DUNES COMMUNITY DEVELOPMENT DISTRICT

FLAGLER COUNTY, FLORIDA
FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED

SEPTEMBER 30, 2017

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA

TABLE OF CONTENTS			
	Page		
INDEPENDENT AUDITOR’S REPORT	1- 2		
MANAGEMENT’S DISCUSSION AND ANALYSIS	3- 7		
BASIC FINANCIAL STATEMENTS			
Government-Wide Financial Statements:			
Statement of Net Position	8		
Statement of Activities	9		
Fund Financial Statements:			
Balance Sheet – Governmental Funds	10		
Statement of Revenues, Expenditures and Changes in Fund Balances –			
Governmental Funds	11		
Statement of Net Position – Proprietary Funds	12		
Statement of Revenues, Expenses and Changes in Net Position –			
Proprietary Funds	13		
Statement of Cash Flows – Proprietary Funds	14		
Notes to the Financial Statements	15- 25		
REQUIRED SUPPLEMENTARY INFORMATION			
Schedule of Revenues, Expenditures and Changes in Fund Balances –			
Budget and Actual – General Fund	26		
Notes to Required Supplementary Information	27		
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL			
REPORTING AND COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT			
OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH	28-29		
GOVERNMENT AUDITING STANDARDS			
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH THE REQUIREMENTS			
OF SECTION 218.415, FLORIDA STATUTES, REQUIRED BY RULE 10.556(10)			
OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA	30		
MANAGEMENT LETTER REQUIRED BY CHAPTER 10.550 OF THE RULES			
OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA	31- 32		

2700 North Military Trail ▪ Suite 350

Boca Raton, Florida 33431 (561) 994- 9299 ▪ (800) 299-4728 Fax (561) 994-5823 www.graucpa.com

INDEPENDENT AUDITOR’S REPORT

To the Board of Supervisors

Dunes Community Development District
Flagler County, Florida

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities and each major fund of Dunes Community Development District, Flagler County, Florida (“District”) as of and for the fiscal year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

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, and each major fund of the District as of September 30, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof for the fiscal 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 the management’s discussion and analysis and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated March 13, 2018, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.

Report on Other Legal and Regulatory Requirements

We have also issued our report dated March 13, 2018, on our consideration of the District’s compliance with the requirements of Section 218.415, Florida Statutes, as required by Rule 10.556(10) of the Auditor General of the State of Florida. The purpose of that report is to provide an opinion based on our examination conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.

March 13, 2018

2

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our discussion and analysis of Dunes Community Development District, Flagler County, Florida’s (“District”) provides a narrative overview of the District’s financial activities for the fiscal year ended September 30, 2017. Please read it in conjunction with the District’s Independent Auditor’s Report, basic financial statements, accompanying notes and supplementary information to the basic financial statements.

FINANCIAL HIGHLIGHTS

•	The assets of the District exceeded its liabilities at the close of the fiscal year ended September 30, 2017 by $52,419,337 (net position), an increase of $267,349 in comparison with the prior fiscal year.

•	At September 30, 2017, the District’s governmental funds reported combined ending fund balances of $125,858, a decrease of ($68,985) in comparison with the prior fiscal year. A portion of the total fund balance is non-spendable for prepaid items, assigned for subsequent year’s expenditures and the remainder is unassigned fund balance which is available for spending at the District’s discretion.

OVERVIEW OF FINANCIAL STATEMENTS

This discussion and analysis are intended to serve as the introduction to the District’s basic financial statements. The District’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the 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 statements are designed to provide readers with a broad overview of the District’s finances, in a manner similar to a private-sector business.

The statement of net position presents information on all the District’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources with the residual amount being reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating.

The statement of activities presents information showing how the government’s net position 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, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods.

Both of the government-wide financial statements distinguish functions of the District that are principally supported by assessments (governmental activities) 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 governmental activities of the District include general (management) and maintenance functions. The business-type activities of the District include the water and sewer operations and the toll bridge operations.

3

OVERVIEW OF FINANCIAL STATEMENTS (Continued)

Fund Financial Statements

A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The District has two fund categories: governmental funds and proprietary funds.

Governmental Funds

Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflow 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 District’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the District’s near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The District maintains one individual governmental fund. Information is presented separately in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, which is considered to be a major fund.

The District adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided for the general fund to demonstrate compliance with the budget.

Proprietary Funds

The District maintains one type of proprietary fund, enterprise fund. The District maintains two enterprise funds. An enterprise fund is used to report the same function presented as business-type activities in the government-wide financial statements. The District uses an enterprise fund to account for the operations of the water and sewer utility services within the District. The District also uses an enterprise fund to account for the operations of the toll bridge within the District. Both funds are considered to be major funds.

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail.

Notes to the 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 concerning the District’s budget to actual comparison for the general fund.

4

GOVERNMENT-WIDE FINANCIAL ANALYSIS

As noted earlier, net position may serve over time as a useful indicator of an entity’s financial position. In the case of the District, assets exceeded liabilities at the close of the most recent fiscal year.

Key components of the District’s net position are reflected in the following table:

				NET POSITION							
			SEPTEMBER 30,							
		Governmental Activities		Business-type Activities		Total		
							2016				2016	
		2017		2016		2017	(restated)		2017		(restated)	
Assets, excluding capital assets	$	161,329	$	206,512	$	23,050,542	$ 21,581,691	$	23,211,871	$	21,788,203	
Capital assets, net of depreciation		118,239		107,700		30,790,659	31,653,109		30,908,898		31,760,809	
Total assets		279,568		314,212		53,841,201	53,234,800		54,120,769		53,549,012	
Liabilities, excluding long-term liabilities		35,471		11,669		1,665,961	1,385,355		1,701,432		1,397,024	
Total liabilities		35,471		11,669		1,665,961	1,385,355		1,701,432		1,397,024	
Net position												
Investment in capital assets		118,239		107,700		30,790,659	31,653,109		30,908,898		31,760,809	
Restricted for:												
Community projects		-		-		1,326,120	1,437,807		1,326,120		1,437,807	
Unrestricted		125,858		194,843		20,058,461	18,758,529		20,184,319		18,953,372	
Total net position	$	244,097	$	302,543	$	52,175,240	$ 51,849,445	$	52,419,337	$	52,151,988	

The District’s net position reflects its investment in capital assets (e.g. land, land improvements, and infrastructure); less any related debt used to acquire those assets that is still outstanding. These assets are used to provide services to residents; consequently, these assets are not available for future spending. Although the District’s 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.

