Heron Isles Community Development District

ANNUAL FINANCIAL REPORT

September 30, 2019

Heron Isles Community Development District ANNUAL FINANCIAL REPORT
September 30, 2019 TABLE OF CONTENTS

Page Number
REPORT OF INDEPENDENT AUDITORS	1-2
MANAGEMENT’S DISCUSSION AND ANALYSIS	3-8

BASIC FINANCIAL STATEMENTS
Government-wide Financial Statements
Statement of Net Position	9
Statement of Activities	10
Fund Financial Statements
Balance Sheet – Governmental Funds	11
Reconciliation of Total Governmental Fund Balances
to  Net Position of Governmental Activities	12
Statement of Revenues, Expenditures and Changes in
Fund Balances – Governmental Funds	13
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds
to the Statement of Activities	14
Statement of Revenues, Expenditures and Changes in Fund
Balances –  Budget  and Actual – General Fund	15

Notes to Financial Statements	16-29
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	30-31
MANAGEMENT LETTER	32-33
INDEPENDENT ACCOUNTANT’S REPORT/COMPLIANCE WITH
SECTION 218.415, FLORIDA STATUTES	34

REPORT OF INDEPENDENT AUDITORS

To the Board of Supervisors
Heron Isles Community Development District Nassau County, Florida
Report on the Financial Statements

We have audited the accompanying financial statements of the Heron Isles Community Development District as of and for the year ended September 30, 2019, and the related notes to financial statements that 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 an opinion 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. 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 opinion.
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To the Board of Supervisors
Heron Isles Community Development District

Opinion

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities and each major fund as of September 30, 2019, and the respective changes in financial position and the budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Other Matters

Required  Supplementary Information

Governmental accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by 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 in accordance with governmental auditing standards generally accepted in the United States of America, which consisted principally of inquires of management regarding 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 a report dated April 14, 2020 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 and contracts.

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 Heron Isles Community Development District’s internal control over financial reporting and compliance.

Berger, Toombs, Elam, Gaines & Frank Certified Public Accountants PL
Fort Pierce, Florida April 14, 2020

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Management’s discussion and analysis of Heron Isles Community Development District’s (the “District”) financial performance provides an objective and easily readable analysis of  the  District’s financial activities. The analysis provides summary financial information for the District and should be read in conjunction with the District’s financial statements.

OVERVIEW OF THE FINANCIAL STATEMENTS

The District’s basic financial statements comprise three components;  1)  Government-wide financial statements, 2) Fund financial statements, and 3) Notes to financial statements. The Government-wide financial statements present an  overall  picture  of  the  District’s  financial  position and results of  operations.  The  Fund  financial  statements  present  financial  information for the District’s major funds. The Notes to financial statements provide additional information concerning the District’s finances.

The Government-wide financial statements are  the  statement of net position and  the statement of activities. These statements use accounting methods similar to those used by private-sector companies. Emphasis is placed on the net position of governmental activities and the change in net position. Governmental activities are primarily supported by special assessments.

The statement of net position presents information on all assets and liabilities of the District,  with the difference between assets and liabilities reported as net position. Net position is reported in three categories; 1) net investment in capital assets, 2) restricted, and 3) unrestricted. Assets, liabilities, and net position are reported for all Governmental activities.

The statement of activities presents information on all revenues and expenses of the District  and the change in net position. Expenses are reported by major function and program revenues relating to those functions are reported, providing the net cost of all functions provided by the District. To assist in understanding the District’s operations, expenses have been reported as governmental activities. Governmental activities financed by the District include general government, physical environment and interest on long term debt.

Fund financial statements present  financial  information  for  governmental  funds. These statements provide financial information for the major funds of the District. Governmental fund financial statements provide information on the current assets and liabilities of  the  funds,  changes in current financial resources (revenues and expenditures), and current available resources.

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Fund financial statements include a balance sheet  and  a  statement  of  revenues,  expenditures and changes in fund balances for all governmental funds. A statement of revenues, expenditures, and changes in fund  balances  – budget  and actual  is  provided  for  the District’s General Fund. Fund financial statements provide more detailed information about the District’s activities. Individual funds are established by the District to track revenues that are restricted to certain uses or to comply with legal requirements.

