DUNES COMMUNITY DEVELOPMENT DISTRICT

FLAGLER COUNTY, FLORIDA
FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 2015

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	15-24		
REQUIRED SUPPLEMENTARY INFORMATION			
Schedule of Revenues, Expenditures and Changes in Fund Balances –			
Budget and Actual – General Fund	25		
Notes to Required Supplementary Information	26		
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	27-28		
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	29		
MANAGEMENT LETTER REQUIRED BY CHAPTER 10.550 OF THE RULES			
OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA	30-31		

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, 2015, 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, 2015, 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 January 21, 2016, 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 January 21, 2016, 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.

January 21, 2016

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, 2015. 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, 2015 by $49,858,292 (net position), an increase of $2,513,606 in comparison with the prior fiscal year.

•	At September 30, 2015, the District’s governmental funds reported combined ending fund balances of $175,711, an increase of $55,307 in comparison with the prior fiscal year. A portion of the total fund balance is non-spendable for prepaid items 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 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	
		2015		2014	2015	2014	2015	2014	
Assets, excluding capital assets	$	180,014	$	123,644	$ 19,882,459	$ 19,825,969	$ 20,062,473	$ 19,949,613	
Capital assets, net of depreciation		107,621		112,741	32,792,176	30,299,740	32,899,797	30,412,481	
Total assets		287,635		236,385	52,674,635	50,125,709	52,962,270	50,362,094	
Liabilities, excluding long-term liabilities		4,303		3,240	3,099,675	3,014,168	3,103,978	3,017,408	
Total liabilities		4,303		3,240		3,099,675		3,014,168			3,103,978			3,017,408	
Net position															
Net investment in capital assets		107,621		112,741	32,792,176	30,299,740	32,899,797	30,412,481	
Restricted for:															
Parkw ay maintenance and															
community projects		-		-	1,400,943	1,685,440	1,400,943	1,685,440	
Unrestricted		175,711		120,404	15,381,841	15,126,361	15,557,552	15,246,765	
Total net position	$	283,332	$	233,145	$ 49,574,960	$ 47,111,541	$ 49,858,292	$ 47,344,686	

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, 2015 was $279,978. 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, 2015, the cost of the business-type activities was $5,568,347. The costs of those activities were paid for by program revenues which consisted primarily of user fees and charges. In addition, the District received $ 691,690 from St. Johns River Water Management District relating to a cost share agreement – see Note 6 for additional information. The District also received a contribution of roadways from the Ocean Hammock Property Owners Association totaling $1,873,188; along with $279,912 to offset the cost of future maintenance – see Note 6 for additional information. The increase in expenses is primarily the result of extensive bridge repairs that were undertaken in the current fiscal year.

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		
		2015		2014		2015		2014		2015		2014	
Revenues:													
Program revenues													
Charges for services	$	194,443	$	245,575	$	5,272,626	$	4,993,011	$	5,467,069	$	5,238,586	
Capital grants and contributions		-		-		2,844,790		60,086		2,844,790		60,086	
General revenues													
Miscellaneous		722		270		49,350		28,674		50,072		28,944	
Total revenues		195,165		245,845		8,166,766		5,081,771		8,361,931		5,327,616	
Expenses:													
General government		177,029		168,905		-		-		177,029		168,905	
Maintenance and operations		102,949		81,286		-		-		102,949		81,286	
Water and sew er		-		-		3,199,238		3,153,714		3,199,238		3,153,714	
Toll bridge operations		-		-		2,369,109		1,003,396		2,369,109		1,003,396	
Total expenses		279,978		250,191		5,568,347		4,157,110		5,848,325		4,407,301	
Transfers		135,000		98,008		(135,000)		(98,008)		-		-	
Change in net position		50,187		93,662		2,463,419		826,653		2,513,606		920,315	
Net position - beginning		233,145		139,483		47,111,541		46,284,888		47,344,686		46,424,371	
Net position - ending	$	283,332	$	233,145	$	49,574,960	$	47,111,541	$	49,858,292	$	47,344,686	

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. Actual general fund expenditures did not exceed appropriations for the fiscal year ended September 30, 2015.

