WARREN TOWNSHIP SEWERAGE AUTHORITY (A Component Unit …wtsauth.org/wp-content/uploads/2018/03/WTSA-2016-AUDIT.pdf · WARREN TOWNSHIP SEWERAGE AUTHORITY MANAGEMENT=S DISCUSSION AND

WARREN TOWNSHIP SEWERAGE AUTHORITY

(A Component Unit of the Township of Warren)

COUNTY OF SOMERSET, NEW JERSEY

FINANCIAL STATEMENTS AND

SUPPLEMENTARY INFORMATION

FOR THE YEARS ENDED

DECEMBER 31, 2016 AND 2015

(WITH INDEPENDENT AUDITOR'S REPORT THEREON)

WARREN TOWNSHIP SEWERAGE AUTHORITY(A COMPONENT UNIT OF THE TOWNSHIP OF WARREN)

DECEMBER 31, 2016

TABLE OF CONTENTS

Page

Independent Auditor's Report 1

REQUIRED SUPPLEMENTARY INFORMATION

Management’s Discussion and Analysis 4

FINANCIAL STATEMENTS

Exhibit

A Statement of Net Position - December 31, 2016 and 2015 13

B Statement of Revenues, Expenses and Changes in Net Position for the Years Ended December 31, 2016 and 2015 15

C Statement of Cash Flows for the Years Ended December 31, 2016 and 2015 16

Notes to Financial Statements 18

SUPPLEMENTARY SCHEDULES

Schedule

1 Schedule of Revenues, Expenses and Changes in Net Position - Restricted and Unrestricted for the Year Ended December 31, 2016 41

2 Schedule of Cash Receipts, Cash Disbursements and Changes in Cash and Cash Equivalents - Unrestricted and Restricted Accounts for the Year Ended December 31, 2016 42

3 Schedule of Operating Revenues and Costs Funded by Operating Revenues Compared to Budget for the Year Ended December 31, 2016 with Comparative Amounts for Year Ended December 31, 2015 44

WARREN TOWNSHIP SEWERAGE AUTHORITY(A COMPONENT UNIT OF THE TOWNSHIP OF WARREN)

DECEMBER 31, 2016

TABLE OF CONTENTS, (CONTINUED)

Schedule Page

4 Schedule of Capital Financing Sources and Costs Funded by Capital Financing Sources Compared to Budget for the Year Ended December 31, 2016 with Comparative Amounts for the Year Ended December 31, 2015 46

5 Schedule of Bonds and Loans Payable for the Year Ended December 31, 2016 47

Roster of Officials - December 31, 2016 49Independent 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 Government Auditing Standards 50Independent Auditor’s Report on Compliance for Each Major State Program and Report on Internal Control Over Compliance as Required by the Uniform Guidances and N.J. OMB Circular 15-08 52

6 Schedule of Expenditures of Federal Awards 557 Schedule of State Financial Assistance 56

Notes to the Schedules of Ependitures of Federal and State Awards 57Schedule of Findings and Questioned Cost 58Schedule of Prior Audit Findings 60General Comments 61Comments an Recommendations 63Status of Prior Year Audit Findings/Recommendations 63Appreciation 63

INDEPENDENT AUDITOR’S REPORT

The Honorable Chairman and Members of theWarren Township Sewerage Authority46 Mountain BoulevardWarren, New Jersey

Report on the Financial Statements

We have audited the accompanying statements of net position of the Warren Township Sewerage Authorityas of December 31, 2016 and 2015, and the related statements of revenues, expenses, and changes in netposition and cash flows for the years then ended, and the related notes to the financial statements, whichcollectively comprise the Authority’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 inaccordance with accounting principles generally accepted in the United States of America; this includes thedesign, implementation, and maintenance of internal control relevant to the preparation and fair presentationof financial statements that are free from material misstatements, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conductedour audit in accordance with auditing standards generally accepted in the United States of America, the auditrequirements prescribed by the Division of Local Government Services, Department of Community Affairs,State of New Jersey (the “Division”), and the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.

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Honorable Chairperson and Members of the Warren Township Sewerage AuthorityPage 2.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor’s judgment, including the assessmentof the risks of material misstatement of the financial statements, whether due to fraud or error. In makingthose risk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. Accordingly, we express no such opinion. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financialposition of the Warren Township Sewerage Authority as of December 31, 2016, and the respective changesin financial position and cash flows for the year then ended in accordance with accounting principlesgenerally 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’sDiscussion and Analysis 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 StandardsBoard who considers it to be an essential part of the financial reporting for placing the basic financialstatements in an appropriate operational, economic, or historical context. We have applied certain limitedprocedures to the required supplementary information in accordance with auditing standards generallyaccepted in the United States of America, which consisted of inquiries of management about the methodsof preparing the information and comparing the information for consistency with management’s responsesto our inquiries, the basic financial statements, and other knowledge we obtained during our audit of thebasic financial statements. We do not express an opinion or provide any assurance on the informationbecause the limited procedures do not provide us with sufficient evidence to express an opinion or provideany assurance.

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Honorable Chairperson and Members of theWarren Township Sewerage AuthorityPage 3.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectivelycomprise the Warren Township Sewerage Authority’s basic financial statements. The supplementaryinformation listed in the table of contents and schedule of expenditures of federal awards, as required byTitle 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles,and Audit Requirements for Federal Awards (Uniform Guidance) and the schedule of expenditures of statefinancial assistance as required by NJ OMB 15-08 and the letter of comments and recommendations sectionare presented for purposes of additional analysis and are not a required part of the basic financial statements.

The supplemental information listed in the table of contents and the schedule of expenditures of federalawards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform AdministrativeRequirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), theschedule of expenditures of state financial assistance as required by NJ OMB 15-08 are the responsibilityof management and were derived from and relates directly to the underlying accounting and other recordsused to prepare the basic financial statements. Such information has been subjected to the auditingprocedures applied in the audit of the basic financial statements and certain additional procedures, includingcomparing and reconciling such information directly to the underlying accounting and other records usedto prepare the basic financial statements or to the basic financial statements themselves, and other additionalprocedures in accordance with auditing standards generally accepted in the United States of America. In ouropinion, the supplemental information listed in the table of contents, schedule of expenditures of federalawards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform AdministrativeRequirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and theschedule of expenditures of state financial assistance as required by NJ OMB 15-08 are fairly stated, in allmaterial respects, in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated May 5, 2017 onour consideration of the Warren Township Sewerage Authority’s internal control over financial reportingand on our tests of its compliance with certain provisions of laws, regulations, contracts, and grantagreements and other matters. The purpose of that report is to describe the scope of our testing of internalcontrol over financial reporting and compliance and the results of that testing, and not to provide an opinionon 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 Warren TownshipSewerage Authority’s internal control over financial reporting and compliance.

Very truly yours,

FERRAIOLI, WIELKOTZ, CERULLO & CUVA, P.A.Certified Public AccountantsPompton Lakes, New Jersey

May 5, 2017

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Ferraioli, Wielkotz, Cerullo & Cuva,P.A.

Required Supplementary Information

Management Discussion and Analysis


MANAGEMENT=S DISCUSSION AND ANALYSIS

DECEMBER 31, 2016

As management of the Warren Township Sewerage Authority, we offer the Authority=s financial

statements this narrative overview and analysis of the Authority=s financial performance during the

fiscal years ended December 31, 2016 and 2015. Please read this analysis in conjunction with the

Authority=s financial statements, which follow this section.

Financial Highlights

The Authority=s assets and deferred outflows of resources exceeded its liabilities and deferred

inflows of resources by $30,843,438.19 (net position) for the fiscal year reported. This

compares to the previous year when assets and deferred outflow of resources exceeded

liabilities and deferred inflows of resources by $30,674,900.19.

Total net position is comprised of the following:

(1) Capital assets, net of related debt of $24,514,871.20 includes property and equipment,

net of accumulated depreciation, and reduced for outstanding debt related to the

purchase or construction of capital assets.

(2) Net assets of $2,027,206.67 are restricted by constraints imposed from outside the

Authority such as debt covenants, grantors, laws, or regulations.

(3) Unrestricted net assets of $4,301,360.32 represent the portion available to maintain the

Authority=s continuing obligations to citizens and creditors.

Total liabilities of the Authority decreased by $1,052,317.96 to $8,437,408.52 during the

fiscal year primarily due to a decrease in long-term bonds and loans payable.

Overview of the Financial Statements

This annual report includes this management discussion, the independent auditor=s report and the basic

financial statements of the Authority. The financial statements also include notes that explain in more

detail some of the information in the financial statements.

Required Financial Statements

The financial statements of the Authority report information of the Authority using accounting

methods similar to those used by private sector companies. These statements offer short and long-term

financial information about its activities. The Statement of Net Position includes all of the Authority=s assets and liabilities and provides information about the nature and amounts of investments in

resources (assets) and the obligations to Authority creditors (liabilities). It also provides the basis for

evaluating the capital structure of the Authority and assessing the liquidity and financial flexibility of

the Authority.

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MANAGEMENT=S DISCUSSION AND ANALYSIS (CONTINUED)

DECEMBER 31, 2016

All of the current year=s revenues and expenses are accounted for in the Statement of Revenues,

Expenses and Changes in Net Position. This statement measures the results of the Authority=s

operations over the past year and can be used to determine whether the Authority has recovered all its

costs through user fees and other charges, operational stability and credit worthiness.

The final required financial statement is the Statement of Cash Flows. This statement reports cash

receipts and cash payments, and net changes in cash resulting from operations, investing and financing

activities and provides answers to such questions as what operational sources provided cash, what was

the cash used for, and what was the change in cash balance during the reporting period.

Notes to the Financial Statements

The accompanying notes to the financial statements provide information essential to a full

understanding of the financial statements. The notes to the financial statements begin immediately

following the basic financial statements.

Other Information

In addition to the basic financial statements and accompanying notes, this report presents certain

required supplementary information. This supplementary information follows the notes to the

financial statements.

Financial Analysis of the Authority

One of the most important questions asked about the Authority=s finances is AIs the Authority as a

whole better able to fulfill its mission as a result of this years activities?@ The Statement of Net

Position and the Statement of Revenues, Expenses and Changes in Net Position report information

about the Authority=s activities in a way that will help answer this question. These two statements

report net assets of the Authority and the changes in those assets. The reader can think of the

Authority=s net position B the difference between assets and deferred outflows of resources and

liabilities and deferred inflows of resources B as one way to measure financial health or financial

position. Over time, increases or decreases in the Authority=s net assets are one indicator of whether

its financial health is improving or deteriorating. However, one will need to consider the non-financial

factors such as changes in economic conditions, population growth, development, and new or changed

government regulation.

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WARREN TOWNSHIP SEWERAGE AUTHORITY MANAGEMENT=S DISCUSSION AND ANALYSIS (CONTINUED)

DECEMBER 31, 2016

Net Position

As year-to-year financial information is accumulated on a consistent basis, changes in net position may

be observed and used to discuss the changing financial position of the Authority as a whole.

