SOMERSET

COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED

SEPTEMBER 30, 2017

SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA			
TABLE OF CONTENTS			
	Page		
INDEPENDENT AUDITOR’S REPORT	1- 2		
MANAGEMENT’S DISCUSSION AND ANALYSIS	3- 6		
BASIC FINANCIAL STATEMENTS			
Government-Wide Financial Statements:			
Statement of Net Position	7		
Statement of Activities	8		
Fund Financial Statements:			
Balance Sheet – Governmental Funds	9		
Reconciliation of the Balance Sheet – Governmental Funds			
to the Statement of Net Position	10		
Statement of Revenues, Expenditures and Changes in Fund Balances –			
Governmental Funds	11		
Reconciliation of the Statement of Revenues, Expenditures and Changes in			
Fund Balances of Governmental Funds to the Statement of Activities	12		
Notes to the Financial Statements	13- 20		
REQUIRED SUPPLEMENTARY INFORMATION			
Schedule of Revenues, Expenditures and Changes in Fund Balance –			
Budget and Actual – General Fund	21		
Notes to Required Supplementary Information	22		
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL			
REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN			
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH	23-24		
GOVERNMENT AUDITING STANDARDS			
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH THE REQUIREMENTS			
OF SECTION 218.415, FLORIDA STATUTES, REQUIRED BY RULE 10.556(10)			
OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA	25		
MANAGEMENT LETTER PURSUANT TO THE RULES OF THE AUDITOR GENERAL			
OF THE STATE OF FLORIDA	26- 27		

951 Yamato Road ▪ Suite 280

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

INDEPENDENT AUDITOR’S REPORT

To the Board of Supervisors
Somerset Community Development District
Walton County, Florida

Report on the Financial Statements

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

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

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

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

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

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of September 30, 2017, and the respective changes in financial position thereof for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

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

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated June 28, 2018, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.

Report on Other Legal and Regulatory Requirements

We have also issued our report dated June 28, 2018, on our consideration of the District’s compliance with the requirements of Section 218.415, Florida Statutes, as required by Rule 10.556(10) of the Auditor General of the State of Florida. The purpose of that report is to provide an opinion based on our examination conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.

June 28, 2018

2

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

FINANCIAL HIGHLIGHTS

•	The liabilities of the District exceeded its assets at the close of the most recent fiscal year resulting in a net position deficit balance of ($5,156,230).

•	The change in the District’s total net position in comparison with the prior fiscal year was $214,003, an increase. The key components of the District’s net position and change in net position are reflected in the table in the government-wide financial analysis section.

•	At September 30, 2017, the District’s governmental funds reported combined ending fund balances of $1,841,846, an increase of $236,661 in comparison with the prior fiscal year. The total fund balance is non-spendable for prepaid items, restricted for debt service, assigned to capital reserves, and the remainder is unassigned fund balance which is available for spending at the District’s discretion.

OVERVIEW OF FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as the introduction to the District’s basic financial statements. The District’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-Wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the District’s finances, in a manner similar to a private-sector business.

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

The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods.

The government-wide financial statements include all governmental activities that are principally supported by special assessment revenues. The District does not have any business-type activities. The governmental activities of the District include the general government (management) and maintenance and operations.

Fund Financial Statements

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

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OVERVIEW OF FINANCIAL STATEMENTS (Continued)

Governmental Funds

Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a District’s near-term financing requirements.

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

The District maintains two governmental funds for external reporting. Information is presented separately in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund and debt service fund, both of which are considered major funds.