Actual general fund expenditures for the fiscal year ended September 30, 2015 were less than appropriations due primarily to anticipated costs which were not incurred.

CAPITAL ASSETS

At September 30, 2015, the District had $116,783 invested in infrastructure and equipment for its governmental activities. In the government-wide financial statements depreciation of $9,162 has been taken, which resulted in a net book value of $107,621. At September 30, 2015, the District had $32,792,176 (net of accumulated depreciation) invested in capital assets for its business-type activities. This investment in capital assets includes $960,488 in non-depreciable land. The remaining $31,831,688, net of accumulated depreciation of $24,815,380 consists of infrastructure and machinery and equipment for the water and sewer operation and the intra-coastal toll bridge, roadways and machinery and equipment. Additional information on the District’s capital assets can be found in the accompanying notes.

6

ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND OTHER EVENTS

The District anticipates some capital improvement projects in fiscal year 2016. 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 has commenced and is expected to be completed in fiscal year 2016. Construction of the improvements necessary to increase the plant capacity is anticipated to take place in fiscal year ended September 30, 2017. Other capital improvement projects scheduled for fiscal year 2016 include improvements to the water distribution system, wastewater collection system and reuse distribution system.

The District has 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, commencing on October 1, 2013 and ending on October 1, 2016 – see Note 8 for additional details. Based on the agreement, contributions through September 30, 2015 totaled $1.4M. Approved projects completed in the current and prior fiscal years totaled $144,090 and $ 114,560, respectively, for a restricted balance on this commitment of $1,141,350 at September 30, 2015. An additional $200,000 in contribution was reserved subsequent to year end.

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, 2015

	Governmental	Business-type				
ASSETS		Activities		Activities		Total		
								
Cash and cash equivalents	$	6,515	$	195,057	$	201,572		
Investments		160,458		19,094,130		19,254,588		
Receivables		1,272		447,815		449,087		
Due from business/governmental type activities		124				124		
Prepaids		11,645		144,457		156,102		
Deposits		-		1,000		1,000		
Capital assets:								
Nondepreciable		-		960,488		960,488		
Depreciable, net		107,621		31,831,688		31,939,309		
Total assets		287,635		52,674,635		52,962,270		
LIABILITIES								
Accounts payable		4,303		134,109		138,412		
Due to business/governmental type activities		-		124		124		
Contracts/retainage payable		-		89,895		89,895		
Unearned revenue		-		2,875,547		2,875,547		
Total liabilities		4,303		3,099,675		3,103,978		
NET POSITION								
Net investment in capital assets		107,621		32,792,176		32,899,797		
Restricted for:								
Parkway maintenance		-		259,593		259,593		
Community projects		-		1,141,350		1,141,350		
Unrestricted		175,711		15,381,841		15,557,552		
Total net position	$	283,332	$	49,574,960	$	49,858,292		

See notes to the financial statements

8

DUNES COMMUNITY DEVELOPMENT DISTRICT

FLAGLER COUNTY, FLORIDA

STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2015

								Net (Expense) Revenue	
				Program Revenues		and Changes in Net Position	
				Charges		Capital							
				for	Grants and	Governmental	Business-type			
Functions/Programs		Expenses		Services	Contributions		Activities		Activities		Total	
Primary government:													
Governmental activities:													
General government	$	177,029	$	177,029	$	-	$	-	$	-	$	-	
Maintenance and operations		102,949		17,414		-		(85,535)		-		(85,535)	
Total governmental activities		279,978		194,443		-		(85,535)		-		(85,535)	
Business-type activities:													
Water and sewer utilities		3,199,238		3,761,084		691,690		-		1,253,536		1,253,536	
Toll bridge operations		2,369,109		1,511,542		2,153,100		-		1,295,533		1,295,533	
Total business-type activities		5,568,347		5,272,626		2,844,790		-		2,549,069		2,549,069	
	General revenues:										
	Unrestricted investment earnings			722		49,350		50,072	
		Total general revenues				722		49,350		50,072	
	Transfers						135,000		(135,000)		-	
	Change in net position				50,187		2,463,419		2,513,606	
	Net position - beginning				233,145		47,111,541		47,344,686	
	Net position - ending			$	283,332	$	49,574,960	$	49,858,292	