The restricted portion of the District’s net position represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position may be used to meet the District’s other obligations.

The District’s net position increased during the most recent fiscal year. The majority of the increase represents the extent to which ongoing program revenues exceeded the cost of operations and depreciation expense.

Governmental activities

As noted below and in the statement of activities, the cost of all governmental activities during the fiscal year ended September 30, 2017 was $400,718. The majority of the costs of the Districts activities were paid by program revenues. As in the prior fiscal year, program revenues are comprised primarily of assessments. In addition, surplus funds were transferred from the enterprise funds to fund certain operating expenses. The majority of the change in expenses results from increases in certain maintenance and operations expenses.

Business-type activities

For the fiscal year ended September 30, 2017, the cost of the business-type activities was $4,827,918. The costs of those activities were paid for by program revenues which consisted primarily of user fees and charges. The majority of the decrease in program revenues is due to an overall decrease in the rates charged for user fees and charges.

5

GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued)

Key elements of the change in net position are reflected in the following table:

			CHANGES IN NET POSITION								
		FOR THE FISCAL YEAR ENDED SEPTEMBER 30,						
			Governmental Activities		Business-type Activities		Total			
			2017		2016		2017		2016				2016		
									(restated)		2017		(restated)		
Revenues:														
Program revenues														
Charges for services	$	161,811	$	161,231	$	5,095,261	$	5,495,680	$	5,257,072	$	5,656,911		
General revenues														
Miscellaneous		7,461		1,095		231,452		106,146		238,913		107,241		
Total revenues		169,272		162,326		5,326,713		5,601,826		5,495,985		5,764,152		
Expenses:														
General government		228,835		183,385		-		-		228,835		183,385		
Maintenance and operations		171,883		132,730		-		-		171,883		132,730		
Water and sewer		-		-		3,566,006		3,408,822		3,566,006		3,408,822		
Toll bridge operations		-		-		1,261,912		1,330,956		1,261,912		1,330,956		
Total expenses		400,718		316,115		4,827,918		4,739,778		5,228,636		5,055,893		
Transfers		173,000		173,000		(173,000)		(173,000)		-		-		
Change in net position		(58,446)		19,211		325,795		689,048		267,349		708,259		
Net position - beginning, as restated		302,543		283,332		51,849,445		51,160,397		52,151,988		51,443,729		
(Note 14)														
Net position - ending		$	244,097	$	302,543	$	52,175,240	$	51,849,445	$	52,419,337	$	52,151,988		

GENERAL FUND BUDGETING HIGHLIGHTS

An operating budget was adopted and maintained by the governing board for the District pursuant to the requirements of Florida Statutes. The budget is adopted using the same basis of accounting that is used in preparation of the fund financial statements. The legal level of budgetary control, the level at which expenditures may not exceed budget, is in the aggregate. Any budget amendments that increase the aggregate budgeted appropriations must be approved by the Board of Supervisors. The general fund budget for the fiscal year ended September 30, 2017 was amended to increase appropriations by $23,266. Actual general fund expenditures for the fiscal year ended September 30, 2017 exceeded appropriations by $1,300. The over expenditures were funded by available fund balance.

CAPITAL ASSETS

At September 30, 2017, the District had $140,241 invested in capital assets for its governmental activities. In the government-wide financial statements depreciation of $22,002 has been taken, which resulted in a net book value of $118,239. The District’s business-type activities reported net capital assets of $30,790,659. More detailed information about the District’s capital assets is presented in the notes of the financial statements.

6

ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND OTHER EVENTS

The District anticipates some capital improvement projects in fiscal year 2018. The design of improvements to the wastewater treatment plant that will increase the plant capacity from its current 0.5 Million Gallons per Day (MGD) to 1.0 MGD is complete and bids are due in the early fiscal year 2018. Construction will take place in fiscal year 2018 and is expected to be complete in fiscal year 2019. Other capital improvement projects scheduled for fiscal year 2018 include improvements to the water distribution system, wastewater collection system and reuse distribution system.

The District entered into an inter -local agreement with Flagler County to contribute a total of $1.8 Million in surplus funds from the bridge fund for certain community projects. To date, approximately $500,000 has been disbursed leaving over $1.3 Million yet to be disbursed.

CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT

This financial report is designed to provide land owners, customers, investors and creditors with a general overview of the District’s finances and to demonstrate the District’s accountability for the financial resources it manages and the stewardship of the facilities it maintains. If you have questions about this report or need additional financial information, contact the Dunes Community Development District’s Finance Department at 5385 N. Nob Hill Road, Sunrise, Florida, 33351.

7

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
STATEMENT OF NET POSITION

SEPTEMBER 30, 2017

	Governmental	Business-type				
ASSETS		Activities		Activities		Total		
			$	433,688	$	451,040		
Cash and cash equivalents	$	17,352						
Investments		131,319		20,662,903		20,794,222		
Receivables		710		438,163		438,873		
Due from governmental type activities		-		30,352		30,352		
Restricted assets:				1,326,120		1,326,120		
Investments		-						
Prepaids		11,948		158,316		170,264		
Deposits		-		1,000		1,000		
Capital assets:				1,697,953		1,697,953		
Nondepreciable		-						
Depreciable, net		118,239		29,092,706		29,210,945		
Total assets		279,568		53,841,201		54,120,769		
LIABILITIES				277,762		282,881		
Accounts payable		5,119						
Due to business type activities		30,352		-		30,352		
Contracts/retainage payable		-		9,398		9,398		
Unearned revenue		-		1,378,801		1,378,801		
Total liabilities		35,471		1,665,961		1,701,432		
NET POSITION						30,908,898		
Investment in capital assets		118,239		30,790,659				
Restricted for:				1,326,120		1,326,120		
Community projects		-						
Unrestricted		125,858		20,058,461		20,184,319		
Total net position	$	244,097	$	52,175,240	$	52,419,337		