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

Notes to the Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

GOVERNMENT-WIDE FINANCIAL ANALYSIS

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

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

	NET POSITION				
	SEPTEMBER 30,				
				2017		2016	
Current and other assets	$	1,863,622	$	1,647,248	
Capital assets, net of depreciation	7,132,227		7,568,828	
Total assets				8,995,849		9,216,076	
Current liabilities				327,079		356,309	
Long-term liabilities				13,825,000		14,230,000	
Total liabilities				14,152,079		14,586,309	
Net position							
Net investment in capital assets	(1,165,059)		(2,210,483)	
Restricted				194,354		151,686	
Unrestricted				(4,185,525)		(3,311,436)	
Total net position		$	(5,156,230)	$	(5,370,233)	

4

GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued)

The District’s net position reflects its investment in capital assets (e.g. land, land improvements, and infrastructure) less any related debt used to acquire those assets that is still outstanding. These assets are used to provide services to residents; consequently, these assets are not available for future spending. Although the District’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

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

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

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

CHANGES IN NET POSITION					
FOR THE FISCAL YEAR ENDED SEPTEMBER 30,				
Revenues:			2017		2016			
								
Program revenues								
Charges for services	$	1,681,857	$	1,603,970			
Operating grants and contributions			7,431		2,023			
General revenues					251			
Unrestricted investment earnings			1,006					
Total revenues			1,690,294		1,606,244			
Expenses:			107,144		79,177			
General government								
Maintenance and operations			624,562		683,472			
Interest on long-term debt			744,585		765,430			
Total expenses			1,476,291		1,528,079			
Change in net position			214,003		78,165			
Net position - beginning			(5,370,233)		(5,448,398)			
Net position - ending		$	(5,156,230)	$	(5,370,233)			

As noted above and in the statement of activities, the cost of all governmental activities during the fiscal year ended September 30, 2017 was $1,476,291. The costs of the District’s activities were primarily funded by program revenues. Program revenues were comprised primarily of assessments during the current and prior fiscal years.

GENERAL BUDGETING HIGHLIGHTS

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

5

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

At September 30, 2017, the District had $10,915,038 invested in capital assets for its governmental activities. In the government-wide financial statements depreciation of $3,782,811 has been taken, which resulted in a net book value of $7,132,227. More detailed information about the District’s capital assets is presented in the notes to the financial statements.

Capital Debt

At September 30, 2017, the District had $13,825,000 Bonds outstanding for its governmental activities. More detailed information about the District’s capital debt is presented in the notes to the financial statements.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND OTHER EVENTS

The District does not anticipate any major projects or significant changes to its infrastructure maintenance program for the subsequent fiscal year. In addition, it is anticipated that the general operations of the District will remain fairly constant.

CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, land owners, customers, investors and creditors with a general overview of the District’s finances and to demonstrate the District’s accountability for the financial resources it manages and the stewardship of the facilities it maintains. If you have questions about this report or need additional financial information, contact the Somerset Community Development District’s Finance Department at 12750 Citrus Park Lane, Suite 115, Tampa, Florida 33625.

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FINANCIAL STATEMENTS

SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

STATEMENT OF NET POSITION

SEPTEMBER 30, 2017

		Governmental		
ASSETS			Activities		
						
Cash	$	410,159			
Prepaid items			7,800			
Restricted assets:						
Investments			1,445,663			
Capital assets:						
Depreciable, net			7,132,227			
Total assets			8,995,849			
LIABILITIES						
Accounts payable and accrued expenses			21,776			
Accrued interest payable			305,303			
Non-current liabilities:						
Due within one year			400,000			
Due in more than one year			13,425,000			
Total liabilities			14,152,079			
NET POSITION						
Net investment in capital assets			(1,165,059)			
Restricted for debt service			194,354			
Unrestricted			(4,185,525)			
Total net position		$	(5,156,230)			

See notes to the financial statements

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SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

STATEMENT OF ACTIVITIES

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

							Net (Expense)		
							Revenue and		
							Changes in Net		
				Program Revenues		Position		
				Charges		Operating				
Functions/Programs				for	Grants and	Governmental		
		Expenses		Services	Contributions		Activities		
Primary government:										
Governmental activities:										
General government	$	107,144	$	107,144	$	-	$	-		
Maintenance and operations		624,562		415,579		-		(208,983)		
Interest on long-term debt		744,585		1,159,134		7,431		421,980		
Total governmental activities		1,476,291		1,681,857		7,431		212,997		