The government-wide financial statements and the fund financial statements provide different pictures of the District. The government-wide financial statements provide an overall picture of the District’s financial standing. These statements are comparable to private-sector companies and give a good understanding of the District’s overall financial health and how the District paid for the various activities, or functions, provided by the District. All assets of the District, including infrastructure and improvements are reported in the statement of net position. All liabilities, including principal outstanding on bonds are included. The statement of activities includes depreciation on all long lived assets of the District, but transactions between the different functions of the District have been eliminated in order to avoid “doubling up” the revenues and expenses. The fund financial statements provide a picture of the major funds of the District. In the case of governmental activities, outlays for long lived assets are reported as expenditures and long-term liabilities, such as general obligation bonds, are not included in the fund financial statements. To provide a link from the fund financial statements to the government-wide financial statements, a reconciliation is provided from the fund financial statements to the government-wide financial statements.

Notes to financial statements provide additional detail concerning the financial activities and financial balances of the District. Additional information about the accounting practices of the District, investments of the District, capital assets and long-term debt are some of the items included in the notes to financial statements.

Financial Highlights

The following are the highlights of the financial activity for the year ended September 30, 2019.

The District’s total liabilities exceeded total assets by $(1,060,449) (net position). Unrestricted net position for Governmental Activities was $(347,656). Restricted net position-debt service was $99,931. Net investment in capital assets was $(812,724).

Governmental activities revenues totaled $575,062 while governmental  activities  expenses totaled $498,560.

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Financial Analysis of the District

The following schedule provides a summary of the assets, liabilities and net  position  of  the  District and is presented by category for comparison purposes.

Net	Position	
	   Governmental Activities	
 	2019		 	2018		
Current assets	$	106,522	$	126,663	
Prepaid bond insurance	71,592	75,888	
Restricted assets	100,994	130,144	
Capital assets	1,450,451	    1,516,443	

Total Assets	
    1,729,559	
    1,849,138	
Current liabilities	189,803	243,248	
Non-current liabilities	    2,600,205	    2,742,841	
Total Liabilities	2,790,008	    2,986,089	

Net position - net investment		
in capital assets	(812,724)	(738,840)	
Net position - restricted	99,931	126,605	
Net position - unrestricted	(347,656)	 	(526,716)	
Total Net Position	$ (1,060,449)	$ (1,138,951)	

The decrease in total liabilities is related primarily to the current year principal payments and the decrease in accounts payable in the current year.

The decrease in capital assets is primarily related to current year depreciation.

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Financial Analysis of the District (Continued)

The following schedule provides a summary of the changes in net position of the District and is presented by category for comparison purposes.

Financial Activity	
	 	Governmental Activities	
 	2019		2018	
Program Revenues		
Charges for services	$	566,002	$	595,246	
Grants and contributions	7,892	-	
General Revenues		
Miscellaneous revenues	185	-	
Investment earnings	 	983	 	931	
Total Revenues	 	575,062	596,177	
Expenses		
General government	109,323	96,905	
Physical environment	285,604	287,317	
Interest and other charges	 	103,633	 	107,042	
Total Expenses	 	498,560	491,264	
Change in Net Position	76,502	104,913	
Net Position - Beginning of Year	   (1,136,951)	 (1,241,864)	
Net Position - End of Year	 $ (1,060,449)	 $ (1,136,951)	

The increase in general government expenses is related to  increased  insurance  and  other  current charges expenditures in the current year.

The decrease in charges for services is related to a  decrease  in  prepayments  in  the  current  year.

The grants and contribution income in the current year is related to a contribution of land in the current year.

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Capital Assets Activity

The following schedule provides a summary of the District’s capital assets activity as  of  September 30, 2019 and 2018:

Description	Governmental Activities

 	2019		2018	
Land and improvements	$	46,653	$	38,761	
Infrastructure		2,216,522		2,216,522	
Accumulated depreciation Capital assets, net	 	
$	(812,724)
1,450,451	 	
$	(738,840)
1,516,443	

Depreciation was $73,844 and an addition to land was $7,892 in the current year.

General Fund Budgetary Highlights

Actual expenditures exceeded budgeted expenditures primarily due to higher legal costs and miscellaneous expenditures than were anticipated.

The September 30, 2019 budget was not amended.

Debt Management

Governmental Activities debt includes the following:

In June 2017, the District issued $2,315,000 Series  2017A-1  Senior  Capital Improvement Revenue Refunding Bonds and $850,000 Series 2017A-2 Subordinate Capital Improvement Revenue Refunding Bonds. These  bonds  were  issued  to  refund  and redeem the Series 2005 Capital Improvement Revenue Bonds. The balance of the Series 2017A-1 and Series 2017A-2 Bonds  were  $2,025,000  and  $760,000, respectively.

Economic Factors and Next Year’s Budget

Heron Isles Community Development District does not expect any economic factors to have any significant effect on the financial position or results of operations of the District  in  fiscal year  2020.