The Authority=s net position at fiscal year-end is $30,843,438. This is a $168,538 increase over last

year=s net assets of $30,674,900. A summary of the Authority=s statement of net position is presented

in the following table:

Condensed Statement of Net Position

Dollar Percent

FY 2016 FY 2015 Change Change

Current and Other

Assets $8,757,709 $10,828,309 $(2,070,600) (19.12)%

Capital Assets 30,660,974 29,405,713 1,255,261 4.27%

Total Assets and Deferred

Outflows 39,418,683 40,234,022 (815,339) (2.03)%

Long-term Debt

Outstanding 6,749,652 4,442,000 2,307,652 51.95%

Other Liabilities 1,687,757 5,047,727 (3,359,970) (66.56)%

Deferred Inflows of

Resources 137,836 69,395 68,441 98.63%

Total Liabilities and Deferred

Inflows 8,575,245 9,559,122 (983,877) (10.29)%

Invested in Capital Assets,

Net of Related Debt 24,514,871 25,073,100 (558,229) (2.23)%

Restricted 2,027,207 2,022,717 4,490 .22%

Unrestricted 4,301,360 3,579,083 722,277 20.18%

Total Net Position $30,843,438 $30,674,900 $168,538 .55%

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DECEMBER 31, 2016

Net Position (Continued)

A summary of the Authority=s prior year statement of net position is presented with comparative FY

2014 year balances in the following table:

Condensed Statement of Net Position

Dollar Percent


Current and Other

Assets $10,828,309 $8,864,541 $1,963,768 22.15%

Capital Assets 29,405,713 29,797,161 (391,448) (1.31)%

Deferred Outflows of

Resources 13,870 (13,870) (100.00)%

Total Assets and Deferred

Outflows 40,234,022 38,675,572 1,558,450 4.02%

Long-term Debt

Outstanding 4,442,000 6,837,000 (2,395,000) (35.02)%

Other Liabilities 5,047,727 1,570,498 3,477,229 221.40%

Deferred Inflows of

Resources 69,395 83,274 (13,879) (16.66)%

Total Liabilities and Deferred

Inflows 9,559,122 8,490,772 1,068,350 12.58%

Invested in Capital Assets,

Net of Related Debt 25,073,100 24,000,506 1,072,594 4.46%

Restricted 2,022,717 2,357,884 (335,167) (14.21)%

Unrestricted 3,579,083 3,826,410 (247,327) (6.46)%

Total Net Position $30,674,900 $30,184,800 $490,100 1.62%

While the Statement of Net Position shows the change in financial position of net assets, the Statement

of Revenues, Expenses and Changes in Net Positions provides answers as to the nature and source of

these changes. As can be seen in the following table, net position increased by $168,538.

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DECEMBER 31, 2016


Condensed Statement of Revenues, Expenses

And Changes in Net Position

Dollar Percent


Operating Revenues $4,785,955 $4,835,523 (49,568) (1.03)%

Non-operating Revenues 31,774 69,609 (37,835) (54.35)%

Total Revenues 4,817,729 4,905,132 (87,403) (1.78)

Depreciation 1,551,651 1,550,976 675 .04%

Other Operating Expense 2,783,208 2,579,050 204,158 7.92%

Other Non-operating

Expense 314,332 285,006 29,326 10.29%

Total Expenses 4,649,191 4,415,032 234,159 5.30%

Change in Net Position 168,538 490,100 (321,562) (65.61)%

Beginning Net Position 30,674,900 30,184,800 490,100 1.62%

Ending Net Position $30,843,438 $30,674,900 $168,538 .55%

The Authority=s operating revenues decreased by $49,568 to $4,785,955 in fiscal year 2016 from

$4,835,523 in 2015. This decrease is primarily due to a decrease in connection fees. Non-operating

revenues decreased by $37,835 to $31,774 from $69,609 due to the cancellation of prior year payables

in 2015.

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DECEMBER 31, 2016


A summary of the Authority=s prior year statement of revenues, expenses and changes in net position

is presented with comparative FY 2014 figures in the following table:

Condensed Statement of Revenues, Expenses

And Changes in Net Position

Dollar Percent


Operating Revenues $4,835,523 $5,323,536 $(488,013) (9.17)%

Non-operating Revenues 69,609 13,758 55,851 405.95%

Total Revenues 4,905,132 5,337,294 (432,162) (8.10)

Depreciation 1,550,976 1,541,578 9,398 .60%

Other Operating Expense 2,579,050 2,801,647 (222,597) (7.95)%

Other Non-operating

Expense 285,006 580,419 (295,413) (50.89)%

Total Expenses 4,415,032 4,923,644 (508,612) (10.33)%

Change in Net Position 490,100 413,650 76,450 18.48%

Beginning Net Position 30,184,800 29,771,150 413,650 1.38%

Ending Net Position $30,674,900 $30,184,800 $490,100 1.62%

Budgetary Highlights

The State of New Jersey requires local authorities to prepare and adopt annual budgets in accordance

with the Local Authorities Fiscal Control Law and regulations adopted by the Local Finance Board

pursuant to this statute and codified as N.J.A.C. 5:31-1 et seq. The statutory budget was designed to

demonstrate to the Bureau of Authority Regulation of the Division of Local Government Services that

the cash flows of the Authority for the coming year will be sufficient to cover operating expenses,

interest accruing on bonded indebtedness and cash payments of maturing bond and loan principal.

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DECEMBER 31, 2016

Budgetary Highlights (Continued)

The following table provides a 2016 and 2015 budget comparison:

Budget vs. Actual

FY 2016

Budget Actual Variance

Revenues:

Operating $5,816,795 $5,919,749 $102,954

Non-Operating 14,000 31,774 17,774

5,830,795 5,951,523 120,728

Expenses:

Operating 2,845,215 2,689,601 155,614

Non-Operating 2,985,580 3,990,838 (1,005,258)

5,830,795 6,680,439 (849,644)

Income Before Depreciation

And Amortization $(728,916) $(728,916)

Budget vs. Actual

FY 2015

Budget Actual Variance

Revenues:

Operating $6,125,045 $6,276,568 $151,523

Non-Operating 14,000 15,431 1,431

6,139,045 6,291,999 152,954

Expenses:

Operating 2,752,300 2,531,048 221,252

Non-Operating 3,386,745 3,659,476 (272,731)

6,139,045 6,190,524 (51,479)

Income Before Depreciation

And Amortization $101,475 $101,475

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DECEMBER 31, 2016

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

During fiscal year 2004, the Authority had a detailed inventory taken of its property, plant and

equipment. The accompanying financial statements reflect the estimated cost and the related

accumulated depreciation of the Authority=s fixed assets.

At the end of fiscal year 2016, the Authority had invested $58,121,597 in capital assets. Included in

that amount is $9,196,079 of capital that was contributed to the Authority in the form of federal and

state grants and other property. The Authority=s net property, plant and equipment at fiscal year end

was $30,660,974. This is a $1,255,261 increase over last year=s net property, plant and equipment of

$29,405,713. A summary of the Authority=s capital assets is presented in the following table:

CAPITAL ASSETS

Dollar

FY 2016 FY 2015 Change

Equipment and

Leasehold Improvements $53,442,813 $53,343,626 $99,187

Less:

Accumulated

Depreciation (27,460,623) (25,908,972) (1,551,651)

25,982,190 27,434,654 (1,452,464)

Construction in

Progress 4,678,784 1,971,059 2,707,725

Net Property, Plant and

Equipment $30,660,974 $29,405,713 $1,255,261

The Authority=s on going capital plan is reviewed each year by the Authority=s consulting engineer.

Debt Administration

At December 31, 2016, the Authority had outstanding bonds and loans in the amount of $7,958,688

(net). The debt service schedule goes out to 2035. Interest rates range from 2.00% to 5.00%.

Additionally, in May of 2016, the Authority closed on its sale of $875,000 Subordinate Bonds to the

New Jersey Environmental Infrastructure Trust and $2,734,379 Subordinate Bonds to the State of

New Jersey pursuant to the SFY 2016 New Jersey Environmental Infrastructure Financing Program.

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DECEMBER 31, 2016

Economic Factors, Future Years= Budgets and Rates

The Commissioners and management of the Authority consider many factors when preparing each

year=s budget and annual charges. Two of the main factors are growth in the Authority=s system and

new regulations issued by the State and Federal governments.

Contacting the Authority

This financial report is designed to provide our customers and creditors with a general overview of the

Authority=s finances and to demonstrate the Authority=s accountability for the fees it receives. If you

have any questions about this report or need additional information, contact the Warren Township

Sewerage Authority, 46 Mountain Boulevard, Warren, New Jersey 07059 or visit the Authority’s

website at www.wtsauth.org.

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http://www.wtsauth.org/

Basic Financial Statements

Exhibit A

Page 1 of 2



Statement of Net Position

For the Years Ended December 31,

2016 2015

ASSETS

Unrestricted Assets:

Cash and Cash Equivalents $ 4,515,808.70 $ 3,700,227.93

Prepaid Expenses 11,321.27 10,706.24

User Charges Receivable 168,275.73 195,988.06

Stub Fees Receivable 39,547.00 34,547.00

Other Receivables 1,308.88 3,864.85

Total Unrestricted Assets 4,736,261.58 3,945,334.08

Restricted Assets:

General Account:

Cash and Cash Equivalents 712,460.00 711,303.75

Bond Service Account:

Cash and Cash Equivalents 115,285.31 102,340.00

Bond Reserve Account:

Cash and Cash Equivalents 1,228,080.00 1,228,080.00

Construction Account:

Cash and Cash Equivalents 1,630,304.61 1,904,974.86

Due From NJ Environmental Infrastructure Trust 335,317.00 2,936,276.00

Total Restricted Assets 4,021,446.92 6,882,974.61

Capital Assets:

Equipment and Leasehold Improvements 53,442,812.93 53,343,625.72

Less: Accumulated Depreciation (27,460,622.58) (25,908,971.24)

25,982,190.35 27,434,654.48

Construction In Progress 4,678,783.66 1,971,058.81

Total Capital Assets 30,660,974.01 29,405,713.29

TOTAL ASSETS 39,418,682.51 40,234,021.98

See accompanying Notes to the Financial Statements.