See notes to the financial statements

8

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
STATEMENT OF ACTIVITIES

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

					Program	Net (Expense) Revenue and Changes in Net		
					Revenues				Position				
					Charges								
Functions/Programs					for	Governmental	Business-type				
		Expenses		Services		Activities		Activities		Total		
Primary government:													
Governmental activities:													
General government	$	228,835		$	161,811	$	(67,024)	$	-	$	(67,024)		
Maintenance and operations		171,883			-		(171,883)		-		(171,883)		
Total governmental activities		400,718			161,811		(238,907)		-		(238,907)		
Business-type activities:													
Water and sewer utilities		3,566,006			3,521,419		-		(44,587)		(44,587)		
Toll bridge operations		1,261,912			1,573,842		-		311,930		311,930		
Total business-type activities		4,827,918			5,095,261		-		267,343		267,343		
	General revenues:				2,061		231,452		233,513		
	Unrestricted investment earnings								
	Miscellaneous income		5,400		-		5,400		
		Total general revenues		7,461		231,452		238,913		
	Transfers				173,000		(173,000)		-		
	Change in net position		(58,446)		325,795		267,349		
	Net position - beginning, as								
	restated (Note 14)				302,543		51,849,445		52,151,988		
	Net position - ending		$	244,097	$	52,175,240	$	52,419,337		

See notes to the financial statements

9

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
BALANCE SHEET

GOVERNMENTAL FUNDS
SEPTEMBER 30, 2017

		Major Fund	
	General Fund	
ASSETS					
Cash	$			17,352	
Investments				131,319	
Assessments receivable				710	
Prepaids				11,948	
Total assets	$			161,329	
LIABILITIES AND FUND BALANCES					
Liabilities:					
Accounts payable	$			5,119	
Due to other funds				30,352	
Total liabilities				35,471	
Fund balances:					
Nonspendable:					
Prepaid items				11,948	
Assigned to:					
Subsequent year's expenditures				43,185	
Unassigned				70,725	
Total fund balance				125,858	
Total liabilities and fund balance	$			161,329	
Total fund balances - governmental funds		$	125,858	
Amounts reported for governmental activities in the					
statement of net position are different because:					
Capital assets used in governmental activities are not				
financial resources and, therefore, are not reported as				
assets in the governmental funds.  The statement of net				
position  includes  those  capital  assets,  net  of  any				
accumulated depreciation,  in the net position of the				
government as a whole.				118,239	
Net position of governmental activities			$	244,097	

See notes to the financial statements

10

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

		Major Fund		
REVENUES	General Fund		
				
Maintenance assessments	$	161,811		
Interest and other revenues		2,061		
Miscellaneous income		5,400		
Total revenues		169,272		
EXPENDITURES				
Current:				
General government		225,020		
Maintenance and operations		169,278		
Capital outlay		16,959		
Total expenditures		411,257		
Excess (deficiency) of revenues over				
(under) expenditures		(241,985)		
OTHER FINANCING (USES)				
Interfund transfers		173,000		
Total other financing sources and (uses)		173,000		
Net change in fund balance		(68,985)		
Fund balance - beginning		194,843		
Fund balance - ending	$	125,858		

Net change in fund balances - total governmental funds

Amounts reported for governmental activities in the statement of activities are different because:

Depreciation of capital assets is not recognized in the governmental fund financial statements, but is reported as an expense in the statement of activities.

Governmental funds report capital outlays as expenditures, however, the cost of capital assets is eliminated in the statement of activities and capitalized in the statement of net position.

Change in net position of governmental activities

$	(68,985)

(6,420)

16,959

$	(58,446)

See notes to the financial statements

11

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
STATEMENT OF NET POSITION - PROPRIETARY FUNDS

SEPTEMBER 30, 2017

		Major Funds				
	Water, Sewer						
		and Effluent		Intracoastal				
	Reuse Enterprise	Waterway Bridge				
ASSETS		Fund	Enterprise Fund		Total		
								
Current assets:								
Cash and cash equivalents	$	281,545	$	152,143	$	433,688		
Investments		10,570,839		10,092,064		20,662,903		
Receivables		438,163		-		438,163		
Due from other funds		-		101,402		101,402		
Restricted assets:								
Investments		-		1,326,120		1,326,120		
Noncurrent assets:								
Prepaids		93,269		65,047		158,316		
Deposits		1,000		-		1,000		
Capital assets:								
Capital assets not being depreciated		1,200,552		497,401		1,697,953		
Capital assets being depreciated		43,679,600		13,199,756		56,879,356		
Less accumulated depreciation		(21,255,928)		(6,530,722)		(27,786,650)		
Total capital assets, net		23,624,224		7,166,435		30,790,659		
Total assets		35,009,040		18,903,211		53,912,251		
LIABILITIES								
Current liabilities:								
Accounts payable		91,411		186,351		277,762		
Due to other funds		71,050		-		71,050		
Contracts/retainage payable		-		9,398		9,398		
Noncurrent liabilities:								
Unearned revenue		846,173		532,628		1,378,801		
Total liabilities		1,008,634		728,377		1,737,011		
NET POSITION								
Net investment in capital assets		23,624,224		7,166,435		30,790,659		
Restricted for community projects		-		1,326,120		1,326,120		
Unrestricted		10,376,182		9,682,279		20,058,461		
Total net position	$	34,000,406	$	18,174,834	$	52,175,240		

See notes to the financial statements

12

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN

NET POSITION - PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

		Major Funds				
	Water, Sewer		Intracoastal				
		and Effluent		Waterways				
OPERATING REVENUES	Enterprise Fund		Bridge		Total		
								
Charges for sales and services:			$	-	$	1,067,436		
Water	$	1,067,436						
Irrigation and effluent		1,463,260		-		1,463,260		
Sewer		893,764		-		893,764		
Connection fees		57,883		-		57,883		
Meter fees		27,680		-		27,680		
Tolls		-		1,561,865		1,561,865		
Other		11,396		11,977		23,373		
Total operating revenues		3,521,419		1,573,842		5,095,261		
OPERATING EXPENSES						1,513,089		
Personnel services		1,019,272		493,817				
Materials, supplies and services		1,367,923		465,295		1,833,218		
Depreciation and amortization		1,178,811		302,800		1,481,611		
Total operating expense		3,566,006		1,261,912		4,827,918		
Operating income (loss)		(44,587)		311,930		267,343		
NON OPERATING REVENUE (EXPENSES)						231,452		
Interest income		110,748		120,704				
Total non operating revenue (expenses)		110,748		120,704		231,452		
Income before transfers		66,161		432,634		498,795		
Transfers out		(80,000)		(93,000)		(173,000)		
Change in net position		(13,839)		339,634		325,795		
Total net position - beginning, as restated (Note 14)		34,014,245		17,835,200		51,849,445		
Total net position - ending	$	34,000,406	$	18,174,834	$	52,175,240		