See notes to the financial statements

9

DUNES COMMUNITY DEVELOPMENT DISTRICT

FLAGLER COUNTY, FLORIDA

BALANCE SHEET
GOVERNMENTAL FUNDS
SEPTEMBER 30, 2015

Major Fund

General Fund

ASSETS

Cash

Investments

Assessments receivable

Due from other funds

Prepaids

Total assets

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable

Total liabilities

Fund balances:

Nonspendable:

Prepaid items

Unassigned

Total fund balance

Total liabilities and fund balance

Total fund balances - governmental funds

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.

Net position of governmental activities

$       6,515 160,458 1,272 124 11,645

$	180,014

$	4,303	
	4,303	

11,645

164,066

175,711

$	180,014

$	175,711

107,621

$	283,332

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, 2015

		Major Fund		
REVENUES	General Fund		
				
Maintenance assessments	$	194,443		
Interest and other revenues		722		
Total revenues		195,165		
EXPENDITURES				
Current:				
General government		163,672		
Maintenance and operations		100,344		
Capital outlay		10,842		
Total expenditures		274,858		
Excess (deficiency) of revenues over				
(under) expenditures		(79,693)		
OTHER FINANCING (USES)				
Interfund transfers		135,000		
Total other financing sources and (uses)		135,000		
Net change in fund balance		55,307		
Fund balance - beginning		120,404		
Fund balance - ending	$	175,711		

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.

Change in net position of governmental activities

$	55,307

(5,120) $ 50,187

See notes to the financial statements

11

DUNES COMMUNITY DEVELOPMENT DISTRICT

FLAGLER COUNTY, FLORIDA

STATEMENT OF NET POSITION - PROPRIETARY FUNDS
SEPTEMBER 30, 2015

			Major Funds			
		Water, Sewer and		Intracoastal			
			Effluent Reuse	Waterway Bridge			
		Enterprise Fund	Enterprise Fund		Total	
ASSETS								
Current assets:								
Cash and cash equivalents	$	45,425	$	149,632	$	195,057	
Investments			8,546,793		10,547,337		19,094,130	
Receivables			447,815		-		447,815	
Due from other funds			100		1,075		1,175	
Noncurrent assets:								
Prepaids			82,913		61,544		144,457	
Deposits			1,000		-		1,000	
Capital assets:								
Capital assets not being depreciated			875,488		85,000		960,488	
Capital assets being depreciated			43,463,957		13,183,111		56,647,068	
Less accumulated depreciation			(18,890,258)		(5,925,122)		(24,815,380)	
Total capital assets, net			25,449,187		7,342,989		32,792,176	
Total assets			34,573,233		18,102,577		52,675,810	
LIABILITIES								
Current liabilities:								
Accounts payable			117,200		16,909		134,109	
Due to other funds			1,299		-		1,299	
Contracts/retainage payable			5,557		84,338		89,895	
Noncurrent liabilities:								
Unearned revenue			902,173		1,973,374		2,875,547	
Total liabilities			1,026,229		2,074,621		3,100,850	
NET POSITION								
Net investment in capital assets			25,449,187		7,342,989		32,792,176	
Restricted for parkway maintenance			-		259,593		259,593	
Restricted for community projects			-		1,141,350		1,141,350	
Unrestricted			8,097,817		7,284,024		15,381,841	
Total net position		$	33,547,004	$	16,027,956	$	49,574,960	