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Exhibit A

Page 2 of 2



Statement of Net Position


2016 2015

LIABILITIES

Current Liabilities Payable from

Unrestricted Assets:

Accounts Payable - Operations $ 366,312.15 $ 304,568.01

Accrued Liabilities 14,671.25

Review and Inspection Deposits Payable 53,917.86 61,683.20

Total Current Liabilities Payable from

Unrestricted Assets: 434,901.26 366,251.21

Current Liabilities Payable from

Restricted Assets:

Accounts payable 15,200.43 16,630.60

Accrued Interest Payable on Bonds and Loans 28,618.64 19,006.67

Interim Financing Note Payable - NJEIT 3,645,838.00

Current Portion of Bonds and

Loans Payable 1,209,036.21 1,000,000.00

Total Current Liabilities Payable from

Restricted Assets: 1,252,855.28 4,681,475.27

Long-Term Portion of Bonds and

Loans Payable 6,749,651.98 4,442,000.00

TOTAL LIABILITIES 8,437,408.52 9,489,726.48

DEFERRED INFLOWS OF RESOURCES:

Bond Premium - Net 137,835.80 69,395.31

NET POSITION:

Invested in Capital Assets, net of Related Debt 24,514,871.20 25,073,100.24

Restricted:

Current Debt Service 86,666.67 83,333.33

Future Debt Service 1,228,080.00 1,228,080.00

Operations 712,460.00 711,303.75

Unrestricted:

Designated 1,149,448.00 1,664,993.00

Undesignated 3,151,912.32 1,914,089.87

TOTAL NET POSITION $ 30,843,438.19 $ 30,674,900.19


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Exhibit B


WARREN TOWNSHIP SEWERAGE AUTHORITY(A Component Unit of the Township of Warren)

Statement of Revenues, Expenses and Changes in Net PositionFor the Years Ended December 31,

2016 2015

Operating Revenue:Service Agreement $ 233,047.64 $ 233,080.68 User Charges and Delinquent Penalties 4,298,563.21 4,178,124.63 Connection Charges 249,659.00 371,815.70 Application Fees 4,200.00 2,350.00 Other Income 484.83 50,152.04

Total Operating Revenue 4,785,954.68 4,835,523.05

Operating Expenses:Cost of Providing Services 1,978,382.45 1,949,035.67 Administrative and Executive 711,218.86 582,012.76 Other Operating Expenses 93,606.54 48,001.58 Depreciation 1,551,651.34 1,550,975.65

Total Operating Expenses 4,334,859.19 4,130,025.66

Operating Income 451,095.49 705,497.39

Non-Operating Revenue/(Expenses):Interest Income 31,773.67 15,431.07 Interest Expense (245,890.67) (285,014.86) Bond Issuance Costs (85,037.65) Cancellation of Prior Years' Payables 54,177.99 Amortization 16,597.16 8.72

Total Non-Operating Revenue/(Expenses) (282,557.49) (215,397.08)

Change in Net Position 168,538.00 490,100.31

Net Position - January 1, 30,674,900.19 30,184,799.88

Net Position - December 31, $ 30,843,438.19 $ 30,674,900.19

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EXHIBIT C

Page 1 of 2



Statement of Cash Flows


2016 2015

Cash Flow from Operating Activities:

Cash Received from Customers $ 4,808,667.01 $ 4,827,648.14

Cash Paid to Suppliers and Employees (2,712,616.86) (2,487,293.91)

Interest Received 31,773.67 15,431.07

Net Cash Provided/(Used) by Operating Activities 2,127,823.82 2,355,785.30

Cash Flows from Investing Activities:

Purchase of Property, Plant and Equipment (2,808,342.23) (1,147,382.65)

Net Cash Provided/(Used) by Investing Activities (2,808,342.23) (1,147,382.65)

Cash Flows from Financing Activities:

Receipts From NJ Environmental Infrastructure Trust 2,600,959.00 709,562.00

NJDEP Fee Paid (36,459.00)

Principal Paid on Bonds / Loans (1,092,690.81) (2,600,000.00)

Interest Paid on Bonds / Loans (236,278.70) (293,985.17)

Net Cash Provided/(Used) by Financing Activities 1,235,530.49 (2,184,423.17)

Net Increase (Decrease) in Cash and Cash Equivalents 555,012.08 (976,020.52)

Cash and Cash Equivalents at Beginning of Year 7,646,926.54 8,622,947.06

Cash and Cash Equivalents at End of Year $ 8,201,938.62 $ 7,646,926.54

Balance Reported as:

Unrestricted $ 4,515,808.70 $ 3,700,227.93

Restricted 3,686,129.92 3,946,698.61

$ 8,201,938.62 $ 7,646,926.54


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EXHIBIT C

Page 2 of 2



Statement of Cash Flows


2016 2015

Reconciliation of Operating Income to Net

Cash Provided by Operating Activities:

Operating Income $ 451,095.49 $ 705,497.39

Adjustments to Reconcile Operating Income to

Net Cash Provided by Operating Activities:

Interest Income 31,773.67 15,431.07

Depreciation 1,551,651.34 1,550,975.65

(Increase)/Decrease in User Charges Receivable 27,712.33 (7,874.91)

(Increase)/Decrease in Stub Fees Receivable (5,000.00)

(Increase)/Decrease in Other Receivables 2,555.97 1,083.36

(Increase)/Decrease in Prepaid Expenses (615.03) 3,278.97

Increase/(Decrease) in Review and Inspection Deposits (7,765.34) 13,854.45

Increase/(Decrease) in Accounts Payable 61,744.14 73,539.32

Increase/(Decrease) in Accrued Liabilities 14,671.25

Total Adjustments 1,676,728.33 1,650,287.91

Net Cash Provided by Operating Activities $ 2,127,823.82 $ 2,355,785.30


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Notes to Financial Statements


NOTES TO FINANCIAL STATEMENTS


1. GENERAL

The Warren Township Sewerage Authority was created by an ordinance adopted September 7, 1972by the Township of Warren, under the Sewerage Authorities Law, constituting Chapter 138 of thePamphlet Laws of 1946 of the State of New Jersey, as amended and supplemented.

The Authority is responsible for the collection and treatment of sanitary waste generated within theTownship of Warren, New Jersey. The Authority bills and collects its revenues from users of thesystem. The Authority has executed a service agreement with the Township of Warren dated May 7,1981, obligating the Township to pay to the Authority such fixed amounts or sums of money as maybe necessary to provide for deficits resulting from failure or inability of the Authority to deriveadequate revenues from the operation of the system.

As a public body under existing statute, the Authority is exempt from both Federal and state taxes.

Component Unit

In evaluating how to define the Authority for financial reporting purposes, management has consideredall potential component units. The decision to include any potential units in the financial reportingentity was made by applying the criteria set forth in GASB Statements No. 14, The FinancialReporting Entity, as amended by GASB Statement No. 39, Determining Whether CertainOrganizations are Component Units, and GASB Statement No. 61, The Financial Reporting Entity:Omnibus - an amendment of GASB Statements No. 14 and No. 34. Blended component units, althoughlegally separate entities, are in- substance part of the government’s operations. Each discretelypresented component unit would be or is reported in separate column in financial statements toemphasize that is legally separate from the government.

The basic-but not the only-criterion for including a potential component unit within the reportingentity is the governing body’s ability to exercise oversight responsibility. The most significantmanifestation of this ability is financial interdependency. Other manifestations of the ability toexercise oversight responsibility include, but are not limited to, the selection of governing authority,the designation of management, the ability to significantly influence operations, and accountabilityto fiscal matters. A second criterion used in evaluating potential component units is the scope of publicservice. Application of this criterion involves considering whether the activity benefits thegovernment and/or its citizens.

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NOTES TO FINANCIAL STATEMENTS, (CONTINUED)


1. GENERAL, (continued)

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

Based upon the application of these criteria, the Authority has no component units and is a componentof the Township of Warren.

2. SIGNIFICANT ACCOUNTING POLICIES

The Authority’s financial transactions are recorded in accounts that are created by various resolutionsadopted by the Authority to meet bond covenant requirements (more fully defined in Note 5).

The following is a summary of the more significant accounting policies:

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

The accounts of the Authority are organized into one fund with self-balancing accounting recordsthat comprise its assets, liabilities, fund equity, revenues and expenses. The fund type and fundcategory is as follows:

Proprietary Fund Types

Enterprise Funds - The Enterprise Fund is used to account for governmental operations which arefinanced and operated in a manner similar to private enterprises, where the intent of the governingbody is that the costs (expenses, including depreciation) of providing goods or services to its userson a continuing basis be financed or recovered primarily through user charges. The Authoritymaintains an enterprise fund for its Wastewater System Operations.

The Authority’s financial statements are reported using the economic resources measurementfocus and the accrual basis of accounting. All assets and all liabilities associated with theenterprise fund operations are included on the Statement of Net Position. Revenues are recordedwhen earned and expenses are recorded at the time liabilities are incurred, regardless of the timingof related cash flows.

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2. SIGNIFICANT ACCOUNTING POLICIES, (continued)

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

Proprietary Fund Types, (continued)

The Authority’s financial transactions are recorded in accounts that are created by variousresolutions adopted by the Authority to meet bond or note covenant requirements (more fullydefined in Note 5).

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing anddelivering goods in connection with a proprietary fund’s principal ongoing operations. Operatingexpenses for enterprise funds include the cost of operations and services, administrative expensesand depreciation on capital assets. All revenues and expenses not meeting this definition arereported as nonoperating revenues and expenses.

B. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position

Cash and Cash Equivalents

Cash and cash equivalents include money market funds and short-term investments includingcertificates of deposit, with a maturity of three months or less carried at cost, which approximatesmarket.

The Authority’s investment practices are governed by New Jersey State Statute 40A:5-15. Statutes authorize the Authority to invest in certificates of deposit, repurchase agreements,passbooks, and other available bank investments provided that approved securities are pledgedto secure those funds on deposit in an amount equal to the amount of those funds and a maturitydate not greater than 12 months from the date of purchase. In addition, the Authority can investin direct debt securities of the United States or obligations guaranteed by the United States, bondsand other obligations of the local municipality or bonds or obligations of school districts of whichthe Authority is a part or within which the Authority is located unless such investments areexpressly prohibited by law.

Investments

Investments consist of Certificates of Deposit and direct obligations of the U.S. Government, U.S.Government Agencies, repurchase agreements and investments in money market funds and arevalued at cost, which approximates market (see Note 4).

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B. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position, (continued)

Inventories

Inventories of materials and supplies are considered expenditures when purchased.

Accounts Receivable

All receivables are reported at their gross values.

Property, Plant and Equipment

Property, plant and equipment acquired by the Authority is classified as leasehold improvementsbased on provisions in a lease agreement dated December 21, 1972 with the Township of Warren. This lease agreement provides that all property, plant and equipment acquired by the Authoritybe in the name of the Township.

During fiscal year 2004, the Authority contracted to have a detailed inventory taken of itsproperty, plant and equipment.

Property, plant and equipment is stated at estimated cost as determined by the appraisal company.

System construction costs are charged to construction in progress until such time as givensegments of the system are completed and put into operation.

Depreciation is determined on a straight-line basis for all plant and equipment. Depreciation isprovided over the following estimated useful lives:

Pumping Stations 30 YearsWastewater Treatment Plans 35 YearsCollection System 75 YearsEquipment 5-20 Years

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Property, Plant and Equipment, (continued)

The Authority’s financial statements have been restated to reflect the valuation of property, plantand equipment, and the related depreciation.

In accordance with the Statement of the Financial Accounting Standard Board, No. 62, interestis capitalized on construction costs, net of interest earned on the investment of borrowed funds.

Deferred Outflows/Inflows of Resources

In addition to assets, the Statement of Net Position will sometimes report a separate section fordeferred outflows of resources. This separate financial statement element, deferred outflows ofresources, represents a consumption of net position that applies to a future period(s) and so willnot be recognized as an outflow of resources (expense/expenditure) until then.