See notes to the financial statements

13

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

	Water, Sewer		Intracoastal				
	and Effluent		Waterway				
		Reuse		Bridge				
		Enterprise		Enterprise				
CASH FLOWS FROM OPERATING ACTIVITIES		Fund		Fund		Total		
								
Receipts from customers, users and other funds	$	3,580,315	$	1,448,121	$	5,028,436		
Other operating cash receipts		11,396		11,977		23,373		
Payments to suppliers		(1,388,423)		(283,190)		(1,671,613)		
Payments to employees		(1,009,347)		(487,030)		(1,496,377)		
Net cash provided (used) by								
operating activities		1,193,941		689,878		1,883,819		
CASH FLOWS FROM CAPITAL AND RELATED								
FINANCING ACTIVITIES:								
Purchases of capital assets		(363,305)		(255,856)		(619,161)		
Net cash provided (used) by capital								
and related financing activities		(363,305)		(255,856)		(619,161)		
CASH FLOWS FROM INVESTING ACTIVITIES								
Interest earnings		110,748		120,704		231,452		
Purchase of investments		(1,015,244)		795,687		(219,557)		
Net cash provided (used) by investing activities		(904,496)		916,391		11,895		
Net increase (decrease) in cash and cash equivalents		(73,860)		1,350,413		1,276,553		
Cash and cash equivalents - October 1		355,405		127,850		483,255		
Cash and cash equivalents - September 30	$	281,545	$	1,478,263	$	1,759,808		
Reconciliation of operating income (loss) to net cash								
								
provided (used) by operating activities								
Operating Income (loss)	$	(44,587)	$	311,930	$	267,343		
Adjustments to reconcile operating income (loss)								
to net cash provided (used) by Operating Activities:								
Depreciation and amortization		1,178,811		302,800		1,481,611		
(Increase)/Decrease in receivables		70,292		-		70,292		
(Increase)/Decrease in interfund receivable		-		(100,569)		(100,569)		
(Increase)/Decrease in prepaids		(9,210)		(3,471)		(12,681)		
Increase/(Decrease) in accounts payable		33,526		192,363		225,889		
Increase/(Decrease) in interfund payable		69,609		-		69,609		
Increase/(Decrease) in unearned revenue		(24,500)		79,825		55,325		
Interfund transfer		(80,000)		(93,000)		(173,000)		
Total Adjustments		1,238,528		377,948		1,616,476		
Net cash provided (used) by operating activities	$	1,193,941	$	689,878	$	1,883,819		

See notes to the financial statements

14

DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
NOTES TO FINANCIAL STATEMENTS

NOTE 1 – NATURE OF ORGANIZATION AND REPORTING ENTITY

Dunes Community Development District (“District”) was created on October 22, 1985, under the "Uniform Community Development District Act of 1980", otherwise known as Chapter 190, Florida Statutes. Chapter 190 provides that a Community Development District with a size of 1,000 acres or more may be established by rule adopted under Chapter 120 by the Florida Land and Water Adjudicatory Commission. The District was established by adopting Rule 42E-1. Chapter 190 provides among other things the power to manage basic services for community development and to levy and assess non-ad valorem assessments for the financing and maintenance of improvements.

The District is governed by the Board of Supervisors ("Board"), which is composed of five members. The Supervisors are elected by registered voters within the District. The Board of Supervisors of the District exercise all powers granted to the District pursuant to Chapter 190, Florida Statutes.

The Board has the responsibility for:

1.	Assessing and levying assessments.
2.	Approving budgets.
3.	Exercising control over facilities and properties.
4.	Controlling the use of funds generated by the District.
5.	Approving the hiring and firing of key personnel.
6.	Financing improvements.

The financial statements were prepared in accordance with Governmental Accounting Standards Board (“GASB”) Statements. Under the provisions of those standards, the financial reporting entity consists of the primary government, organizations for which the District is considered to be financially accountable and other organizations for which the nature and significance of their relationship with the District are such that, if excluded, the financial statements of the District would be considered incomplete or misleading. There are no entities considered to be component units of the District; therefore, the financial statements include only the operations of the District.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Government-Wide and Fund Financial Statements

The basic financial statements include both government-wide and fund financial statements.

The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment. Operating-type special assessments for maintenance and debt service are treated as charges for services; and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Other items not included among program revenues are reported instead as general revenues.

Measurement Focus, Basis of Accounting and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Assessments are recognized as revenues in the year for which they are levied. Grants and similar items are to be recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued)

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due.

Assessments
Assessments are non-ad valorem assessments on benefitted property within the District. Operating and Maintenance Assessments are based upon adopted budget and levied annually at a public hearing of the District. Debt Service Assessments are levied when Bonds are issued and assessed and collected on an annual basis. The District may collect assessments directly or utilize the uniform method of collection (Chapter 197.3632, Florida Statutes). Direct collected assessments are due as determined by annual assessment resolution adopted by the Board of Supervisors. Assessments collected under the uniform method are mailed by County Tax Collector on November 1 and due on or before March 31 of each year. Property owners may prepay a portion or all of the Debt Service Assessments on their property subject to various provisions in the Bond documents.

Assessments and interest associated with the current fiscal period are considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. The portion of assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period.

The government reports the following major governmental fund:

General Fund
The general fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund.

The following major proprietary funds are used by the District:

Water and Sewer and Effluent Reuse Fund
This enterprise fund is used to account for the operations of the water and sewer utility services within the District. The costs of providing services to the residents are recovered primarily through user charges.

Intracoastal Waterway Bridge Enterprise Fund

This enterprise fund is used to account for the operations of a toll bridge. The costs of providing services are recovered primarily through user charges.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the District’s enterprise fund are charges to customers for sales and services. Operating expenses of the enterprise fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements.

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

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Assets, Liabilities and Net Position or Equity

Restricted Assets

These assets represent cash and investments set aside pursuant to Bond covenants or contractual restrictions.