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, 2015

		Major Funds					
	Water, Sewer and		Intracoastal					
		Effluent		Waterways					
	Enterprise Fund	Bridge Enterprise				Total	
OPERATING REVENUES									
Charges for sales and services:									
Water	$	1,205,840	$	-	$	1,205,840	
Irrigation and effluent		1,302,398		-				1,302,398	
Sewer		982,854		-				982,854	
Connection fees		221,438		-				221,438	
Meter fees		34,740		-				34,740	
Tolls		-		1,511,342				1,511,342	
Other		13,814		200				14,014	
Total operating revenues		3,761,084		1,511,542				5,272,626	
OPERATING EXPENSES									
Personnel services		865,693		431,620				1,297,313	
Materials, supplies and services		1,216,900		1,638,576				2,855,476	
Depreciation and amortization		1,116,645		298,913				1,415,558	
Total operating expense		3,199,238		2,369,109				5,568,347	
Operating income (loss)		561,846		(857,567)				(295,721)	
NON OPERATING REVENUE (EXPENSES)									
Interest income		25,376		23,974				49,350	
Grant revenue		691,690		-				691,690	
Capital assets contribution		-		1,873,188				1,873,188	
Other income		-		279,912				279,912	
Total non operating revenue (expenses)		717,066		2,177,074				2,894,140	
Income before transfers		1,278,912		1,319,507				2,598,419	
Transfers out		(65,000)		(70,000)				(135,000)	
Change in net position		1,213,912		1,249,507				2,463,419	
Total net position - beginning		32,333,092		14,778,449				47,111,541	
Total net position - ending	$	33,547,004	$	16,027,956	$	49,574,960	

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, 2015

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers, users and other funds Other operating cash receipts

Payments to suppliers Payments to employees
Net cash provided (used) by operating activities

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:
Contribution from HOA Purchases of capital assets Capital grant

Net cash provided (used) by capital and related financing activities

CASH FLOWS FROM INVESTING ACTIVITIES

Interest earnings Purchase of investments
Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - October 1 Cash and cash equivalents - September 30
Reconciliation of operating income (loss) to net cash provided (used) by operating activities

Operating Income (loss)

Adjustments to reconcile operating income (loss) to net cash provided by Operating Activities: Depreciation and amortization (Increase)/Decrease in receivables (Increase)/Decrease in interfund receivable (Increase)/Decrease in prepaids Increase/(Decrease) in accounts payable Increase/(Decrease) in interfund payable Increase/(Decrease) in unearned revenue Interfund transfer

Total Adjustments

Net cash provided (used) by operating activities

NONCASH INVESTING, CAPITAL OR FINANCING ITEMS: Roadw ays donated and recorded as capital contributions Total noncash investing, capital or financing items

Water, Sew er and		Intracoastal			
	Effluent Reuse	Waterw ay Bridge			
Enterprise Fund	Enterprise Fund		Total	
$	3,770,462	$	1,497,025	$	5,267,487	
	4,729		200		4,929	
	(1,572,861)		(1,556,518)		(3,129,379)	
	(637,776)		(423,954)		(1,061,730)	
	1,564,554		(483,247)		1,081,307	
	-		279,912		279,912	
	(2,014,487)		(20,319)		(2,034,806)	
	741,723		-		741,723	
	(1,272,764)		259,593		(1,013,171)	
	25,376		23,974		49,350	
	(317,343)		275,587		(41,756)	
	(291,967)		299,561		7,594	
	(177)		75,907		75,730	
	45,602		73,725		119,327	
$	45,425	$	149,632	$	195,057	
						
$	561,846	$	(857,567)	$	(295,721)	
	1,116,645		298,913		1,415,558	
	14,207		-		14,207	
	(100)		1,321		1,221	
	(1,828)		(3,215)		(5,043)	
	(26,918)		92,939		66,021	
	702		-		702	
	(35,000)		54,362		19,362	
	(65,000)		(70,000)		(135,000)	
	1,002,708		374,320		1,377,028	
$	1,564,554	$	(483,247)	$	1,081,307	
						
$	-	$	1,873,188	$	1,873,188	
$	-	$	1,873,188	$	1,873,188	

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 the owners of the property 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 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. Rule 2a-7 is the rule that allows money market funds to use amortized cost to maintain a constant NAV of $1.00 per share, provided that such funds meet certain conditions. The District has reported its investment in Florida PRIME at the same value as the pooled shares allocated to the District.

The District records all interest revenue related to investment activities in the respective funds and reports investments at fair value.