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Request for Information

The financial report is designed to provide a general overview of Heron Isles Community Development District’s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Heron Isles Community Development District, Governmental  Management  Services,  475  West Town Place, Suite 114, St. Augustine, Florida 32092.

	Governmental
Activities	
ASSETS
Current Assets:		
Cash and cash equivalents	$	55,268	
Investment	28,529	
Accounts receivable	6,262	
Due from other governments	2,493	
Prepaid expenses	12,390	
Deposits	 	1,580	
Total Current Assets	 	106,522	
Non-current Assets:		
Prepaid bond insurance
Restricted assets:	71,592	
Investments	100,994	
Capital assets not being depreciated
Land and improvements	46,653
Capital assets being depreciated
Infrastructure	2,216,522	
Accumulated depreciation	 	(812,724)	
Total Non-current Assets	 	1,623,037	
Total Assets	 	1,729,559	

LIABILITIES
Current Liabilities:
Accounts payable	5,241	
Accrued interest payable	39,562	
Bonds payable	 	145,000	
Total Current Liabilities	 	189,803	
Non-current Liabilities:		
Bonds payable, net	 	2,600,205	
Total Liabilities	 	2,790,008	
NET POSITION		
Net investment in capital assets	(812,724)	
Restricted-debt service	99,931	
Unrestricted	 	(347,656)	
Total Net Position	 $	(1,060,449)	

See accompanying notes to financial statements.

Heron Isles Community Development District STATEMENT OF ACTIVITIES
For the Year Ended September 30, 2019

 		Program Revenues	   Charges for	Capital

Net (Expense) Revenues and Changes in Governmental

Functions/Programs	 Expenses	 	Services		 Contributions	Activities Primary government
Governmental Activities
General government	$	(109,323)	$	110,882	$	-	$	1,559	
Physical environment	(285,604)	214,739	7,892	(62,973)	
Interest and other charges	 	(103,633)	 	240,381	 	-	 	136,748	
Total Governmental Activities	  $	(498,560)	  $	566,002	  $	7,892	75,334	

General revenues:
Miscellaneous revenues	185	
Investment earnings	 	983	
Total General Revenues	 	1,168	
Change in Net Position	76,502	
Net Position - October 1, 2018	 	(1,136,951)	
Net Position - September 30, 2019	  $	(1,060,449)	

BALANCE SHEET – GOVERNMENTAL FUNDS
September 30, 2019

							Total	
					Debt		Governmental	
ASSETS		General			Service		Funds	

Cash and cash equivalents	
$	
55,268		
$	
-		
$	55,268	
Investment		28,529			-		28,529	
Accounts receivable		6,262			-		6,262	
Due from other governments		1,461			1,032		2,493	
Prepaid expenses		12,390			-		12,390	
Deposits		1,580			-		1,580	
Restricted assets:								
Restricted investments		-			100,994		100,994

 $	207,516	
Total Assets	 $ 	105,490		 $ 	102,026			

LIABILITIES AND FUND BALANCES								
LIABILITIES								
Accounts payable	$	5,241		$	-		$	5,241	

FUND BALANCES								
Nonspendable-prepaids/deposits		13,970			-		13,970	
Restricted for:								
Debt Service		-			102,026		102,026	
Unassigned		86,279			-		86,279	
Total Fund Balances
Total Liabilities and Fund Balances		100,249			102,026		202,275

 $	207,516	
	 $ 	105,490		 $ 	102,026			

RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES
September 30, 2019

Total Governmental Fund Balances	$	202,275	
Amounts reported for governmental activities in the Statement of Net Position are different because:			
Capital assets, land and improvements ($46,653), and infrastructure ($2,216,522), net of accumulated depreciation ($(812,724)) used in governmental activities are not current financial resources; and therefore, are not reported at the fund level.		

1,450,451	
Prepaid bond insurance was recognized as an other debt service cost at the fund level in the year the debt was issued, however, at the government-wide level it is recognized as an asset an amortized over the life of the bonds.		

71,592	
Long-term liabilities, including bonds payable ($(2,785,000)), net of net bond discount ($39,795) are not due and payable in the current period; therefore, are not reported at the governmental fund level.		