Deposits and Investments
The District’s cash and cash equivalents are considered to be cash on hand and demand deposits (interest and non-interest bearing).

The District has elected to proceed under the Alternative Investment Guidelines as set forth in Section 218.415 (17) Florida Statutes. The District may invest any surplus public funds in the following:

a)	The Local Government Surplus Trust Funds, or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act;

b)	Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency;
c)	Interest bearing time deposits or savings accounts in qualified public depositories;
d)	Direct obligations of the U.S. Treasury.

Securities listed in paragraph c and d shall be invested to provide sufficient liquidity to pay obligations as they come due. In addition, surplus funds may be deposited into certificates of deposit which are insured.

The State Board of Administration’s (“SBA”) Local Government Surplus Funds Trust Fund (“Florida PRIME”) is a“2a-7 like” pool. A “2a-7 like” pool is an external investment pool that is not registered with the Securities and Exchange Commission (“SEC”) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC’s Rule 2a-7 of the Investment Company Act of 1940, which comprises the rules governing money market funds. Thus, the pool operates essentially as a money market fund. The District has reported its investment in Florida PRIME at amortized cost for financial reporting purposes.

The District records all interest revenue related to investment activities in the respective funds. Investments are measured at amortized cost or reported at fair value as required by generally accepted accounting principles.

Inventories and Prepaid Items
Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.

Capital Contributions

Capital Contributions consists of infrastructure improvements conveyed by the Developer or other entities to the District and cash contributions made by the Developer for infrastructure improvements.

Unearned Revenue
Unearned revenue in the Water and Sewer and Effluent Reuse Enterprise Fund consists of connection fees advanced by one of the Developers. Revenue is considered unearned until the specific unit is connected to the water and sewer system. Unearned revenue in the Intracoastal Waterway Bridge Enterprise Fund consists of amounts collected for toll passes which have not been used up by the customers.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Assets, Liabilities and Net Position or Equity (Continued)

Capital Assets

Capital assets include property, plant and equipment, and infrastructure assets (e.g., roads, sidewalks and similar items) . Assets used for general government activities are reported in the governmental activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market 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.

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

Assets	Years	
Infrastructure	25 – 50	
Roadways	26	
Machinery and equipment	5	

In the governmental fund financial statements, amounts incurred for the acquisition of capital assets are reported as fund expenditures. Depreciation expense is not reported in the governmental fund financial statements.

Long-Term Obligations

In the government-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts are deferred and amortized ratably over the life of the Bonds. Bonds payable are reported net of applicable premiums or discounts. Bond issuance costs are expensed when incurred.

In the fund financial statements, governmental fund types recognize Bond premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

Deferred Outflows/Inflows of Resources
Deferred outflows of resources represent a consumption of net position that applies to future reporting period(s). For example, the District would record deferred outflows of resources on the statement of net position related to debit amounts resulting from current and advance refundings resulting in the defeasance of debt (i.e. when there are differences between the reacquisition price and the net carrying amount of the old debt).

Deferred inflows of resources represent an acquisition of net position that applies to future reporting period(s). For example, when an asset is recorded in the governmental fund financial statements, but the revenue is unavailable, the District reports a deferred inflow of resources on the balance sheet until such times as the revenue becomes available.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Assets, Liabilities and Net Position or Equity (Continued)

Fund Equity/Net Position

In the fund financial statements, governmental funds report non spendable and restricted fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Assignments of fund balance represent tentative management plans that are subject to change.

The District can establish limitations on the use of fund balance as follows:

Committed fund balance – Amounts that can be used only for the specific purposes determined by a formal action (resolution) of the Board of Supervisors. Commitments may be changed or lifted only by the Board of Supervisors taking the same formal action (resolution) that imposed the constraint originally. Resources accumulated pursuant to stabilization arrangements sometimes are reported in this category.

Assigned fund balance – Includes spendable fund balance amounts that are intended to be used for specific purposes that are neither considered restricted nor committed. The Board may also assign fund balance as it does when appropriating fund balance to cover differences in estimated revenue and appropriations in the subsequent year’s appropriated budget. Assignments are generally temporary and normally the same formal action need not be taken to remove the assignment.

The District first uses committed fund balance, followed by assigned fund balance and then unassigned fund balance when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used.

Net position is the difference between assets and deferred outflows of resources less liabilities and deferred inflows of resources. Net position in the government-wide financial statements are categorized as net investment in capital assets, restricted or unrestricted. Net investment in capital assets represents net position related to infrastructure and property, plant and equipment. Restricted net position represents the assets restricted by the District’s Bond covenants or other contractual restrictions. Unrestricted net position consists of the net position not meeting the definition of either of the other two components.

Other Disclosures

Use of Estimates
The preparation of 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 disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

NOTE 3 – BUDGETARY INFORMATION

The District is required to establish a budgetary system and an approved Annual Budget. Annual Budgets are adopted on a basis consistent with generally accepted accounting principles for the general fund. All annual appropriations lapse at fiscal year end.

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NOTE 3 – BUDGETARY INFORMATION (Continued)

The District follows these procedures in establishing the budgetary data reflected in the financial statements.

a)	Each year the District Manager submits to the District Board a proposed operating budget for the fiscal year commencing the following October 1.
b)	Public hearings are conducted to obtain public comments.
c)	Prior to October 1, the budget is legally adopted by the District Board.
d)	All budget changes must be approved by the District Board.
e)	The budgets are adopted on a basis consistent with generally accepted accounting principles.
f)	Unused appropriation for annually budgeted funds lapse at the end of the year.

NOTE 4 – DEPOSITS AND INVESTMENTS

Deposits

The District’s cash balances were entirely covered by federal depository insurance or by a collateral pool pledged to the State Treasurer. Florida Statutes Chapter 280, "Florida Security for Public Deposits Act", requires all qualified depositories to deposit with the Treasurer or another banking institution eligible collateral equal to various percentages of the average daily balance for each month of all public deposits in excess of any applicable deposit insurance held. The percentage of eligible collateral (generally, U.S. Governmental and agency securities, state or local government debt, or corporate bonds) to public deposits is dependent upon the depository's financial history and its compliance with Chapter 280. In the event of a failure of a qualified public depository, the remaining public depositories would be responsible for covering any resulting losses.