General revenues:			1,006			
Unrestricted investment earnings						
Total general revenues			1,006			
Change in net position			214,003			
Net position - beginning			(5,370,233)			
Net position - ending	$	(5,156,230)			

See notes to the financial statements

8

SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

BALANCE SHEET –

GOVERNMENTAL FUNDS

SEPTEMBER 30, 2017

		Major Funds		Total		
				Debt	Governmental		
ASSETS		General		Service		Funds		
					$			
Cash	$	410,159	$	-		410,159		
Investments		-		1,445,663		1,445,663		
Prepaid items		7,800		-		7,800		
Total assets	$	417,959	$	1,445,663	$	1,863,622		
LIABILITIES AND FUND BALANCES								
Liabilities:								
Accounts payable and accrued expenses	$	21,776	$	-	$	21,776		
Total liabilities		21,776		-		21,776		
Fund balances:								
Nonspendable:						7,800		
Prepaid items		7,800		-				
Restricted for:						1,445,663		
Debt service		-		1,445,663				
Assigned to:						311,275		
Capital reserves		311,275		-				
Unassigned		77,108		-		77,108		
Total fund balances		396,183		1,445,663		1,841,846		
Total liabilities and fund balances	$	417,959	$	1,445,663	$	1,863,622		

See notes to the financial statements

9

SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

RECONCILIATION OF THE BALANCE SHEET – GOVERNMENTAL FUNDS

TO THE STATEMENT OF NET POSITION

SEPTEMBER 30, 2017

Fund balance - governmental funds	$	1,841,846		
Amounts reported for governmental activities in the statement of net						
position are different because:						
Capital assets used in governmental activities are not financial						
resources  and,  therefore,  are  not reported  as assets  in the						
governmental funds.  The statement of net position includes those						
capital assets, net of any accumulated depreciation, in the net						
position of the government as a whole.						
Cost of capital assets	10,915,038					
Accumulated depreciation	(3,782,811)			7,132,227		
Liabilities not due and payable from current available resources are						
not reported as liabilities in the governmental fund statements.  All						
liabilities,  both  current  and  long-term,  are  reported  in  the						
government-wide financial statements.						
Accrued interest payable	(305,303)					
Bonds payable	(13,825,000)			(14,130,303)		
Net position of governmental activities	$	(5,156,230)		

See notes to the financial statements

10

SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES –

GOVERNMENTAL FUNDS

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

			Major Funds		Total		
					Debt	Governmental		
REVENUES			General		Service		Funds		
									
Assessments	$	522,723	$	1,159,134	$	1,681,857		
Interest income			1,006		7,431		8,437		
Total revenues			523,729		1,166,565		1,690,294		
EXPENDITURES									
Current:									
General government			107,144		-		107,144		
Maintenance and operations			187,961		-		187,961		
Debt service:									
Principal			-		405,000		405,000		
Interest			-		753,528		753,528		
Total expenditures			295,105		1,158,528		1,453,633		
Excess (deficiency) of revenues									
over (under) expenditures			228,624		8,037		236,661		
Fund balances - beginning			167,559		1,437,626		1,605,185		
Fund balances - ending	$	396,183	$	1,445,663	$	1,841,846		

See notes to the financial statements

11

SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

Net change in fund balances - total governmental funds

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

Repayment of long-term liabilities are reported as expenditures in the governmental fund financial statements, but such repayments reduce liabilities in the statement of net position and are eliminated in the statement of activities.

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

The change in accrued interest on long-term liabilities between the current and prior fiscal year is recorded in the statement of activities but not in the fund financial statements.

Change in net position of governmental activities

$	236,661

405,000

(436,601)

8,943

$	214,003

See notes to the financial statements

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SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 – NATURE OF ORGANIZATION AND REPORTING ENTITY

Somerset Community Development District (the "District") was established by Walton County Ordinance No. 05-04 enacted on April 1, 2005 pursuant to the Uniform Community Development District Act of 1980, otherwise known as Chapter 190, Florida Statutes. The Act provides among other things, the power to manage basic services for community development, power to borrow money and issue bonds, and to levy and assess non-ad valorem assessments for the financing and delivery of capital infrastructure.

