,578,860
57
TOWN OF WATERTOWN,MASSACHUSETTS
SCHEDULE OF PROPORTIONATE SHARE
OF THE NET PENSION LIABILITY(GASB 68)
JUNE 30,2018
(Unaudited)
Watertown Contributory Retirement System
Proportion Proportionate
of the Share of the Proportionate Share of the Plan Fiduciary Net Position
Fiscal Measurement Net Pension Net Pension Net Pension Liability as a Percentage of the Total
Year Date Liability Liability Covered Payroll Percentage of Covered Payroll Pension Liability
June 30,2018 December 31,2017 98.14% $20,046,984 $32,877,784 60.97% 90.09%
June 30,2017 December 31,2016 98.14% $42,278,353 $34,535,830 122.42% 78.22%
June 30,2016 December 31,2015 98.13% $42,077,071 $30,949,566 135.95% 76.63%
June 30,2015 December 31,2014 98.16% $43,371,615 $29,768,657 145.70% 75.29%
Massachusetts Teachers'Retirement System
Commonwealth of Total Net Proportionate
Massachusetts'Total Pension Share of the Plan Fiduciary
Proportion Proportionate Proportionate Share Liability Net Pension Net Position
of the Share of the of the Net Pension Associated Liability as a Percentage of
Fiscal Measurement Net Pension Net Pension Liability Associated with the Percentage of the Total
Year Date Liability Liability with the Town Town Covered Payroll Covered Payroll Pension Liabilitv
June 30,2018 June 30,2017 0.39% $ $ 90,356,138 $ 90,356,138 $ 26,810,126 54.25%
June 30,2017 June 30,2016 0.38% $ $ 84,744,346 $ 84,744,346 $ 24,931,615 52.73%
June 30,2016 June 30,2015 0.37% $ $ 75,722,942 $ 75,722,942 $ 23,426,433 55.38%
June 30,2015 June 30,2014 0.35% $ $ 56,030,914 $ 56,030,914 $ 21,612,076 61.64%
Schedules are intended to show information for 10 years. Additional years will be displayed as they become available.
See Independent Auditors'Report.
58
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF PENSION CONTRIBUTIONS(GASB 68)
JUNE 30,2018
(Unaudited)
Watertown Contributory Retirement System
Contributions in
Relation to the
Contractually Contractually Contribution Contributions as
Fiscal Measurement Required Required Deficiency Covered a Percentage of
Year Date Contribution Contribution Excess Payroll Covered Payroll
June 30, 2018 December 31, 2017 $ 16,853,521 $ (16,853,521) $ - $ 32,877,784 51.26%
June 30, 2017 December 31, 2016 $ 15,311,356 $ (15,311,356) $ - $ 34,535,830 44.33%
June 30, 2016 December 31, 2015 $ 13,515,821 $ (13,515,821) $ - $ 30,949,566 43.67%
June 30, 2015 December 31, 2014 $ 11,974,091 $ (11,974,091) $ - $ 29,768,657 40.22%
Massachusetts Teachers'Retirement System
Contractually Contributions in
Required Relation to the
Contribution Contractually Contribution Contributions as
Fiscal Measurement Provided by Required Deficiency Covered a Percentage of
Year Date Commonwealth Contribution Excess Payroll Covered Payroll
June 30, 2018 June 30, 2017 $ 4,878,062 $ 4,878,062 $ - $ 26,810,126 0.00%
June 30, 2017 June 30, 2016 $ 4,262,562 $ 4,262,562 $ - $ 24,931,615 0.00%
June 30, 2016 June 30, 2015 $ 3,776,715 $ 3,776,715 $ - $ 23,426,433 0.00%
June 30, 2015 June 30, 2014 $ 3,304,042 $ 3,304,042 $ - $ 21,612,076 0.00%
Schedules are intended to show information for 10 years. Additional years will be displayed as they become available.
See Independent Auditors' Report.
59
TOWN OF WATERTOWN, MASSACHUSETTS
OTHER POST-EMPLOYMENT BENEFITS (OPEB)
Schedules of Changes in the Total OPEB Liability and Contributions (GASB 75)
(Unaudited)
Changes in Total OPEB Liability
2018 2017
Total OPEB liability
Service cost $ 3,277,660 $ 3,136,517
Interest on Liability and Service Cost 4,514,861 4,390,201
Benefit payments, including refunds of member contributions (4,440,062) (4,248,863)
Net change in total OPEB liability 3,352,459 3,277,855
Total OPEB liability-beginning 119,318,245 116,040,390
Total OPEB liability-ending $ 122,670,704 $ 119,318,245
Schedule of Contributions
2018 2017
Actuarially determined contribution $ 7,553,447 $ 7,280,463
Contributions in relation to the actuarially determined contribution 4,440,062 4,248,863
Contribution deficiency(excess) $ 3,113,385 $ 3,031,600
Schedule is intended to show information for 10 years.Additional years will be displayed as they become
available.