Investments

The District’s investments were held as follows at September 30, 2017:

Investment	Maturities	Amortized Cost	Credit Risk		
Investment in Local Government Surplus Funds	Weighted average of the fund			S&P AAAm		
Trust Fund (Florida PRIME)	portfolio: 51 days	$	22,120,342			
						
Total Investments		$	22,120,342			

Credit risk – For investments, credit risk is generally the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Investment ratings by investment type are included in the preceding summary of investments.

Concentration risk – The District places no limit on the amount the District may invest in any one issuer.

Interest rate risk – The District does not have a formal policy that limits investment maturities as a means of managing exposure to fair value losses arising from increasing interest rates.

Fair Value Measurement – When applicable, the District measures and records its investments using fair value measurement guidelines established in accordance with GASB Statements. The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques.

These guidelines recognize a three-tiered fair value hierarchy, in order of highest priority, as follows:

•	Level 1: Investments whose values are based on unadjusted quoted prices for identical investments in active markets that the District has the ability to access;
•	Level 2: Investments whose inputs - other than quoted market prices - are observable either directly or indirectly; and,

•	Level 3: Investments whose inputs are unobservable.

The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the entire fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

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NOTE 4 – DEPOSITS AND INVESTMENTS (Continued)

Investments (Continued)

Money market investments that have a maturity at the time of purchase of one year or less and are held by governments other than external investment pools should be measured at amortized cost. For external investment pools that qualify to be measured at amortized cost, the pool’s participants should also measure their investments in that external investment pool at amortized cost for financial reporting purposes. Accordingly, the District’s investments have been reported at amortized cost above.

External Investment Pool – With regard to redemption gates, Chapter 218.409(8)(a), Florida Statutes, states that “The principal, and any part thereof, of each account constituting the trust fund is subject to payment at any time from the moneys in the trust fund. However, the Executive Director may, in good faith, on the occurrence of an event that has a material impact on liquidity or operations of the trust fund, for 48 hours limit contributions to or withdrawals from the trust fund to ensure that the Board can invest moneys entrusted to it in exercising its fiduciary responsibility. Such action must be immediately disclosed to all participants, the Trustees, the Joint Legislative Auditing Committee, the Investment Advisory Council, and the Participant Local Government Advisory Council. The Trustees shall convene an emergency meeting as soon as practicable from the time the Executive Director has instituted such measures and review the necessity of those measures. If the Trustees are unable to convene an emergency meeting before the expiration of the 48-hour moratorium on contributions and withdrawals, the moratorium may be extended by the Executive Director until the Trustees are able to meet to review the necessity for the moratorium. If the Trustees agree with such measures, the Trustees shall vote to continue the measures for up to an additional 15 days. The Trustees must convene and vote to continue any such measures before the expiration of the time limit set, but in no case may the time limit set by the Trustees exceed 15 days.”

With regard to liquidity fees, Florida Statute 218.409(4) provides authority for the SBA to impose penalties for early withdrawal, subject to disclosure in the enrollment materials of the amount and purpose of such fees. At present, no such disclosure has been made.

As of September 30, 2017, there were no redemption fees or maximum transaction amounts, or any other requirements that serve to limit a participant’s daily access to 100% of their account value.

NOTE 5 – RECEIVABLES

Receivables at September 30, 2017 are as follows:

		Water, Sewer and			
			Effluent Reuse			
			Enterprise Fund		Totals	
Receivables:						
Accounts	$	438,163	$	438,163	
		$	438,163	$	438,163	

21

NOTE 6 – CAPITAL ASSETS

Capital asset activity for the fiscal year ended September 30, 2017 was as follows:

			Beginning						Ending	
			Balance		Additions		Deletions		Balance	
Governmental Activities									
Capital assets being depreciated:									
Infrastructure	$	104,208	$	-	$	-	$	104,208	
Machinery and equipment		19,074		16,959		-		36,033	
Total capital assets, being depreciated			123,282		16,959		-		140,241	
Less accumulated depreciation for:									
Infrastructure		6,947		2,605		-		9,552	
Machinery and equipment			8,635		3,815		-		12,450	
Total accumulated depreciation			15,582		6,420		-		22,002	
Total capital assets, being depreciated, net			107,700		10,539		-		118,239	
Governmental activities capital assets, net	$	107,700	$	10,539	$	-	$	118,239	
										
Business-type Activities									
Capital assets not being depreciated:									
Land	$	960,488	$	-	$	-	$	960,488	
Construction in progress			235,384		502,081		-		737,465	
Total capital assets, not being depreciated			1,195,872		502,081		-		1,697,953	
Capital assets being depreciated:									
Infrastructure		51,471,790		28,835		-		51,500,625	
Roadways		1,873,188		-		-		1,873,188	
Machinery and equipment			3,417,298		88,245		-		3,505,543	
Total capital assets, being depreciated			56,762,276		117,080		-		56,879,356	
Less accumulated depreciation for:									
Infrastructure		22,925,700		1,355,046		-		24,280,746	
Roadways		144,092		72,045		-		216,137	
Machinery and equipment			3,235,247		54,520		-		3,289,767	
Total accumulated depreciation			26,305,039		1,481,611		-		27,786,650	
Total capital assets, being depreciated, net			30,457,237		(1,364,531)		-		29,092,706	
Business-type activities capital assets, net	$	31,653,109	$	(862,450)	$	-	$	30,790,659	

During a prior fiscal, the District assumed ownership and maintenance responsibility of Hammock Dunes Parkway from the Ocean Hammock Property Owners Association (OHPOA). In conjunction with the conveyance, OHPOA also transferred $279,912 in reserves to the District for future maintenance on the property. As of September 30, 2017 all of the reserves have been expended.

22

NOTE 6 – CAPITAL ASSETS (Continued)

Depreciation expense was charged to function/programs of the primary government as follows:

Governmental Activities:			
General government	$	2,605	
Maintenance and operations		3,815	
Total depreciation expense	$	6,420	
Business-type Activities			
Water and sewer utilities	$	1,178,811	
Toll bridge operations		302,800	
Total depreciation expense	$	1,481,611	

NOTE 7 – WATER, SEWER, AND EFFLUENT REUSE TRANSACTIONS

In accordance with the Utility Connection Collection and Reimbursement Agreement amounts advanced as connection fees in previous years are reduced by the portion of the connection fees collected from outside customers during the fiscal year. On June 18, 2013, the Developer, HD Associates, LP, transferred its rights under the Utility Connection Collection & Reimbursement Agreement to the Hammock Dunes Owners Association, Inc. (HDOA). The transfer provided that all potential payments made after April 1, 2013 under the Agreements were to be made to the HDOA. During the fiscal year ended September 30, 2017, HDOA received refunds of $24,500.