The District was established for the purposes of financing and managing the acquisition, construction, maintenance and operation of a portion of the infrastructure necessary for community development within the District.

The District is governed by the Board of Supervisors ("Board"), which is composed of five members. The Supervisors are elected on an at large basis by landowners of the District. The Board of Supervisors of the District exercise all powers granted to the District pursuant to Chapter 190, Florida Statutes. At September 30, 2017, certain Board members are affiliated with EBSCO Gulf Coast Development, Inc. (“Developer”).

The Board has the responsibility for:
1.	Allocating and levying assessments.
2.	Approving budgets.
3.	Exercising control over facilities and properties.
4.	Controlling the use of funds generated by the District.
5.	Approving the hiring and firing of key personnel.
6.	Financing improvements.

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Government-Wide and Fund Financial Statements

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

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

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

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Measurement Focus, Basis of Accounting and Financial Statement Presentation

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

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

Assessments

Assessments are non-ad valorem assessments imposed on assessable lands located within the District. Assessments may be levied on property to pay for the operations and maintenance of the District. The fiscal year for which annual assessments may be levied begins on October 1 with discounts available for payments through February 28 and become delinquent on April 1. For debt service assessments, amounts collected as advance payments are used to prepay a portion of the Bonds outstanding. Otherwise, assessments are collected annually to provide funds for the debt service on the portion of the Bonds which are not paid with prepaid assessments.

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

The District reports the following major governmental funds:

General Fund

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

Debt Service Fund

The debt service fund is used to account for the accumulation of resources for the annual payment of principal and interest on long-term debt.

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

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

Assets, Liabilities and Net Position or Equity

Restricted Assets

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

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Assets, Liabilities and Net Position or Equity (Continued)

Deposits and Investments

The District’s cash on hand and demand deposits are considered to be cash and cash equivalents.

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

a)	The Local Government Surplus Trust Funds, or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act;
b)	Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency;
c)	Interest bearing time deposits or savings accounts in qualified public depositories;
d)	Direct obligations of the U.S. Treasury.

In addition, surplus funds may be deposited into certificates of deposit which are insured and any unspent Bond proceeds are required to be held in investments as specified in the Bond Indenture.

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

Prepaid Items

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

Capital Assets

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

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed.

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

Assets	Years	
Erosion control structures	25	
Surface water treatment	25	

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

Unearned Revenue

Governmental funds report unearned revenue in connection with resources that have been received, but not yet earned.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Assets, Liabilities and Net Position or Equity (Continued)

Long-Term Obligations

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

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

Deferred Outflows/Inflows of Resources

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

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

Fund Equity/Net Position

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

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

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

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

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

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

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Disclosures

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

NOTE 3 – BUDGETARY INFORMATION

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

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

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

NOTE 4 – DEPOSITS AND INVESTMENTS

Deposits

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

Investments

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

	Amortized Cost	Credit Risk	Maturities		
First American Treasury Obligations Fund Class Z	$	1,445,663		S&P AAAm	Weighted average of the fund		
					portfolio: 32 days		
Total Investments	$	1,445,663					

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

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

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

However, the Bond Indenture limits the type of investments held using unspent proceeds.

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NOTE 4 – DEPOSITS AND INVESTMENTS (Continued)

Investments (Continued)

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

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

•	Level 1: Investments whose values are based on unadjusted quoted prices for identical investments in active markets that the District has the ability to access;

•	Level 2: Investments whose inputs - other than quoted market prices - are observable either directly or indirectly; and,

•	Level 3: Investments whose inputs are unobservable.

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

Money market investments that have a maturity at the time of purchase of one year or less and are held by governments other than external investment pools should be measured at amortized cost. Accordingly, the District’s investments have been reported at amortized cost above.