In addition to liabilities, the Statement of Net Position will sometimes report a separate sectionfor deferred inflows of resources. This separate financial statement element, deferred outflowsof resources, represents an acquisition of net position that applies to a future period(s) and so willnot be recognized as an inflow of resources (revenue) until that time.

Compensated Absences

The Authority has adopted the Township of Warren's policy regarding compensated absences. The policy in effect does not permit vacation days to be carried from one year to another. TheAuthority does allow the accrual of sick time to be carried over to the next year. However, as ofDecember 31, 2016 no sick time had been accrued.

Allowance for Doubtful Accounts

The Authority does not provide a provision for doubtful accounts since it has the ability to put alien on any delinquent account over six months.

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Net Position

Net position represents the difference between assets and deferred outflows of resources andliabilities and deferred inflows of resources, and are displayed in the following three components:

Net Investment in Capital Assets

The net investment in capital assets component of net position consists of capital assets, net ofaccumulated depreciation, reduced by the outstanding balances of any bonds, mortgages, notes,or other borrowings that are attributable to the acquisition, construction, or improvement of thoseassets. Deferred outflows of resources and deferred inflows of resources that are attributable tothe acquisition, construction, or improvement of those assets or related debt also should beincluded in this component of net position. If there are significant unspent unrelated debtproceeds or deferred inflows of resources at the end of the reporting period, the portion of the debtor deferred inflows of resources attributable to the unspent amount should not be included in thecalculation of net investment in capital assets. Instead, that portion of the debt or deferred inflowsof resources should be included in the same net position component (restricted or unrestricted)as the unspent amount.

Restricted Component of Net Position

The restricted component of net position consists of restricted assets reduced by liabilities anddeferred inflows of resources related to those assets. Generally, a liability relates to restrictedassets if the asset results from a resource flow that also results in the recognition of a liability orif the liability will be liquidated with the restricted assets reported.

Unrestricted Component of Net Position

The unrestricted component of net position is the net amount of the assets, deferred outflows ofresources, liabilities, and deferred inflows of resources that are not included in the determinationof net investment in capital assets or the restricted component of net position.

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Net Position Flow Assumption

Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g.,restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amountsto report as restricted - net position and unrestricted - net position in the financial statements, a flow assumption must be made about the order in which the resources are considered to beapplied. It is the Authority's policy to consider restricted - net position to have been depletedbefore unrestricted - net position is applied.

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generallyaccepted in the United States of America requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during thereporting period. Estimates are used to determine depreciation expense, and certain claims andjudgment liabilities, among other accounts. Actual results could differ from those estimates.

C. Revenues and Expenses

Operating Fund Budget

The Authority follows these procedures in establishing the Operating Fund budget:

The annual budget for each fiscal year of the Authority is introduced by resolution passed by amajority of the full membership of the governing body. Two certified copies are submitted to thedirector of the Division of Local Government Services at least 60 days prior to the beginning ofthe Authority’s fiscal year for approval prior to its adoption.

The budget is to be in such form and detail as to items of revenue, expenses and other content asrequired by law or by rules and regulations of the Local Finance Board.

No Authority budget can be finally adopted until the Director has approved the budget.

A public hearing is conducted to obtain citizen comment on the proposed budget.

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C. Revenues and Expenses, (continued)

Appropriations lapse at the close of the fiscal year to the extent that they have not been expended.

The level at which expenditures cannot exceed the budget is at the total budget level.

The budget may be increased after adoption when an item of revenue has been made availableafter the adoption date (N.J.S.A. 5:31-2.8).

Proprietary Funds Operating and Nonoperating Revenues and Expenses

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing anddelivering goods in connection with a proprietary fund’s principal ongoing operations. Theprincipal operating revenues of the Authority are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrativeexpenses, and depreciation on capital assets. All revenues and expenses not meeting thisdefinition are reported as nonoperating revenues and expenses.

D. Recent Accounting Pronouncements Not Yet Effective

Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other ThanPensions. The primary objective of this Statement is to improve accounting and financialreporting by state and local governments for postemployment benefits other than pensions (otherpostemployment benefits or OPEB). It also improves information provided by state and localgovernmental employers about financial support for OPEB that is provided by other entities. TheStatement is effective for periods beginning after June 15, 2017. Management has not yetdetermined the impact of this Statement on the financial statements.

The Government Accounting Standards Board issued GASB Statement No. 76, The Hierarchyof Generally Accepted Accounting Principles for State and Local Governments, which reducesthe GAAP hierarchy to two categories of authoritative GAAP from the four categories underGASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for Stateand Local Governments. The first category of authoritative GAAP consists of GASB Statementsof Governmental Accounting Standards. The second category comprises GASB TechnicalBulletins and Implementation Guides, as well as guidance from the American Institute ofCertified Public Accountants that is cleared by the GASB. The Authority is currently reviewingwhat effect, if any, this Statement might have on future financial statements.

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D. Recent Accounting Pronouncements Not Yet Effective, (continued)

The Government Accounting Standards Board issued GASB Statement No. 77, Tax AbatementDisclosures, which improve financial reporting by giving users of financial statements essentialinformation that is not consistently or comprehensively reported to the public at present. Disclosure of information about the nature and magnitude of tax abatements will make thesetransactions more transparent to financial statement users. As a result, users will be betterequipped to understand (1) how tax abatements affect a government's future ability to raiseresources and meet its financial obligations and (2) the impact those abatements have on agovernment's financial position and economic condition. The Authority believes this Statementwill have no impact on future financial statements.

The Government Accounting Standards Board issued GASB Statement No. 78, PensionsProvided through Certain Multiple-Employer Defined Benefit Pension Plans, which establishesthe criteria for identifying the applicable pension plans and addresses measurement andrecognition for pension liabilities, expense and expenditures; note disclosures of descriptiveinformation about the plan, benefit terms, and contributions items; and required supplementaryinformation presenting required contribution amounts for the past 10 fiscal years. The Authorityis currently reviewing what effect this Statement might have on future financial statements.

The Government Accounting Standards Board issued GASB Statement No. 79, Certain ExternalInvestment Pools and Pool Participation, which permits qualifying external investment pools tomeasure pool investments at amortized cost for financial reporting purposes. The Authority iscurrently reviewing what effect this Statement might have on future financial statements.

The Government Accounting Standards Board issued GASB Statement No. 80, BlendingRequirements for Certain Component Units, which provides clarity about how certain componentunits incorporated as not-for-profit corporations should be presented in the financial statementsof the primary state or local government. The Authority does not believe this Statement will haveany effect on future financial statements.

In March 2016, the Government Accounting Standards Board issued GASB Statement No. 81,Irrevocable Split-Interest Agreements. The objective of this Statement is to improve accountingand financial reporting for irrevocable split-interest agreements by providing recognition andmeasurement guidance for situations in which a government is a beneficiary of the agreement. The Authority does not believe this Statement will have any effect on future financial statements.

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D. Recent Accounting Pronouncements Not Yet Effective, (continued)

In March 2016, the Government Accounting Standards Board issued GASB Statement No. 82,Pension Issues - an Amendment of GASB Statements No. 67, No. 68 and No. 73. The objectiveof this Statement is to address certain issues that have been raised with respect to Statement No.67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting forPensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets ThatAre Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASBStatements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentationof payroll-related measures in required supplementary information, (2) the selection ofassumptions and the treatment of deviations from the guidance in an Actuarial Standard ofPractice for financial reporting purposes, and (3) the classification of payments made byemployers to satisfy employee (plan member) contribution requirements. The Authority does notbelieve this Statement will have any effect on future financial statements.

In November 2016, the Government Accounting Standards Board issued GASB Statement No.83, Certain Asset Retirement Obligations. This Statement establishes criteria for determining thetiming and pattern of recognition of a liability and a corresponding deferred outflows of resourcesfor asset retirement obligations (AROs). The Authority does not believe this Statement will haveany effect on future financial statements.

In January 2017, the Government Accounting Standards Board issued GASB Statement No. 84,Fiduciary Activities. This Statement establishes criteria for identifying fiduciary activities of allstate and local governments. The focus on the criteria generally is on (1) whether a governmentis controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciaryrelationship exists. Separate criteria are included to identify component units andpostemployment benefit arrangements that are fiduciary activities. The Authority is currentlyevaluating the effects, if any, this Statement may have on future financial statements.

In March 2017, the Government Accounting Standards Board issued GASB Statement No. 85,Omnibus 2017, which addresses practice issues that have been identified during theimplementation and application of certain GASB statements. This Statement addresses a varietyof topics including issues relating to blending component units, goodwill, fair value measurementand application, and postemployment benefits. The Authority is currently reviewing what effect,if any, this Statement might have on future financial statements.

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3. CASH AND CASH EQUIVALENTS

General Authorization

The Warren Township Sewerage Authority’s deposit and investment practices are governed by NewJersey State Statute 40A:5-15.

Deposits - The Authority’s deposits are insured through either the Federal Deposit InsuranceCorporation (FDIC), Securities Investor Protection Corporation (SIPC) or New Jersey’s GovernmentalUnity Deposit Protection Act (GUDPA). The Authority is required to deposit their funds in adepository which is protecting such funds pursuant to GUDPA. The New Jersey Governmental UnityDeposit Protection Act requires all banks doing business in the State of New Jersey to pledge collateralequal to at least 5% of the average amount of its public deposits and 100% of the average amount ofits public funds in excess of the lessor of 75% of its capital funds or $200 million for all deposits notcovered by the FDIC.

Bank balances are insured up to $250,000 in the aggregate by the FDIC for each bank. SPIC replacescash claims up to a maximum of $250,000 for each failed brokerage firm. At December 31, 2016 and2015, the book value of the Authority’s deposits were $8,201,938.62 and $7,646,926.54, respectively,and bank balances of the Authority’s cash and deposits amounted to $8,222,104.72 and $7,649,176.54,respectively.

Custodial Credit Risk - Deposits. Custodial credit risk is the risk that in the event of a bank failure,the government’s deposits may not be returned to it. The Authority’s policy is based on New JerseyStatutes requiring cash be deposited only in New Jersey based on banking institutions that participatein New Jersey Governmental Depository Protection Act (GUDPA) or in qualified investmentsestablished in New Jersey Statutes 40A:5-15.1(a) that are treated as cash equivalents. As ofDecember 31, 2016, $-0- of the Authority’s bank balance of $8,222,104.72 was exposed to custodialcredit risk.

As of December 31, 2016, cash and cash equivalents of the Warren Township Sewerage Authorityconsisted of the following:

Cash and CashEquivalents Total

Cash on Hand $450.00 $450.00

Checking Accounts 1,379,658.64 1,379,658.64

Short Term Money Market Accounts 1,630,304.61 1,630,304.61

NJ Cash Management Fund 5,191,525.37 5,191,525.37

$8,201,938.62 $8,201,938.62

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3. CASH AND CASH EQUIVALENTS, (continued)

Analysis

Restricted Accounts $3,686,129.92

Unrestricted Accounts 4,515,808.70

$8,201,938.62

New Jersey Cash Management Fund - All investments in the Fund are governed by the regulationsof the Investment Council, which prescribe specific standards designed to insure the quality ofinvestments and to minimize the risks related to investments. In all the years of the Division ofInvestment’s existence, the Division has never suffered a default of principal or interest on any short-term security held by it due to the bankruptcy of a securities issuer; nevertheless, the possibility alwaysexists, and for this reason a reserve is being accumulated as additional protection for the “Other-than-State” participants. In addition to the Council regulations, the Division sets further standards forspecific investments and monitors the credit of all eligible securities issuers on a regular basis.