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.

17

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Assets, Liabilities and Net Position or Equity (Continued)

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.

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.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

Assets, Liabilities and Net Position or Equity (Continued)

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.

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.

19

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.

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 cash and investments were held as follows at September 30, 2015:

Investment	Maturities		Fair Value	Credit Risk		
Investment in Local Government Surplus Funds	Weighted average of the fund			S&P AAAm		
Trust Fund (Florida PRIME)	portfolio: 29 days	$	19,254,588			
						
Total Investments		$	19,254,588			

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.

NOTE 5 – RECEIVABLES

Receivables at September 30, 2015 are as follows:

	Water, Sew er and			
		Effluent Reuse			
	Enterprise Fund		Totals	
Receivables:					
Accounts	$	447,815	$	447,815	
	$	447,815	$	447,815	

20

NOTE 6 – CAPITAL ASSETS

Capital asset activity for the fiscal year ended September 30, 2015 was as follows:

		Beginning						Ending		
		Balance		Additions		Deletions		Balance		
Governmental Activities										
Capital assets being depreciated:										
Infrastructure	$	104,208	$	-	$	-	$	104,208		
Machinery and equipment		12,575		-		-		12,575		
Total capital assets, being depreciated		116,783		-		-		116,783		
Less accumulated depreciation for:										
Infrastructure		1,737		2,605		-		4,342		
Machinery and equipment		2,305		2,515		-		4,820		
Total accumulated depreciation		4,042		5,120		-		9,162		
Total capital assets, being depreciated, net		112,741		(5,120)		-		107,621		
Governmental activities capital assets, net	$	112,741	$	(5,120)	$	-	$	107,621		
Business-type Activities										
										
Capital assets not being depreciated:										
Land	$	960,488	$	-	$	-	$	960,488		
Construction in progress		303,889		1,896,860		2,200,749		-		
Total capital assets, not being depreciated		1,264,377		1,896,860		2,200,749		960,488		
Capital assets being depreciated:										
Infrastructure		49,148,800		2,286,519		-		51,435,319		
Roadw ays		-		1,873,188		-		1,873,188		
Machinery and equipment		3,286,385		52,176		-		3,338,561		
Total capital assets, being depreciated		52,435,185		4,211,883		-		56,647,068		
Less accumulated depreciation for:										
Infrastructure		20,276,733		1,294,376		-		21,571,109		
Roadw ays		-		72,046		-		72,046		
Machinery and equipment		3,123,089		49,136		-		3,172,225		
Total accumulated depreciation		23,399,822		1,415,558		-		24,815,380		
Total capital assets, being depreciated, net		29,035,363		2,796,325		-		31,831,688		
Business-type activities capital assets, net	$	30,299,740	$	4,693,185	$	2,200,749	$	32,792,176		

During a prior fiscal year, the District began the design and engineering of its Brackish Groundwater Reverse Osmosis Project (also known as the Water Plant Expansion Project) that will treat water withdrawn from surficial aquifer wells with withdrawal from brackish Floridian aquifer wells. Construction on the water plant expansion project started in May 2014 and was completed in May 2015. In connection with this project, the District has entered into a cost-share agreement with the St. Johns River Water Management District (SJRWMD) whereby SJRWMD agreed to reimburse Dunes 40% of the total estimated construction costs of $2,255,000 up to $902,000. In connection with this agreement, the District recorded income of $691,690 and $60,086 in the current and prior fiscal years.

During the current fiscal, the District assumed ownership and maintenance responsibility of Hammock Dunes Parkway from the Ocean Hammock Property Owners Association (OHPOA). The estimated value of the roadways at the date of contribution of $1,873,188 was recorded as a contribution in the Intracoastal Waterway Bridge Fund. In conjunction with the conveyance, OHPOA also transferred $279,912 in reserves to the District for future maintenance on the property. This amount is included in restricted net position at September 30, 2015.