NOTE 5 – CAPITAL ASSETS

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

			Beginning						Ending	
			Balance		Additions		Disposals		Balance	
Governmental activities											
Capital assets, being depreciated											
Erosion control structures	$	933,321	$	-	$	-	$	933,321		
Surface water treatment			9,981,717		-		-		9,981,717		
Total capital assets, being depreciated			10,915,038		-		-		10,915,038		
Less accumulated depreciation for:											
Erosion control structures			(335,997)		(37,333)		-		(373,330)		
Surface water treatment			(3,010,213)		(399,268)		-		(3,409,481)		
Total accumulated depreciation			(3,346,210)		(436,601)		-		(3,782,811)		
Total capital assets, being depreciated, net			7,568,828		(436,601)		-		7,132,227		
Governmental activities capital assets, net		$	7,568,828	$	(436,601)	$	-	$	7,132,227		

Depreciation expense was charged to the maintenance and operations function.

NOTE 6 – LONG-TERM LIABILITIES

On July 12, 2005, the District issued $21,045,000 of Capital Improvement Revenue Bonds, Series 2005 consisting of $2,875,000 Term Bonds due on May 1, 2015 with a fixed interest rate of 5% and $18,170,000 Term Bonds due on May 1, 2037 with a fixed interest rate of 5.3%. The Bonds were issued to finance the acquisition and construction of certain improvements for the benefit of the District. Interest is to be paid semiannually on each May 1 and November 1. Principal on the Bonds is to be paid serially commencing May 1, 2008 through May 1, 2037.

The Bonds are subject to redemption at the option of the District prior to their maturity. The Bonds are subject to extraordinary mandatory redemption prior to their selected maturity in the manner determined by the Bond Registrar if certain events occurred as outlined in the Bond Indenture. This occurred during the current fiscal year as the District collected assessments from lot closings and prepaid $25,000 of the Bonds. See Note 12 - Subsequent Events for additional call amounts subsequent to the fiscal year end.

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NOTE 6 – LONG-TERM LIABILITIES (Continued)

The Bond Indenture established a debt service reserve requirement as well as other restrictions and requirements relating principally to the use of proceeds to pay for the infrastructure improvements and the procedures to be followed by the District on assessments to property owners. The District agrees to levy special assessments in annual amounts adequate to provide payment of debt service and to meet the reserve requirements. The District was in compliance with the requirements at September 30, 2017.

Changes in long-term liability activity for the fiscal year ended September 30, 2017 were as follows:

			Beginning						Ending		Due Within	
			Balance		Additions		Reductions		Balance		One Year	
Governmental activities													
Bonds payable:													
Series 2004	$	14,230,000	$	-	$	(405,000)	$	13,825,000	$	400,000		
Total		$	14,230,000	$	-	$	(405,000)	$	13,825,000	$	400,000		

At September 30, 2017, the scheduled debt service requirements on the long-term debt were as follows:

Year ending			Governmental Activities		
September 30:			Principal		Interest		Total	
2018	$	400,000	$	732,725	$	1,132,725	
2019			420,000		711,525		1,131,525	
2020			445,000		689,265		1,134,265	
2021			465,000		665,680		1,130,680	
2022			495,000		641,035		1,136,035	
2023-2027			2,905,000		2,782,500		5,687,500	
2028-2032			3,775,000		1,925,225		5,700,225	
2033-2037			4,920,000		809,575		5,729,575	
Total		$	13,825,000	$	8,957,530	$	22,782,530	

NOTE 7 – ASSESSMENTS

The Developer owns a portion of the land within the District; therefore, assessment revenues in the general and debt service funds include the assessments levied on those lots owned by the Developer.

NOTE 8 – CONCENTRATION

The District’s activity is dependent upon the continued involvement of the Developer, the loss of which could have a material adverse effect on the District’s operations.

NOTE 9 – COST SHARE AGREEMENT

The District entered into a cost share agreement with the ALYS Beach Neighborhood Association (“Association”), whereby the Association would contract a vendor for landscaping services and be reimbursed by the District. Pursuant to the agreement, the District reimbursed the Association $125,845 for current year services.