NOTE 8 – INTER-LOCAL AGREEMENTS

The District has entered into an Inter-local Agreement with the City of Palm Coast (“City”), Florida pertaining to the provision of utility services whereby the City shall supply and the District shall accept at the point of delivery up to a maximum daily volume of 2.6 million gallons per day of reclaimed water subject to the terms and conditions outlined in the agreement. The City and the District shall obtain, maintain and amend, at their own expense, all permits, consents, and approvals as required by law for performance of their respective obligations outlined in the Inter-local Agreement.

Whenever either the District or the City is confronted by an emergency water condition and desires to purchase available potable water from the other, the requesting party shall notify the selling party, in writing or by phone, and request that up to 0.5 million gallons per day of available potable water be transferred to the requesting party for a continuous period not to exceed 60 days. The selling party shall respond as soon as possible in an emergency condition or within twenty-four hours. The duration of the transfer may be extended by mutual agreement of the parties.

On December 19, 2011, the District entered into an Inter-local Agreement with Flagler County (“County”), whereby the District will make certain surplus bridge funds available to the County for community projects to be approved by the District. The community projects shall be within the boundaries of the District or directly adjacent to the District boundaries. The District agreed to provide an initial contribution of $1 million, of which $350,000 is to be used for certain improvements in the Hammock Dunes DRI. In addition, commencing on October 1, 2013 and ending on October 1, 2016, the District shall make available to the County $200,000 per year for mutually agreed upon beneficial community projects. During a prior fiscal year, the agreement was amended to allow each party, at their sole discretion, to allocate the specific allocation of one half of the total funds or community projects. As a result, during the prior fiscal years, the District completed a sidewalk construction and other projects that were applied to this commitment. During the current fiscal year, additional projects totaling $78,093 were completed and applied to this commitment. The restricted net position of $1,326,120 at September 30, 2017 in the Intracoastal Waterway Bridge Fund relates to the remaining community projects.

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NOTE 9 – INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS

Interfund receivables and payables at September 30, 2017 were as follows:

Fund		Receivable		Payable	
General	$	174	$	30,526	
Bridge		101,402		-	
Water and sewer		-		71,050	
Total	$	101,576	$	101,576	

The outstanding balances between funds result primarily from the time lag between the dates that transactions are recorded in the accounting system and payments between funds are made. In the case of the District, the balances between the bridge fund and the general and water and sewer funds relate to payroll expenditures of the general and water and sewer funds which were initially covered by the bridge fund.

Interfund transfers for the fiscal year ended September 30, 2017 were as follows:

Fund		Transfer in		Transfer out	
General	$	173,000	$	-	
Bridge		-		93,000	
Water and sewer		-		80,000	
Total	$	173,000	$	173,000	

Transfers are used to move revenues from the fund where collection occurs to the fund where funds have been reallocated for use. In the case of the District, transfers from the enterprise funds to the general fund were approved by the Board in the fiscal year 2017 budget to allocate surplus funds to offset the cost of general operations.

NOTE 10 – RETIREMENT PLAN

The District maintains a defined contribution plan for employees who meet a certain pay requirement. The District’s required contribution is 6% of the total salaries of qualified participants. Total salaries of qualified participants for the fiscal year ended September 30, 2017 were $922,377. Employer contributions for the period were approximately $56,364.

NOTE 11 – MANAGEMENT COMPANY

The District has contracted with a management company to perform management advisory services, which include financial and accounting advisory services. Certain employees of the management company also serve as officers of the District. Under the agreement, the District compensates the management company for management, accounting, financial reporting, computer and other administrative costs.

NOTE 12 – RISK MANAGEMENT

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The District has obtained commercial insurance from independent third parties to mitigate the costs of these risks; coverage may not extend to all situations. There were no settled claims during the past three years.

The District is involved in various claims and litigation arising in the ordinary course of operations, none of which, in the opinion of the Board of Supervisors and District Manager, will have a material effect on the District’s financial position.

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NOTE 13 – COMMITMENTS AND CONTINGENCIES

The District was involved in a lawsuit with a landowner relating to the Districts right to collect certain water capacity charges. The case was settled and there are no outstanding issues. The settlement fee was paid in fiscal year 2017.

As of September 30, 2017, the District had commitment on open contracts for various capital and maintenance projects. The contracts totaled approximately $661,236, of which approximately $77,555 was uncompleted at September 30, 2017.

NOTE 14 – PRIOR PERIOD ADJUSTMENT

The following prior period adjustment has been recorded to restate an overstated prepaid liability for toll revenues received in advance from customers:

				Intracoastal	
				Waterway	
	Business -Type		Bridge	
		Activities	Enterprise Fund	
Net position - beginning, before restatement	$	50,264,008	$	16,249,763	
Prior period adjustment		1,585,437		1,585,437	
Net position - beginning, as restated	$	51,849,445	$	17,835,200	

NOTE 15 – SUBSEQUENT EVENTS

Subsequent to fiscal year end, the District entered a contract in the amount of approximately $6.35 million for a wastewater treatment plant improvement project to be completed.