As of December 31, 2016, the Authority had $5,191,525.37 on deposit with the New Jersey CashManagement Fund.

4. INVESTMENTS

The Authority is permitted to invest public funds in accordance with the types of securities authorizedby N.J.S.A. 40A:5-15.1. Examples of the allowable investments are bonds or other obligations of theUnited States or obligations guaranteed by the United States of America, Government Money MarketMutual Funds, bonds or other obligations of the local unit or bonds or other obligations of schooldistricts of which the local unit is a part or within which the school district is located, LocalGovernment investment pools, and agreements or the repurchase of fully collateralized securities, iftransacted in accordance with the above statute.

At December 31, 2016, the Authority held no investments.

Custodial Credit Risk - Investments

For an investment, this is the risk, that in the event of the failure of the counterparty, the Authority willnot be able to recover the value of its investments or collateral securities that are held by an outsideparty. The Authority does not have a policy for custodial risk.

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4. INVESTMENTS, (continued)

Interest Rate Risk

The Authority does not have a formal investment policy that limits investment maturities as a meansof managing its exposure to fair value losses arising from increasing interest rates.

Credit Risk

State law limits investments as noted above (N.J.S.A. 40A:5-15.1). The Authority does not have aninvestment policy that would further limit its investment choices.

Concentration of Credit Risk. The Authority places no limit on the amount it may invest in any oneissuer.

5. ACCOUNTS ESTABLISHED BY BOND RESOLUTION

In accordance with the 2006 Bond Resolution, the Authority has established the following cash andinvestment accounts for deposit, in the priority of the order listed, of all revenues received by theAuthority.

Revenue All Revenue received by the Authority. Transfers to the various funds.

Operating Operating Account Requirement. Payment of Operating Expenses.

Bond Service Amount needed to pay maturity principal and

interest.

Principal and interest on Bonds.

Bond Reserve Amount needed to equal the greatest amount of

Debt Service due in any year not otherwise provided

by a Bond Reserve Credit Facility.

Transfers to meet minimum levels in

Bond Service Account.

General Any excess remaining after all other accounts have

been satisfied.

Amounts needed for payment of principal

and interest on Bonds. Amounts needed

to meet requirements of Bond Service

Account, Improvement to System.

Construction Proceeds from Debt Issues and Construction Grants. Cost of Construction.

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6. RESTRICTED ASSETS

Bond covenants of the Authority require portions of the debt proceeds as well as other resources to beset-aside for various purposes. These amounts are reported as restricted assets. The “Revenue Fund”account reserves all revenues received for future distribution to the various accounts of the Authorityin accordance with the Bond Resolution. The “Construction Fund” account segregates cash andinvestments that are restricted for use in construction. Cash and investments restricted for debt servicepayment on bonds are segregated in the “Bond Service Fund” account. Cash and investments reservedto meet future debt service contingencies are segregated in “Bond Reserve Fund” accounts. Cash andinvestments reserved for operations requirement are segregated in the “General Fund” account.

7. CAPITAL ASSETS

The following is a summary of changes in capital assets for the year ended December 31, 2016:

Balance

Dec.31,2015 Increases Decreases

Balance

Dec.31,2016

Capital Assets, Not being

Depreciated

Construction in Progress $1,971,058.81 $2,806,912.06 $(99,187.21) $4,678,783.66

Total Capital Assets, Not

Being Depreciated 1,971,058.81 2,806,912.06 (99,187.21) 4,678,783.66

Capital Assets, Being Depreciated:

Equipment and Leasehold

Improvements 53,343,625.72 99,187.21 53,442,812.93

Total Capital Assets, Being

Depreciated 53,343,625.72 99,187.21 53,442,812.93

Less: Accumulated Depreciation:

Equipment and Leasehold

Improvements (25,908,971.24) (1,551,651.34) (27,460,622.58)

Total Accumulated Depreciation (25,908,971.24) (1,551,651.34) (27,460,622.58)

Total Capital Assets, Being

Depreciated, Net 25,948,893.81 (1,452,464.13) 25,982,190.35

Capital Assets, Net $29,405,713.29 $1,354,447.93 ($99,187.21) $30,660,974.01

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8. LONG-TERM DEBT

A summary of the Authority’s long-term debt activity for the year ended December 31, 2016 is asfollows:

Balance

Dec.31, 2015 Increases Decreases

Balance

Dec. 31, 2016

Series 2006 Sewer System Revenue Bonds $5,442,000.00 $ $1,000,000.00 $4,442,000.00

New Jersey Environmental Infrastructure

Trust - Series 2016A-1 Trust Loan 875,000.00 875,000.00

New Jersey Environmental Infrastructure

Trust - Series 2016A-1 Fund Loan 2,734,379.00 92,690.81 2,641,688.19

$5,442,000.00 $3,609,379.00 $1,092,690.81 $7,958,688.19

Current Portion $1,000,000.00 $1,209,036.21

Long-Term Portion 4,442,000.00 6,749,651.98

$5,442,000.00 $7,958,688.19

Sewer System Revenue Bonds (Series 2006)

On December 28, 2006, the Warren Township Sewerage Authority issued $8,412,000 in Sewer SystemRevenue Bonds. The Series 2006 Bonds were issued to provide funds: (1) to pay the costs of variousprojects to improve the Authority’s system; (2) to fund the Bond Reserve Account to the Bond ReserveRequirement; and (3) to pay the costs and expenses incurred by the Authority in connection with theissuance and delivery of the Series 2006 Bonds.

General Terms

The Series 2006 Bonds are dated and bear interest from December 15, 2006 and mature, subject toprior redemption, on December 1, in the years and principal amounts set forth in the following table. Interest on the Series 2006 Bonds is payable on each June 1 and December 1, commencing June 1,2007 (each, an “Interest Payment Date”), at the respective interest rates set forth in the following table:

MATURITIES, AMOUNTS, INTEREST RATES AND YIELDS

Year

Principal

Amount

Interest

Rate

Yield or

Price Year

Principal

Amount

Interest

Rate

Yield or

Price

2017 $1,040,000 5.00% 3.80% 2019 $1,135,000 4.00% 3.99%

2018 1,090,000 4.00 3.95 2020 1,177,000 4.00 4.03

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8. LONG-TERM DEBT, (continued)

Redemption Provisions

Optional Redemption

The Series 2006 Bonds maturing on or before December 1, 2016 are not subject to optional redemptionprior to their stated maturities. The Series 2006 Bonds maturing on or after December 1, 2017 aresubject to redemption at the option of the Authority prior to maturity, upon notice as hereinafter setforth, as a whole at any time, or in part on any Interest Payment Date, in such maturities as determinedby the Authority and by lot within any maturity, on or after December 1, 2016, at the redemption priceof 100% of the principal amount being redeemed, plus accrued interest to the date fixed for redemption.

Notice of Redemption

Notice of redemption shall be given by first class mail not less than thirty (30) days nor more than sixty(60) days prior to the date fixed for redemption to the registered owner of any of the Series 2006 Bondsto be redeemed, at his last address appearing on the registry books of the Authority kept by theRegistrar. The failure of the Trustee to mail such notice to any such registered owner of any Series2006 Bond or any defect therein shall not affect the validity of any proceedings for the redemption ofany other Series 2006 Bonds.

SECURITY FOR THE SERIES 2006 BONDS

General

The Series 2006 Bonds are direct and general obligations of the Authority payable from and securedby the Revenues and certain funds and accounts held by the Trustee established by the General BondResolution and pledged thereunder to secure the payment of the principal of, redemption premium, ifany, and the interest on the Series 2006 Bonds. Such pledge is, however, in accordance with theprovisions of the General Bond Resolution, subject to the right of the Authority to withdraw amountsfrom the Revenue Account for the payment of Operating Expenses of the System prior to the paymentof debt service on the Series 2006 Bonds and from the General Account for other lawful purposes ofthe Authority and for the securing of Parity Debt.

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8. LONG-TERM DEBT, (continued)

SUBORDINATE BONDS - SERIES 2016

On May 24, 2016, the Authority issued $3,609,379 Subordinate Bonds - Series 2016A-1 to the Stateof New Jersey Environmental Infrastructure Trust. The Series 2016A-1 Bonds were issued to evidencea loan of $875,000.00 from the New Jersey Environmental Infrastructure Trust, and a $2,734,379.00,0% interest loan from the State of New Jersey. The bonds were issued in connection with theAuthority's capital improvement program to finance various improvements to its wastewater treatmentfacilities including upgrades to the Stage IV Wastewater Treatment Plan oxidation ditch/final clarifierand UV disinfection system; upgrades to the Fox Hill Drive West pump station; and upgrades to theHeather Lane pump station.

Interest Expense

Interest expense on bonds comprised of the following:

2016 2015

Series 2003 Revenue Bonds $ $21,734.86Series 2006 Revenue Bonds 224,746.66 263,280.00NJEIT Trust Loan - Series 2016A-1 21,144.01

$245,890.67 $285,014.86

Summary of Annual Debt Service

A summary of aggregate annual debt service for principal and interest for bonded debt issued andoutstanding at December 31, 2016 is provided below:

Year Principal Interest Total2017 $1,209,036.21 $219,148.76 $1,428,184.972018 1,264,036.21 165,648.76 1,429,684.972019 1,309,036.21 120,298.76 1,429,334.972020 1,351,036.21 73,148.76 1,424,184.972021 174,036.21 24,318.76 198,354.97

2022-2026 910,181.05 93,443.80 1,003,624.852027-2031 955,181.05 51,743.80 1,006,924.852032-2035 786,145.04 17,550.00 803,695.04

$7,958,688.19 $765,301.40 $8,723,989.59

-34-




9. AGREEMENT WITH TOWNSHIP OF BRIDGEWATER

The Township of Warren entered into an agreement with the Township of Bridgewater in 1971 toparticipate in the cost of construction and operating "Middlebrook Trunk Sewer". Upon the creationof the Warren Township Sewerage Authority, all obligations pertaining to the "Middlebrook TrunkSewer" were transferred from the Township of Warren to the Authority.

The agreement between the Township of Warren and the Township of Bridgewater provided for theTownship of Warren to pay to the Township of Bridgewater 32.1% of the cost of the construction ofthe project, cost of operating the project and the cost of any major repairs; also all of the treatment oruse charges to the Somerset Raritan Valley Sewerage Authority attributable to the Township of Warren.