21

NOTE 6 – CAPITAL ASSETS (Continued)

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

Governmental activities:

General government Maintenance and operations Total depreciation expense

Business-type activities:

Water and sew er utilities Toll bridge operations Total depreciation expense

$	2,605 2,515

$	5,120

$ 1,116,645 226,867 $ 1,343,512

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, 2015, HDOA received refunds of $35,000.

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 the 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 year, the District completed a sidewalk construction project that was applied to this commitment. During the current fiscal years, additional projects totaling $144,090 were completed and applied to this commitment. The restricted net position of $1.141 million at September 30, 2015 in the Intracoastal Waterway Bridge Fund relates to the remaining community projects.

22

NOTE 9 – INTERFUND TRANSFERS

Interfund transfers for the fiscal year ended September 30, 2014 were as follows:

Fund			Transfer in		Transfer out		
General	$	135,000	$	-		
Bridge			-		70,000		
Water and sew er			-		65,000		
Total							
		$	135,000	$	135,000		

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 2015 budget to allocate surplus funds to offset the cost of general operations.

NOTE 10 – OTHER INFORMATION

In April of 2009, Ginn-LA Marina, LTD., LLLP (“Ginn”), a developer within the District, filed a Notice of Proposed Change (“NOPC”) with Flagler County to increase the number of dwelling units that could be built at the Hammock Beach Golf Course. However, the Flagler County Board of County Commissioner (“BOCC”) denied Ginn’s NOPC request for additional units on the golf course. Ginn appealed the BOCC’s decision to the Florida Land and Water Adjudication Commission (“FLAWAC”) who in turn assigned the case to an Administrative Judge. The Administrative Judge held a hearing, and after taking evidence ruled against Ginn’s appeal. Ginn then appealed to FLAWAC who in turn held a hearing and issued a final judgment in September of 2011 denying Ginn’s appeal. The net result is that the BOCC’s original ruling stands and no additional units can be built on the golf course. Consequently, the District has no legal obligation to provide Ginn or any other developer in the District with additional water or sewer service capacity at this time.

NOTE 11 – 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, 2015 were $906,838. Employer contributions for the period were approximately $55,041.

NOTE 12 – 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 13 – 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. Settled claims from these risks have not exceeded commercial insurance coverage over 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.

23

NOTE 14 – CONTINGENCIES

The District is involved in a lawsuit with a landowner relating the District’s right to collect certain water capacity charges. No adjustment has been made to the financial statements relating to this matter as the outcome of the case cannot be determined.

24

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, 2015

								Variance		
		Budget						Favorable		
REVENUES	Original & Final			Actual	(Unfavorable)		
										
Maintenance assessments	$	200,000	$	194,443		$	(5,557)		
Interest income		-			722			722		
Total revenues		200,000			195,165			(4,835)		
EXPENDITURES										
Current										
General government		201,700			163,672			38,028		
Maintenance and operations		118,300			100,344			17,956		
Capital outlay		15,000			10,842			4,158		
Total expenditures		335,000			274,858			60,142		
Excess (deficiency) of revenues										
over (under) expenditures		(135,000)			(79,693)			55,307		
OTHER FINANCING SOURCES (USES)										
Transfer in		135,000			135,000			-		
Total other financing sources and (uses)		135,000			135,000			-		
Net change in fund balance	$	-			55,307		$	55,307		
Fund balance - beginning					120,404					
										
Fund balance - ending			$	175,711					

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. Actual general fund expenditures did not exceed appropriations for the fiscal year ended September 30, 2015.

Actual general fund expenditures for the fiscal year ended September 30, 2015 were less than appropriations due primarily to anticipated costs which were not incurred.

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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, 2015, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our opinion thereon dated January 21, 2016.

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.

January 21, 2016

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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, 2015. 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 and, accordingly, included examining, on a test basis, evidence about District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on 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, 2015.

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.

January 21, 2016

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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

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, 2015, and have issued our report thereon dated January 21, 2016.

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 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, Section 601, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated January 21, 2016, 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.

January 21, 2016

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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:

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, 2014.

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, 2015.

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, 2015.

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, 2015 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 pursuant to Rule 10.556(7) and no deteriorating financial conditions were noted as of September 30, 2015. 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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