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DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN

FUND BALANCE - BUDGET AND ACTUAL – GENERAL FUND
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

															Variance	
						Budget								Favorable	
						Original		Final				Actual	(Unfavorable)	
REVENUES													
Maintenance assessments	$	167,000	$	167,000		$	161,811		$	(5,189)	
Interest income		-		-				2,061			2,061	
Miscellaneous income		-		-				5,400			5,400	
Total revenues			167,000		167,000				169,272			2,272	
EXPENDITURES												
Current:												
General government		221,391		244,657				225,020			19,637	
Maintenance and operations		148,300		148,300				169,278			(20,978)	
Capital outlay		17,000		17,000				16,959			41	
Total expenditures			386,691		409,957				411,257			(1,300)	
Excess (deficiency) of revenues												
over (under) expenditures		(219,691)		(242,957)				(241,985)			972	
OTHER FINANCING SOURCES (USES)												
Carryforward surplus		46,691		46,691				-			(46,691)	
Transfer in		173,000		173,000				173,000			-	
Total other financing sources and (uses)			219,691		219,691				173,000			(46,691)	
Net change in fund balance	$	-	$	(23,266)				(68,985)		$	(45,719)	
Fund balance - beginning								194,843				
Fund balance - ending						$	125,858				

See notes to required supplementary information

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DUNES COMMUNITY DEVELOPMENT DISTRICT
FLAGLER COUNTY, FLORIDA
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION

The District is required to establish a budgetary system and an approved Annual Budget for the General Fund. The District’s budgeting process is based on estimates of cash receipts and cash expenditures which are approved by the Board. The budget approximates a basis consistent with accounting principles generally accepted in the United States of America (generally accepted accounting principles).

The legal level of budgetary control, the level at which expenditures may not exceed budget, is in the aggregate. Any budget amendments that increase the aggregate budgeted appropriations must be approved by the Board of Supervisors. The general fund budget for the fiscal year ended September 30, 2017 was amended to increase appropriations by $23,266. Actual general fund expenditures for the fiscal year ended September 30, 2017 exceeded appropriations by $1,300. The over expenditures were funded by available fund balance.

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2700 North Military Trail ▪ Suite 350

Boca Raton, Florida 33431 (561) 994- 9299 ▪ (800) 299-4728 Fax (561) 994-5823 www.graucpa.com

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS

To the Board of Supervisors
Dunes Community Development District
Flagler County, Florida

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, business type activities and each major fund of Dunes Community Development District, Flagler County, Florida (“District”) as of and for the fiscal year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our opinion thereon dated March 13, 2018.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. 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.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

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Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

March 13, 2018

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2700 North Military Trail ▪ Suite 350

Boca Raton, Florida 33431 (561) 994- 9299 ▪ (800) 299-4728 Fax (561) 994-5823 www.graucpa.com

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH THE
REQUIREMENTS OF SECTION 218.415, FLORIDA STATUTES, REQUIRED BY
RULE 10.556(10) OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA

To the Board of Supervisors

Dunes Community Development District
Flagler County, Florida

We have examined Dunes Community Development District, Flagler County, Florida’s (“District”) compliance with the requirements of Section 218.415, Florida Statutes, in accordance with Rule 10.556(10) of the Auditor General of the state of Florida during the fiscal year ended September 30, 2017. Management is responsible for District’s compliance with those requirements. Our responsibility is to express an opinion on District’s compliance based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether the District complied, in all material respects, with the specified requirements referenced in Section 218.415, Florida Statutes. An examination involves performing procedures to obtain evidence about whether the District complied with the specified requirements. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material noncompliance, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion. Our examination does not provide a legal determination on the District’s compliance with specified requirements.

In our opinion, the District complied, in all material respects, with the aforementioned requirements for the fiscal year ended September 30, 2017.

This report is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, management, and the Board of Supervisors of Dunes Community Development District, Flagler County, Florida and is not intended to be and should not be used by anyone other than these specified parties.

March 13, 2018

30

2700 North Military Trail ▪ Suite 350

Boca Raton, Florida 33431 (561) 994- 9299 ▪ (800) 299-4728 Fax (561) 994-5823 www.graucpa.com

MANAGEMENT LETTER PURSUANT TO THE RULES OF
THE AUDITOR GENERAL OF THE STATE OF FLORIDA

To the Board of Supervisors
Dunes Community Development District

Flagler County, Florida

Report on the Financial Statements

We have audited the accompanying basic financial statements of Dunes Community Development District ("District") as of and for the fiscal year ended September 30, 2017, and have issued our report thereon dated March 13, 2018.

Auditor’s Responsibility

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Chapter 10.550, Rules of the Auditor General.

Other Reports and Schedule

We have issued our Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters based on an audit of the financial statements performed in accordance with Government Auditing Standards; and Independent Accountant’s Report on an examination conducted in accordance with AICPA Professional Standards, AT-C Section 315, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated March 13, 2018, should be considered in conjunction with this management letter.

Purpose of this Letter

The purpose of this letter is to comment on those matters described in Rule 10.550 as required by the Rules of the Auditor General of the state of Florida. Accordingly, in connection with our audit of the financial statements of the District, as described in the first paragraph, we report the following:

I.	Current year findings and recommendations.
II.  Status of prior year findings and recommendations.

III. Compliance with the Provisions of the Auditor General of the state of Florida.

Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, as applicable, management, and the Board of Supervisors of Dunes Community Development District, Flagler County, Florida and the Auditor General of the State of Florida and is not intended to be and should not be used by anyone other than these specified parties.

We wish to thank Dunes Community Development District, Flagler County, Florida and the personnel associated with it, for the opportunity to be of service to them in this endeavor as well as future engagements and the courtesies extended to us.

March 13, 2018

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REPORT TO MANAGEMENT

I.	CURRENT YEAR FINDINGS AND RECOMMENDATIONS

	None

II.	PRIOR YEAR FINDINGS AND RECOMMENDATIONS

	None

III.	COMPLIANCE WITH THE PROVISIONS OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA

	Unless otherwise required to be reported in the auditor’s report on compliance and internal controls, the management letter shall include, but not be limited to the following:

	Unless otherwise required to be reported in the auditor’s report on compliance and internal controls, the management letter shall include, but not be limited to the following:

1.	A statement as to whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report.

	There were no significant findings and recommendations made in the preceding annual financial audit report for the fiscal year ended September 30, 2016.

2.	Any recommendations to improve the local governmental entity's financial management.

	There were no such matters discovered by, or that came to the attention of, the auditor, to be reported for the fiscal year ended September 30, 2017.

3.	Noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance.

	There were no such matters discovered by, or that came to the attention of, the auditor, to be reported, for the fiscal year ended September 30, 2017.

4.	The name or official title and legal authority of the District are disclosed in the notes to the financial statements.

5.	The financial report filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes agrees with the September 30, 2017 financial audit report.

6.	The District has not met one or more of the financial emergency conditions described in Section 218.503(1), Florida Statutes.

7.	We applied financial condition assessment procedures and no deteriorating financial conditions were noted as of September 30, 2017. It is management’s responsibility to monitor financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same.

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