NOTE 10 – MANAGEMENT COMPANY

The District has contracted with a management company to perform management services, which include financial and accounting services. Certain employees of the management company also serve as officers (Board appointed non-voting positions) of the District. Under the agreement, the District compensates the management company for management, accounting, financial reporting, and other administrative costs.

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NOTE 11 – RISK MANAGEMENT

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

NOTE 12 – SUBSEQUENT EVENTS

Bond Payments

Subsequent to fiscal year end, the District prepaid $30,000 of the Series 2005 Bonds. The prepayments were extraordinary mandatory redemptions as outlined in the Bond Indenture.

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SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN

FUND BALANCE - BUDGET AND ACTUAL – GENERAL FUND

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017

									Variance with	
			Budgeted					Final Budget -	
			Amounts		Actual		Positive	
		Original & Final		Amounts		(Negative)	
REVENUES												
Assessments	$	514,775		$	522,723			$	7,948		
Interest Income		-			1,006				1,006		
Total revenues			514,775			523,729				8,954		
EXPENDITURES											
Current:											
General government		97,175			107,144				(9,969)		
Maintenance and operations		267,600			187,961				79,639		
Total expenditures			364,775			295,105				69,670		
Excess (deficiency) of revenues											
over (under) expenditures	$	150,000			228,624			$	78,624		
Fund balance - beginning					167,559						
Fund balance - ending				$	396,183						

See notes to required supplementary information

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SOMERSET COMMUNITY DEVELOPMENT DISTRICT

WALTON COUNTY, FLORIDA

NOTES TO REQUIRED SUPPLEMENTARY INFORMATION

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

The legal level of budgetary control, the level at which expenditures may not exceed budget, is in the aggregate. Any budget amendments that increase the aggregate budgeted appropriations must be approved by the Board of Supervisors. Actual general fund expenditures did not exceed appropriations for the fiscal year ended September 30, 2017.

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951 Yamato Road ▪ Suite 280

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

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

GOVERNMENT AUDITING STANDARDS

To the Board of Supervisors
Somerset Community Development District
Walton County, Florida

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities and each major fund of Somerset Community Development District, Walton County, Florida (“District”) as of and for the fiscal year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements and have issued our report thereon dated June 28, 2018.

Internal Control Over Financial Reporting

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

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

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

Compliance and Other Matters

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

Government Auditing Standards.

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Purpose of this Report

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

June 28, 2018

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951 Yamato Road ▪ Suite 280

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

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH THE

REQUIREMENTS OF SECTION 218.415, FLORIDA STATUTES, REQUIRED BY

RULE 10.556(10) OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA

To the Board of Supervisors
Somerset Community Development District
Walton County, Florida

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

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

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

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

June 28, 2018

25

951 Yamato Road ▪ Suite 280

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

MANAGEMENT LETTER PURSUANT TO THE RULES OF

THE AUDITOR GENERAL OF THE STATE OF FLORIDA

To the Board of Supervisors
Somerset Community Development District
Walton County, Florida

Report on the Financial Statements

We have audited the accompanying basic financial statements of Somerset Community Development District, Walton County, Florida ("District") as of and for the fiscal year ended September 30, 2017, and have issued our report thereon dated June 28, 2018.

Auditor’s Responsibility

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

Other Reporting Requirements

We have issued our Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards; and Independent Auditor’s Report on an examination conducted in accordance with AICPA Professional Standards, AT- C Section 315, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated June 28, 2018, should be considered in conjunction with this management letter.

Purpose of this Letter

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

I.	Current year findings and recommendations.

II.  Status of prior year findings and recommendations.

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

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

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

June 28, 2018

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REPORT TO MANAGEMENT

I.	CURRENT YEAR FINDINGS AND RECOMMENDATIONS

	None

II.	PRIOR YEAR FINDINGS AND RECOMMENDATIONS

	None

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

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

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

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

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

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

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

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

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

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

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

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

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