See notes to the Town's financial statements for summary of significant actuarial methods and assumptions.
See Independent Auditors' Report.
60
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES- BUDGET AND ACTUAL
WATER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30, 2018
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues and Other Sources:
Current service charges $ 7,255,360 $ 7,255,360 $ 7,356,539 $ 101,179
Interest income 10,000 10,000 11,634 1,634
Other departmental revenues - - 10,285 10,285
Use of fund balance 500,000 500,000 500,000 -
Total Revenues and Other Sources 7,765,360 7,765,360 7,878,458 113,098
Expenditures and Other Uses:
Personnel services 958,437 958,437 887,814 70,623
Supplies and materials 353,500 353,500 308,119 45,381
Charges and services 3,401,796 3,401,796 3,388,389 13,407
Capital outlay 251,000 251,000 235,592 15,408
Other 611,524 611,524 561,524 50,000
Transfers out 2,189,103 2,189,103 2,189,103 -
Total Expenditures and Other Uses 7,765,360 7,765,360 7,570,541 194,819
Excess of Revenues over Expenditures
and Other Uses $ - $ - $ 307,917 $ 307,917
See Independent Auditors' report.
61
TOWN OF WATERTOWN, MASSACHUSETTS
SCHEDULE OF REVENUES AND EXPENDITURES,
AND OTHER USES-BUDGET AND ACTUAL
SEWER ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30, 2018
Actual Variance
Original Revised (Budgetary Favorable
Budget Budget Basis (Unfavorable)
Revenues and Other Sources:
Current service charges $ 9,915,968 $ 9,915,968 $ 9,379,130 $ (536,838)
Interest income 15,000 15,000 17,860 2,860
Use of fund balance 500,000 500,000 500,000 -
Total Revenues and Other Sources 10,430,968 10,430,968 9,896,990 (533,978)
Expenditures and Other Uses:
Personnel services 514,129 514,129 371,907 142,222
Supplies and materials 652,500 652,500 638,898 13,602
Charges and services 6,126,647 6,126,647 6,103,914 22,733
Capital outlay 1,056,532 1,056,532 1,050,005 6,527
Other 372,948 372,948 312,448 60,500
Transfers out 1,708,212 1,708,212 1,708,212 -
Total Expenditures and Other Uses 10,430,968 10,430,968 10,185,384 245,584
Excess of Revenues over Expenditures $ - $ - $ (288,394) $ (288,394)
and Other Uses
See Independent Auditors' report.
62
TOWN OF WATERTOWN, MASSACHUSETTS
Management Letter
For the Year Ended June 30, 2018
TABLE OF CONTENTS
PAGE
INTRODUCTORY LETTER 1
PRIOR YEAR RECOMMENDATIONS:
1. Develop a More Formal Risk Assessment Process 3
2. Prepare for Single Audit Changes 3
INFORMATIONAL:
3. Prepare for GASB Statements 84 and 87 4
MELANSON
ACCOUNTANTS•AUDITORS
10 New England Business
Center Dr.•Suite 107
Andover,MA 01810
(978)749-0005
melansonheath.com
Additional Offices:
Nashua,NH
Manchester,NH
Greenfield,MA
Ellsworth,ME
To the Town Manager and Town Council
Town of Watertown, Massachusetts
In planning and performing our audit of the basic financial statements of the Town of
Watertown, Massachusetts as of and for the year ended June 30, 2018, in accordance
with auditing standards generally accepted in the United States of America, we con-
sidered the Town's internal control over financial reporting (internal control) as a basis
for designing our auditing procedures for the purpose of expressing our opinions on
the financial statements, but not for the purpose of expressing an opinion on the effec-
tiveness of the Town's internal control. Accordingly, we do not express an opinion on
the effectiveness of the Town's internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does
not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct misstatements on a timely basis.A material
weakness is a deficiency, or a combination of deficiencies, in internal control, such that
there is a reasonable possibility that a material misstatement of the entity's financial
statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control was for the limited purpose described in the first
paragraph and was not designed to identify all deficiencies in internal control that might
be material weaknesses. Given these limitations, during our audit we did not identify
any deficiencies in internal control that we consider to be material weaknesses. However,
material weaknesses may exist that have not been identified.
During our audit, we became aware of other matters that we believe represent oppor-
tunities for strengthening internal controls and operating efficiency. The recommenda-
tions that accompany this letter summarize our comments and suggestions concerning
those matters.
This communication is intended solely for the information and use of management, Town
Manager and Town Council, others within the organization, and is not intended to be,
and should not be, used by anyone other than these specified parties.
The purpose of this communication, which is an integral part of our audit, is to describe
for management and those charged with governance, including those overseeing the
financial reporting process, the scope of our testing of internal control and the results
of that testing. Accordingly, this communication is not intended to be and should not
be used for any other purpose.