10. EMPLOYEE RETIREMENT SYSTEMS

Description of Plans:

Authority employees participate in the contributory, defined benefit public employee retirement system:the State of New Jersey Public Employees' Retirement System (PERS) or the Defined ContributionRetirement Program (DCRP), a tax-qualified defined contribution money purchase pension plan underInternal Revenue Code (IRC) 401(a).

Public Employees’ Retirement System (PERS)

Plan Description

The State of New Jersey Public Employees' Retirement System (PERS) is a cost-sharing multiple-employer defined benefit pension plan administered by the State of New Jersey, Division of Pensionsand Benefits (the "Division"). For additional information about the PERS, please refer to the Division'sComprehensive Annual Financial Report (CAFR) which can be found at www.state.nj.us/treasury/pensions/annrpts.shtml.

Benefits Provided

The vesting and benefit provisions are set by N.J.S.A. 43:15A. PERS provides retirement, death anddisability benefits. All benefits vest after ten years of service, except for medical benefits, which vestafter 25 years of service or under the disability provisions of PERS. The following represents themembership tiers for PERS:

-35-

http://www.state.nj.us/treasury/pensions/annrpts.shtml.

http://www.state.nj.us/treasury/pensions/annrpts.shtml.




10. EMPLOYEE RETIREMENT SYSTEMS, (continued)

Benefits Provided, (continued)

Tier Definition

1 Members who were enrolled prior to July 1, 2007 2 Members who were eligible to enroll on or after July 1, 2007 and prior to November 2, 2008 3 Members who were eligible to enroll on or after November 2, 2008 and prior to May 22, 2010 4 Members who were eligible to enroll on or after May 22, 2010 and prior to June 28, 2011 5 Members who were eligible to enroll on or after June 28, 2011

Service retirement benefits of 1/55 of final average salary for each year of service credit is availableth

to Tiers 1 and 2 members upon reaching age 60 and to Tier 3 members upon reaching age 62. Serviceretirement benefits of 1/60 of final average salary for each year of service credit is available to Tier 4th

members upon reaching age 62 and to Tier 5 members upon reaching age 65. Early retirement benefitsare available to Tiers 1 and 2 members before reaching age 60, to Tiers 3 and 4 before age 62 with 25or more years of service credit and Tier 5 with 30 or more years of service credit before age 65. Benefitsare reduced by a fraction of a percent for each month that a member retires prior to the age at which amember can receive full early retirement benefits in accordance with their respective tier. Tier 1members can receive an unreduced benefit from age 50 to age 60 if they have at least 25 years of service. Deferred retirement is available to members who have at least 10 years of service credit and have notreached the service retirement age for the respective tier.

Defined Contribution Retirement Program

Prudential Financial jointly administers the DCRP investments with the NJ Division of Pensions andBenefits. If an employee is ineligible to enroll in the PERS or PFRS, the employee may be eligible toenroll in the DCRP. DCRP provides eligible members with a tax-sheltered, defined contributionretirement benefit, along with life insurance and disability coverage. Vesting is immediate uponenrollment for members of the DCRP.

The State of New Jersey, Department of the Treasury, Division of Pensions and Benefits, issuespublicly available financial reports that include the financial statements and required supplementaryinformation of the DCRP. The financial reports may be obtained by writing to the State of New Jersey,Department of the Treasury, Division of Pensions and Benefits, PO Box 295, Trenton, New Jersey,08625-0295.

-36-




10. EMPLOYEE RETIREMENT SYSTEMS, (continued)

Defined Contribution Retirement Program, (continued)

Employers are required to contribute at an actuarially determined rate. Employee contributions arebased on percentages of 5.50% for DCRP of employees' annual compensation, as defined. The DCRPwas established July 1, 2007, under the provisions of Chapter 92, P.L. 2007 and expanded under theprovisions of Chapter 89, P.L. 2008. Employee contributions for DCRP are matched by a 3% employercontribution.

Contribution Requirements

The contribution policy is set by laws of the State of New Jersey and, in most retirement systems,contributions are required by active members and contributing employers. Plan member and employercontributions may be amended by State of New Jersey legislation. The pension funds provide foremployee contributions based on 5.5% for PERS. This amount will increase to 6.5% plus an additional1% phased in over 7 years beginning 2012. Employers are required to contribute at an actuariallydetermined rate in all Funds. The actuarially determined employer contribution includes funding forcost-of-living adjustments and noncontributory death benefits in the PERS. In the PERS, the employercontribution includes funding for post-retirement medical premiums.

The Authority’s reimbursement to the Township of Warren for its contribution to the various plans,equal to the required contributions for each year, were as follows:

Year PERS DCRP 2016 $15,644.57 100% 2015 16,529.85 100% 2014 18,552.00 100%

11. POST-RETIREMENT BENEFITS

Plan Description

The Authority reimburses the Township for its share of contributions to the State Health BenefitsProgram (SHBP) a cost-sharing, multi-employer defined benefit post-employment healthcare planadministered by the State of New Jersey Division of Pensions and Benefits. The SHBP was establishedin 1961 under N.J.S.A. 52:14-17.25 et seq. to provide health benefits to State employees, retirees, andtheir dependents.

-37-




11. POST-RETIREMENT BENEFITS

The SHBP was extended to employees, retirees, and dependents of participating local public employersin 1964. Local employers must adopt a resolution to participate in the SHBP. Rules governing theoperation and administration of the program are found in Title 17, Chapter 9 of the New JerseyAdministrative Code. SHBP provides medical, prescription drugs, mental health/substance abuse, andMedicare Part B reimbursement to retirees and their covered dependents.

The State Health Benefits Commission is the executive body established by statute to be responsiblefor the operation of the SHBP. The State of New Jersey Division of Pensions and Benefits issues apublicly available financial report that includes financial statements and required supplementaryinformation for the SHBP. That report may be obtained by writing to: State of New Jersey Divisionof Pensions and Benefits, P.O. Box 295, Trenton, NJ 08625-0295 or by visiting their website athttp://www.state.nj.us/treasury/pensions.

Funding Policy

Contributions to pay for the health premiums of participating employees in the SHBP are billed to theTownship on a monthly basis. Participating employers are contractually required to contribute basedon the amount of premiums attributable to their retirees. In accordance with Chapter 62, P.L. 1994,post-retirement medical benefits have been funded on a pay-as-you-go basis since 1994. Prior to 1994,medical benefits were funded on an actuarial basis. The Authority has no covered retirees as ofDecember 31, 2016.

12. CONTRACT OF PLANT OPERATIONS TO OUTSIDE VENDOR

The Authority has contracted with Applied Wastewater Management, Inc. to provide full contractoperational and maintenance services for the Wastewater Treatment Facilities. The current contractspecifies that the Authority will compensate Applied Wastewater Management, Inc. in the amount of$69,527.76 per month beginning June 2015 and is subject to adjustment at the beginning of eachcontract year. For the year ended December 31, 2016, the amount charged to operations was$844,067.04.

-38-




13. AMOUNTS REQUIRED BY BOND RESOLUTIONS

The following cash and investment accounts are required by the Authority’s bond resolutions:

Bond Reserve Fund:Cash and Investments on Hand $1,228,080.00Bond Reserve Required 1,228,080.00Excess or (Deficit) $0.00

Bond Service Fund:Cash and Investments on Hand 115,285.31Bond Service Required 115,285.31Excess or (Deficit) $0.00

General Fund:Cash and Investments on Hand 712,460.00Bond Revenue Required 712,460.00Excess or (Deficit) $0.00

14. AGREEMENT WITH TOWNSHIP OF WARREN

On February 20, 1992, the Authority entered into an agreement with the Township of Warren regardingthe 1981 Service Contract which required the Authority to maintain a $1,000,000 surplus. OnFebruary 16, 2005, this agreement was amended to reduce the required surplus amount to $500,000provided that the Authority use the released $500,000 for capital improvements. The $500,000 surplusrequired by the agreement with the Township of Warren is presented in the financial statements as“Unrestricted Net Assets - Designated.”

15. DESIGNATION OF UNRESTRICTED NET ASSETS

The Authority’s Revenue Account maintains funds that, although may be spent for any lawful purposeby the Authority, have been designated by the Board as follows:

Designated for Subsequent Year Expenditures $618,250.00Capital Projects 31,198.00Designated by Agreement with Township of Warren 500,000.00

$1,149,448.00

-39-




16. CONTINGENT LIABILITIES

Authority counsel has reported that he is unaware of any pending or threatened litigation which couldbe material to the financial statements.

17. RISK MANAGEMENT

The Authority is exposed to various risks of loss related to general liability, damage and destructionof assets; errors and omissions; injuries to employees; termination of employees and natural disasters. The Authority has obtained insurance coverage to guard against these events which will provideminimum exposure to the Authority should they occur.

18. SUBSEQUENT EVENTS

The Authority has evaluated subsequent events through May 5, 2017, the date which the financialstatements were available to be issued and no other items were noted for disclosure or adjustment.

-40-

Supplemental Schedules

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-41-

Schedule 2

Page 1 of 2



Schedule of Cash Receipts, Cash Disbursements and Changes

In Cash and Cash Equivalents

Unrestricted and Restricted Accounts

For the Year Ended December 31, 2016

Review and

Operating Revenue General Inspection

Account Account Account Account

Cash, and Cash Equivalents -

January 1, 2016 1,061,876.35 - 2,161,485.76 62,072.42

Cash Receipts:

Sewer Charges and Penalties 4,326,275.54

Service Agreements 233,047.64

Connection Fees 395,817.00

Application Fees 4,200.00

Searches 271.00

Interest on Investments 3,442.69 0.30 13,497.42 32.07

Review and Inspection Deposits 186,651.36

NJEIT Reimbursements 2,600,959.00

Other 24,312.60

Transfers 2,771,371.05 4,550,000.55 1,597,440.66

Total Cash Receipts 10,359,696.52 4,550,000.85 1,610,938.08 186,683.43

Cash and Cash Equivalents Available 11,421,572.87 4,550,000.85 3,772,423.84 248,755.85

Cash Disbursements:

Operating Expenses 5,445,135.84

Bond Interest Payments 8,198.70

Bond Principal Payments 92,690.81

Engineering Review and Inspection 194,194.73

Construction Expenditures

Transfers 4,550,000.00 4,550,000.85 1,036,465.85

Total Cash Disbursements 10,096,025.35 4,550,000.85 1,036,465.85 194,194.73


December 31, 2016 1,325,547.52 - 2,735,957.99 54,561.12

Analysis of Balance:

Cash and Cash Equivalents 1,325,547.52 - 2,735,957.99 54,561.12

Investments - - - -

1,325,547.52 - 2,735,957.99 54,561.12

Unrestricted 1,325,547.52 - 2,023,497.99 54,561.12

Restricted - - 712,460.00 -

1,325,547.52 - 2,735,957.99 54,561.12

-42-

Schedule 2

Page 2 of 2



Schedule of Cash Receipts, Cash Disbursements and Changes

In Cash and Cash Equivalents

Unrestricted and Restricted Accounts


Bond Bond

Service Reserve Construction

Account Account Account Total


January 1, 2016 1,228,235.38 1,228,281.77 1,904,974.86 7,646,926.54

Cash Receipts:

Sewer Charges and Penalties 4,326,275.54

Service Agreements 233,047.64

Connection Fees 395,817.00

Application Fees 4,200.00

Searches 271.00

Interest on Investments 4,503.15 4,972.64 5,330.93 31,779.20

Review and Inspection Deposits 186,651.36

NJEIT Reimbursements 2,600,959.00

Other 24,312.60

Transfers 1,225,407.05 10,144,219.31

Total Cash Receipts 1,229,910.20 4,972.64 5,330.93 17,947,532.65

Cash and Investments Available 2,458,145.58 1,233,254.41 1,910,305.79 25,594,459.19

Cash Disbursements:

Operating Expenses 5,445,135.84

Bond Interest Payments 228,080.00 236,278.70

Bond Principal Payments 1,000,000.00 1,092,690.81

Engineering Review and Inspection 194,194.73

Construction Expenditures 280,001.18 280,001.18

Transfers 3,094.26 4,658.35 10,144,219.31

Total Cash Disbursements 1,231,174.26 4,658.35 280,001.18 17,392,520.57


December 31, 2016 1,226,971.32 1,228,596.06 1,630,304.61 8,201,938.62

Analysis of Balance:

Cash and Cash Equivalents 1,226,971.32 1,228,596.06 1,630,304.61 8,201,938.62

Investments - - - -

1,226,971.32 1,228,596.06 1,630,304.61 8,201,938.62

Unrestricted 1,111,686.01 516.06 - 4,515,808.70

Restricted 115,285.31 1,228,080.00 1,630,304.61 3,686,129.92

1,226,971.32 1,228,596.06 1,630,304.61 8,201,938.62

-43-

Schedule 3

Page 1 of 2WARREN TOWNSHIP SEWERAGE AUTHORITY


Schedule of Operating Revenues and Costs Funded By Operating Revenues

Compared to Budget


With Comparative Amounts for the Year Ended December 31, 2015

2016 2015

Budget

(As Amended) Actual Actual

Revenues:

Retained Earnings Appropriated 1,133,795.00 1,133,795.00 1,122,320.40

Future Debt Service Reserve 318,725.00

Service Agreements 240,000.00 233,047.64 233,080.68

User Charges and Delinquent Penalties 4,240,000.00 4,298,563.21 4,178,124.63

Connection Charges 200,000.00 249,659.00 371,815.70

Interest Income 14,000.00 31,773.67 15,431.07

Application Fees 3,000.00 4,200.00 2,350.00

Other 484.83 50,152.04

Total Operating Revenues 5,830,795.00 5,951,523.35 6,291,999.52

Expenditures:

Administrative and Executive:

Administrative -

Interlocal Agreement -

Township of Warren:

Salaries and Wages 161,000.00 165,398.25 146,470.91

Professional Services:

General Legal Services 90,175.00 194,453.89 74,756.65

Litigation 15,000.00 - 32.81

Audit 20,000.00 23,000.00 19,500.00

Trustee 5,000.00 4,950.00 7,837.50

General Financial Services 14,000.00 24,220.00 23,312.50

Engineering - General 155,000.00 115,802.31 123,776.20

Bookkeeping 10,000.00 17,918.48 7,708.57

Employee Benefits:

P.E.R.S. 20,000.00 15,644.57 16,529.85

FICA Social Security 10,040.00 10,040.36 10,608.51

Health Insurance 46,500.00 37,331.76 43,953.69

Administrative Expenses

Office Supplies 3,000.00 3,265.07 3,190.46

Advertising 2,000.00 1,959.32 1,672.26

Memberships 3,200.00 3,200.00 3,200.00

Education/Conference 1,000.00 - -

Office Equip. Maint. Agreement 15,000.00 14,345.76 7,261.69

Office Equipment 5,000.00 3,066.00 3,913.88

Computer Software/Website 2,000.00 2,156.25 8,330.01

Postage 5,000.00 2,000.00 3,000.00

Miscellaneous 1,000.00 2,690.32 230.59

Bank Charges 882.00 828.00

Telephone 6,000.00 6,107.20 4,272.20

Insurance 78,000.00 62,787.32 71,626.48

Subtotal 667,915.00 711,218.86 582,012.76

-44-

Schedule 3

Page 2 of 2



Schedule of Operating Revenues and Costs Funded By Operating Revenues

Compared to Budget



2016 2015

Budget

(As Amended) Actual Actual

Cost of Providing Services:

Permits and Fees 40,000.00 45,532.32 37,405.42

Electric and Gas 265,000.00 273,217.89 256,008.44

Operations Contract - Plant 843,000.00 844,067.04 830,749.83

Water Consumption 8,600.00 4,706.86 3,641.07

Service Contract -

Somerset Raritan Valley

Sewerage Authority 780,000.00 672,016.00 683,930.00

Service Fee -

Borough of Watchung 13,350.00 13,350.00 13,350.00

Berkeley Heights Agreement 54,000.00 52,142.00 50,600.57

Township of Bridgewater -

Middle Brook Debt Service 73,350.00 73,350.34 73,350.34

Subtotal 2,077,300.00 1,978,382.45 1,949,035.67

Other Costs Funded by

Operating Revenues:

Debt Service:

Bond Principal 1,123,000.00 1,123,000.00 2,600,000.00

Interest on Bonds 236,080.00 245,890.67 285,014.86

Reserves:

Operations and Maintenance 100,000.00 93,606.54 48,001.58

Capital Outlay 1,626,500.00 2,528,341.05 726,459.72

Subtotal 3,085,580.00 3,990,838.26 3,659,476.16

Total Expenses Funded by

Operating Revenues 5,830,795.00 6,680,439.57 6,190,524.59

Excess Total Revenues

Over Total Expenditures (728,916.22) 101,474.93

Reconciliation of Budgetary Basis

To Change in Net Position:

Depreciation Expense (1,551,651.34) (1,550,975.65)

Retained Earnings Appropriated (1,133,795.00) (1,122,320.40)

Future Debt Service Reserve - (318,725.00)

Bond Issuance Costs (85,037.65) -

Amortization of Debt Discount,

Premiums - Net 16,597.16 8.72

Capital Outlay Expenses 2,528,341.05 726,459.72

Cancellation of Prior Years Payables - 54,177.99

Bond Principal Payments 1,123,000.00 2,600,000.00

Total Adjustments 897,454.22 388,625.38

Change in Net Position 168,538.00 490,100.31

-45-

Schedule 4



Schedule of Capital Financing Sources and Costs

Funded by Capital Financing Sources Compared to Budget



2016 2015

Budget Actual Actual

Capital Financing Sources:

Bond Proceeds 280,001.18 433,067.75

Capital Outlay Appropriation 1,626,500.00 2,528,341.05 726,459.72

Total Capital Financing Sources 1,626,500.00 2,808,342.23 1,159,527.47

Capital Outlays:

Various Capital Improvements 1,626,500.00 87,166.01 76,615.92

Stage IV/V Filter Hydraulics 5,427.50

Middlebrook I&I Repair (23,600.00) 24,970.00

Stage I/II, IV, V Phosphorus Reduction 8,066.86

Screen Climbers #56 60,756.46

Fox Hill Pump Station #54 310,009.11 (2)

55,805.99

Heather Lane Pump Station #55 3,117.69 (2)

64,250.93

Stage V Building Recondition #57 8,995.00

Stage IV Oxidation Ditches #52 2,012,555.25 (2)

449,761.27

Stage IV Oxidation Ditches(1)

318,133.18

Phosphorous Reduction #53 280,001.18 (1)

114,934.57

Stage I/II I&I Repair 55,102.83 41,088.58

Summerhill Pump Station 8,811.20

Manor Drive Pump Replacement 5,900.17

Total Capital Outlays 1,626,500.00 2,808,342.23 1,159,527.47

Total Costs Funded by

Capital Financing Sources 1,626,500.00 2,808,342.23 1,159,527.47

Add: Excess - - -

1,626,500.00 2,808,342.23 1,159,527.47

(1)Bonded Project

(2)Funded by NJEIT

-46-

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-48-


ROSTER OF OFFICIALS

DECEMBER 31, 2016

Authority Member Position

Carl Checchio Chairman

Carlos Mosquera Vice-Chairman

John Truglio Member

Carolann Garafola Financial Officer

George Vetter Member

Joseph Valenti Alternate

Anthony Paolella Alternate

Other Officials

Paulus, Sokolowski and Sartor Engineer

Riker, Danzig, Scherer, Hyland & Perretti Attorney

Ferraioli, Wielkotz, Cerullo & Cuva, P.A. Auditor

Debbie Catapano Administrator/Secretary

Surety Coverage

All employees of the Warren Township Sewerage Authority are covered by a Public Employees' BlanketBond issued by Darwin National Assurance Company, which provides "Employee Dishonesty Coverage" inthe amount of $1,000,000.00 with a deductible of $7,500.00.

-49-

Single Audit Section

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVERFINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED INACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

The Honorable Chairman and Members of the Warren Township Sewerage Authority46 Mountain BoulevardWarren, New Jersey

We have audited, in accordance with auditing standards generally accepted in the United States of America;audit requirements as prescribed by the Division of Local Government Services, Department of CommunityAffairs, State of New Jersey; and the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States, the financial statements of theWarren Township Sewerage Authority, as of and for the year ended December 31, 2016, and the related notesto the financial statements, and have issued our report thereon dated May 5, 2017.

Internal Control Over Financial Reporting

In planning and performing our audit on the financial statements, we considered the Warren TownshipSewerage Authority’s internal control over financial reporting (internal control) to determine the auditprocedures that are appropriate in the circumstances for the purpose of expressing our opinions on thefinancial statements, but not for the purpose of expressing an opinion on the effectiveness of the WarrenTownship Sewerage Authority’s internal control. Accordingly, we do not express an opinion on theeffectiveness of the Warren Township Sewerage Authority’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow managementor 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, ininternal control, such that there is a reasonable possibility that a material misstatement of the entity’s financialstatements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is adeficiency, 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.

-50-

Honorable Chairman and Members of theWarren Township Sewerage AuthorityPage 2.

Our consideration of internal control was for the limited purpose described in the first paragraph of thissection and was not designed to identify all deficiencies in internal control that might be material weaknessesor significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies ininternal control that we consider to be material weaknesses. However, material weaknesses may exist thathave not been identified.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Warren Township Sewerage Authority’sfinancial statements are free of material misstatement, we performed tests of its compliance with certainprovisions of laws, regulations, contracts and grant agreements, noncompliance with which could have adirect and material effect on the determination of financial statement amounts. However, providing anopinion on compliance with those provisions was not an objective of our audit and, accordingly, we do notexpress such an opinion. The results of our tests disclosed no instances of noncompliance or other mattersthat are required to be reported under Government Auditing Standards.