February 7, 2019
2
PRIOR YEAR RECOMMENDATIONS:
1. Develop a More Formal Risk Assessment Process
The Town informally performs its own risk assessment for possible fraud or mate-
rial misstatement through various policies and procedures and regular reviews
of trends in the financial statements. Risk assessment is a management function
designed to identify where an organization may be vulnerable to errors and/or
irregularities. A complete risk assessment process involves a written description
of risk areas identified by those charged with governance (management and
elected officials) and a description of how the organization intends on responding
to the risks.
We continue to recommend that the Town implement a more formal risk assess-
ment process that includes internal audits and written identification of areas where
potential fraud or material misstatements to the basic financial statements may
occur. Regular department head meetings could be used as a starting point for
documenting risk assessment discussions and assessments.
In evaluating risk areas, particular consideration should be given to situations
where a single employee is responsible for performing most or all accounting
responsibilities, since this could create opportunities for fraud to occur and go
undetected. The Town should evaluate major transactional cycles in all applicable
departments to ensure an adequate segregation of duties exists. If staffing levels
do not permit an adequate segregation of duties, the Town should provide addi-
tional oversight, which should include review and documented sign-off of the key
accounting records.
We also continue to recommend the Town establish a formal employee fraud pol-
icy to provide staff with guidance in the event they observe or suspect fraud in
the work place.
2. Prepare for Sinqle Audit Chanqes
The Town is not in compliance with new OMB Uniform Administrative require-
ments, Cost Principles, and Audit Requirements for Federal Awards (UG). The
requirements stipulate that federal award recipients must document their policies
and procedures over certain aspects of financial and program management.
Specifically, written policies are required for the following:
• Cash management
• Determination of allowable costs
• Employee travel
• Procurement
• Subrecipient monitoring and management
3
We recommend that the Town adopt written policies and procedures to ensure
compliance with federal guidelines.
INFORMATIONAL:
3. Prepare for GASB Statements 84 and 87
GASB Statements 84 and 87 will apply to the Town in fiscal years 2020 and
2021 respectively. Statement 84 addresses fiduciary activities and may require
change in how the Town accounts and reports these activities. Currently, cer-
tain fiduciary funds have no measurement focus and are simply assets offset
by corresponding liabilities. The changes establish a measurement focus on
these activities and may require change in how the Town accounts and reports
these activities. Specifically, revenue and expenditure accounts may need to
be added to the Town's general ledger in order to maintain the newly required
measurement focus. Statement 87 addresses leases and significantly changes
the accounting standards for leases and will now require various operating leases
to be reported on the Town's balance sheets.
We recommend that the Finance Department prepare for these accounting
changes by ensuring all other Departments are aware of the pending changes.
An implementation guide for Statement 84 is scheduled to be published soon
and should provide guidance including possible revisions to the Town's chart of
accounts.
4
MELANSON
ACCOUNTANTS•AUDITORS
10 New England Business
February 7, 2019 Center Dr.•Suite 107
Andover,MA 01810
(978)749-0005
melansonheath.com
Mr. Michael Driscoll Additional Offices:
Town Manager Nashua,NH
Manchester,
Town of Watertown
Greenfield,MA
149 Main Street Ellsworth,ME
Watertown, Massachusetts 02472
Dear Mr. Driscoll:
During the course of our fiscal 2018 audit we identified certain areas where improvements
and/or efficiencies could be made that were not included in the Town's formal manage-
ment letter. The following summarizes these issues very briefly:
Tax Collector/Treasurer
The Town should consider closing out much of the tailings liability balance which has
had minimal activity in several years.
— The Town should consider implementing a collateralization policy to ensure all
uninsured deposits are secured with acceptable and sufficient collateral.
Clerk Department
Turnover forms should provide a breakout of cash and check collections and be
signed by the preparer and reviewer. We understand that new turnover forms for the
Town Clerk's office have been updated as of October 2018.
— Due to the limited staffing in the Clerk's office, segregation of duties is limited. As a
result, additional monitoring of receipt turnovers should be performed by the Auditor's
office to help reduce the risk that errors or irregularities go undetected.
Council on Aainq
— Departments should be reminded of the Town's Departmental Receipt Policy. During
our current year testing, the Council on Aging Department was unaware of the Town's
Departmental Receipt Policy. Department heads should ensure that all staff involved
in the receipt process are aware of the Town's policy.
Other
— All departmental receipt turnover forms should be signed by the preparer and a
reviewer (preferably a department head). We understand that updated turnover
sheets will be provided to departments in fiscal 2019 and will include dual signature
lines.
— The Town should request that the GASB 75 report include a breakout by depart-
ment to ensure proper allocation to the Town's Water and Sewer Enterprise funds.
We encourage the Town to implement these recommendations in order to improve controls
and efficiencies. We will be available to discuss these with you in more detail at your
convenience.
Sincerely,
Scott C. McIntire, CPA
Principal
2