Purpose of this Report

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


May 5, 2017

-51-


INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJORFEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER

COMPLIANCE AS REQUIRED BY THE UNIFORM GUIDANCE

The Honorable Chairman and Members of the Warren Township Sewerage Authority46 Mountain BoulevardWarren, New Jersey

Report on Compliance for Each Major Federal Program

We have audited the Warren Township Sewerage Authority’s compliance with the types of compliancerequirements described in the OMB Compliance Supplement that could have a direct and material effect oneach of its major federal programs for the year ended December 31, 2016. The Warren Township SewerageAuthority’s major federal programs are identified in the summary of auditor's results section of theaccompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with the requirements of laws, regulations, contracts and grantsapplicable to each of its major federal programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for each of the Warren Township SewerageAuthority’s major federal programs based on our audit of the types of compliance requirements referred toabove. We conducted our audit of compliance in accordance with auditing standards generally accepted inthe United States of America; the standards applicable to financial audits contained in Government AuditingStandards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S.Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and AuditRequirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance requirethat we plan and perform the audit to obtain reasonable assurance about whether noncompliance with thetypes of compliance requirements referred to above that could have a direct and material effect on a majorfederal program occurred. An audit includes examining, on a test basis, evidence about the Warren TownshipSewerage Authority’s compliance with those requirements and performing such other procedures as weconsidered necessary in the circumstances.

-52-


We believe that our audit provides a reasonable basis for our opinion on compliance for each major federalprogram. However, our audit does not provide a legal determination on the Warren Township SewerageAuthority’s compliance.

Opinion on Each Major Federal Program

In our opinion, the Warren Township Sewerage Authority complied, in all material respects, with the typesof compliance requirements referred to above that could have a direct and material effect on each of its majorfederal programs for the year ended December 31, 2016.

Report on Internal Control Over Compliance

Management of the Warren Township Sewerage Authority is responsible for establishing and maintainingeffective internal control over compliance with the types of compliance requirements referred to above. Inplanning and performing our audit of compliance, we considered the Warren Township Sewerage Authority’sinternal control over compliance with the types of requirements that could have a direct and material effecton a major federal program to determine our auditing procedures that are appropriate in the circumstancesfor the purpose of expressing an opinion on compliance for each major federal program and to test and reporton internal control over compliance with the Uniform Guidance, but not for the purpose of expressing anopinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinionon the effectiveness of the Warren Township Sewerage Authority’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control overcompliance does not allow management or employees, in the normal course of performing their assignedfunctions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federalprogram on a timely basis. A material weakness in internal control over compliance is a deficiency, orcombination of deficiencies, in internal control over compliance, such that there is a reasonable possibilitythat material noncompliance with a type of compliance requirement of a federal program will not beprevented, or detected and corrected, on a timely basis. A significant deficiency in internal control overcompliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a typeof compliance requirement of a federal program that is less severe than a material weakness in internal controlover compliance, yet important enough to merit attention by those charged with governance.

Our consideration of the internal control over compliance was for the limited purpose described in the firstparagraph of this section and was not designed to identify all deficiencies in internal control over compliancethat might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internalcontrol over compliance that we consider to be material weaknesses. However, material weaknesses mayexist that have not been identified.

-53-


The purpose of this report on internal control over compliance is solely to describe the scope of our testingof internal control over compliance and the results of that testing based on the requirements of the UniformGuidance. Accordingly, this report is not suitable for any other purpose.

Charles J. Ferraioli, Jr., C.P.A.Registered Municipal AccountantNo. 388


May 5, 2017

-54-


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-56-


NOTES TO THE SCHEDULES OF EXPENDITURESOF FEDERAL AND STATE AWARDS

DECEMBER 31, 2016

NOTE 1. GENERAL

The accompanying Schedules of Expenditures of Federal Awards and State Financial Assistancepresent the activity of all federal and state award programs of the Warren Township SewerageAuthority. The Authority is defined in Note 1 to the Authority's basic financial statements. Allfederal and state awards received directly from federal and state agencies, as well as federal and statefinancial assistance passed through other government agencies is included on the Schedule ofExpenditures of Federal Awards and State Financial Assistance.

NOTE 2. BASIS OF ACCOUNTING

The accompanying Schedules of Expenditures of Federal Awards and State Financial Assistance arepresented on the accrual basis of accounting. This basis of accounting is described in Note 2(A) tothe Authority’s basic financial statements. The information in this schedule is presented inaccordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, UniformAdministrative Requirements, Cost Principles, and Audit Requirements for Federal Awards(Uniform Guidance) and the N.J. OMB Circular 15-08.

NOTE 3. RELATIONSHIP TO BASIC FINANCIAL STATEMENTS

Awards and financial assistance revenues are reported in the Authority’s basic financial statementson a GAAP basis as follows:

Federal State Total

Enterprise Fund $1,740,223 $580,075 $2,320,298

NOTE 4. RELATIONSHIP TO FEDERAL AND STATE FINANCIAL REPORTS

Amounts reported in the accompanying schedules agree with the amounts reported in the relatedfederal and state financial reports.

NOTE 5. INDIRECT COST RATE

The Warren Township Sewerage Authority has not elected to use the 10-percent de minimis indirectcost rate allowed under the Uniform Guidance.

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SCHEDULE OF FINDINGS AND QUESTIONED COSTS

YEAR ENDED DECEMBER 31, 2016

Section I--Summary of Auditor's Results

Financial Statements

Type of auditor's report issued: Unmodified

Internal control over financial reporting:

1) Material weakness(es) identified? yes X no

2) Significant deficiency(ies) identified that are

not considered to be material weaknesses

reported? yes X none

Noncompliance material to general-purpose financial

statements noted? yes X no

Federal Awards

Intenal control over major programs:

1) Material weakness(es) identified? yes X no

2) Significant deficiency(ies) identified that are

not considered to be material weaknesses

reported? yes X none

Type of auditor's report issued on compliance for major programs: Unmodified

Any audit findings disclosed that are required to be reported

in accordance with 2 CFR 200.516(a)? yes X no

Identification of major programs:

CFDA Number(s) Name of Federal Program or Cluster

Capitalizaton Grants for Clean Water

66.458 State Revolving Funds

Dollar threshold used to distinguish between type A and type B programs: $ 750,000

Auditee qualified as low-risk auditee? yes X no

State Awards

Not Applicable

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SCHEDULE OF FINDINGS AND QUESTIONED COSTS


Section II--Financial Statement Findings

No matters were reported.

Section III--Federal Award Findings and Questioned Costs

No matters were reported.

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SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


Status of Prior Year Findings

No prior year audit findings were reported.

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GENERAL COMMENTS

N.J.S.A. 40A:11-2 contains definitions for terms used throughout N.J.S.A. 40A:11-1 et seq. and wasamended under P.L. 1999, c.440. It includes as subsection (23) the term ‘competitive contracting’, whichis defined as “the method described in sections 1 through 5 of P.L. 1999, c.440 (C.40:11-4.1 throughC.40A:11-4.5) of contracting for specialized goods and services in which formal proposals are solicited fromvendors’ formal proposals are evaluated by the purchasing agent or counsel; and the governing body awardsa contract to a vendor or vendors from among the formal proposals received.”

N.J.S.A. 40A:11-3 was amended with P.L. 1999, c.440 to raise the bid threshold and require award bygoverning body resolution. “When the cost or price of any contract awarded by the purchasing agent in theaggregate does not exceed in a contract year the total sum of $17,500, the contract may be awarded by apurchasing agent when so authorized by ordinance or resolution as appropriate to the contracting unit, of thegoverning body of the contracting unit without public advertising for bids and bidding therefore, except thatthe governing body may adopt an ordinance or resolution to set a lower threshold for the receipt of public bidsor the solicitation of competitive quotations.” If the purchasing agent is qualified pursuant to subsection b.of section 9 of P.L. 1971, c.198 (C.40A:11-9), the governing body of the contracting unit may establish thatthe bid threshold may be up to $40,000. Such authorization may be granted for each contract or by a generaldelegation of the power to negotiate and award such contracts pursuant to this section.

N.J.S.A. 40A:11-4 states that every contract awarded by the contracting agent for the provision orperformance of any goods or services, the cost of which in the aggregate exceeds the bid threshold, shall beawarded only by resolution of the governing body of the contracting unit to the lowest responsible bidder afterpublic advertising for bids and bidding therefor, except as is provided otherwise in this act of specifically byany other law. The governing body of a contracting unit may, be resolution approved by a majority of thegoverning body and subject to subsections b. and c. of this section, disqualify a bidder who would otherwisebe determined to be the lowest responsible bidder, if the governing body finds that it has had prior negativeexperience with the bidder.

The bid thresholds in accordance with N.J.S.A. 40A:11-3 (as amended) is $40,000.00.

N.J.S.A. 40A:11-15 was amended with P.L. 1999, c.440 to extend the base contract period. “Any contractmade pursuant to this section may be awarded for a period of 24 consecutive months, except that contractsfor professional services pursuant to paragraph (1) of subsection (a) of N.J.S.A. 40A:11-5 may be awardedfor a period not exceeding 12 consecutive months.”

The governing body of the Authority has the responsibility of determining whether the expenditures in anycategory will exceed the statutory threshold within the contract year. Where question arises as to whetherany contract or agreement might result in violation of the statute, the Authority Counsel's opinion should besought before a commitment is made.

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GENERAL COMMENTS, (CONTINUED)

Resolutions were adopted authorizing the awarding of contracts and agreements for "Professional Services"N.J.S. 40A:11-5.

Inasmuch as the system of records did not provide for an accumulation of payments for categories for theperformance of any work or the furnishing or hiring of any material or supplies, the results of such anaccumulation could not reasonably be ascertained. Disbursements were reviewed, however, to determinewhether any clear cut violation existed. No violations were disclosed.

The results of our examination indicated that no individual payments, contracts, or agreements were made"for the performance of any work or the furnishing or hiring of any materials or supplies," in excess of thestatutory thresholds where there had been no advertising for bids in accordance with the provision of N.J.S.A.40A:11-4.

Our review of the Authority’s minutes indicated that resolutions were adopted authorizing the awarding ofcontracts or agreements for “Professional Services” per N.J.S.A. 40A:11-5.

Examination of Claims

An examination of claims paid during the period under review did not indicate any discrepancies with respectto signatures, certification or supporting documentation.

Classification of Expenditures

The coding of expenditures was tested for proper budgetary classification as part of our test of transactionsof randomly selected expenditure items. Our audit procedures covered 72.40% of total expenditures and atransaction error rate of 0.00% overall was noted and no additional procedures were deemed necessary to testthe propriety of expenditure classification.

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COMMENTS AND RECOMMENDATIONS

COMMENTS

None

RECOMMENDATIONS

None

STATUS OF PRIOR YEAR AUDIT FINDINGS/RECOMMENDATIONS

There were no prior year audit findings/recommendations.

APPRECIATION

We want to express our appreciation of the assistance and courtesies rendered by the Authority Officialsduring the course of the audit.

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Documents

WARREN TOWNSHIP SEWERAGE AUTHORITY (A Component Unit …wtsauth.org/wp-content/uploads/2018/03/WTSA-2016-AUDIT.pdf · WARREN TOWNSHIP SEWERAGE AUTHORITY MANAGEMENT=S DISCUSSION AND