(2,745,205)	
Accrued interest expense for long-term debt is not a current financial use; therefore, it is not reported at the governmental fund level.		
(39,562)	

Net Position of Governmental Activities	

 $		

(1,060,449)	

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – GOVERNMENTAL FUNDS
For the Year Ended September 30, 2019

						Total	
				Debt		Governmental	
	General			Service		Funds	
Revenues							
Special assessments	$ 325,621		$	240,381		$	566,002	
Miscellaneous revenues	185			-		185	
Investment earnings	519			464		983	
Total Revenues	326,325			240,845		567,170	

Expenditures							
Current							
General government	109,323			-		109,323	
Physical environment	211,720			-		211,720	
Debt service							
Principal	-			170,000		170,000	
Interest	-			98,963		98,963	
Total Expenditures	321,043			268,963		590,006

(22,836)	

Net Change in Fund Balances	
5,282			
(28,118)			
Fund Balances - October 1, 2018

Fund Balances - September 30, 2019	94,967

$  100,249		

$	130,144

102,026		225,111

$	202,275	

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE
STATEMENT OF ACTIVITIES
For the Year Ended September 30, 2019

Net Change in Fund Balances - Total Governmental Funds	$	(22,836)	
Amounts reported for governmental activities in the Statement of Activities are different because:			
Governmental funds report capital outlays as expenditures. However, at the government-wide level, the cost of those assets is allocated over their estimated useful lives as depreciation. This is the amount of depreciation in the current year.		

(73,884)	
The contribution of land by the developer does not affect current resources, and therefore, it is not reported at the fund level.		
7,892	
Payment of long-term liabilities are reported as expenditures in the
governmental fund statement but such repayments reduce long-term liabilities in the Statement of Net Position.		

170,000	
Prepaid bond insurance was recognized as an expenditure at the fund level the year the bond was issued, at the government-wide level it was recorded as an asset and is amortized over the life of the bond. This is the current year amortization.		

(4,296)	
Amortization expense of bond discounts does not require the use of current resources and therefore is not reported at the governmental funds level. This governmental funds level. This is the amount of amortization in the current period.		

(2,364)	
In the Statement of Activities, interest is accrued on outstanding bonds; whereas at governmental funds level, interest expenditures are reported when due. This is the change in accrued interest from the prior year.	

 	1,990	
Change in Net Position of Governmental Activities	$	76,502	

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND
For the Year Ended September 30, 2019

								Variance with	
								Final Budget	
	Original		Final					Positive	
	Budget		Budget			Actual		(Negative)	
Revenues									
Special assessments	$ 320,237		$ 320,237		$	325,621		$	5,384	
Miscellaneous revenues	-		-			185		185	
Interest earnings	400		400			519		119

5,688	
Total Revenues	320,637		320,637			326,325			

Expenditures									
Current									
General government	100,304		100,304			109,323		(9,019)	
Physical environment	214,333		214,333			211,720		2,613	
Capital outlay	6,000		6,000			-		6,000

(406)

5,282	
Total Expenditures	320,637		320,637			321,043			

Net Change in Fund Balances	
-		
-			
5,282			
Fund Balances - October 1, 2018	-		-			94,967		94,967	

Fund Balances - September 30, 2019	
$	-		
$	-		
$	
100,249		
$	100,249	

See accompanying notes to financial statements.

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the District have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The District's more significant accounting policies are described below.

Reporting Entity

The District was established on September 1, 2004, pursuant to the Uniform Community Development District Act of 1980, Chapter 190, Florida Statutes and Nassau County, Florida Ordinance 2004-41. The District was established for the purposes of financing and managing the acquisition, construction, maintenance and operation of the infrastructure necessary for community development within its jurisdiction. The District is authorized to issue bonds for the purpose, among others, of financing, funding, planning, establishing, acquiring, constructing or re-constructing, enlarging or extending, equipping, operating and maintaining water management, bridges or culverts, district roads, landscaping, street lights and other basic infrastructure projects within or without the boundaries of the Heron Isles Community Development District. The District is governed by a five-member Board of Supervisors who are elected on an at-large basis by landowners within the District. The District operates within the criteria established by Chapter 190.

As required by GAAP, these financial statements present the Heron Isles Community Development District (the primary government) as a stand-alone government. The reporting entity for the District includes all functions of government in which the District’s Board exercises oversight responsibility including, but not limited to, financial interdependency, selection of governing authority, designation of management, significant ability to influence operations and accountability for fiscal matters.

Based upon the application of the above-mentioned criteria as set forth by  the Governmental Accounting Standards Board, the District has identified no component units.

Measurement Focus and Basis of Accounting

The basic financial statements of the District are composed of the following:

	Government-wide financial statements

	Fund financial statements

	Notes to financial statements

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Measurement Focus and Basis of Accounting (Continued)

Government-wide Financial Statements

Government-wide financial statements report all non-fiduciary information about the reporting government as a whole. These statements include all the governmental activities of the primary government. The effect of interfund activity has been removed from these statements.

Governmental activities are supported by special assessments. Program  revenues  include charges for services and payments made by parties outside of the reporting government’s citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the Statement of Activities to present the net cost of each program.

Amounts paid to acquire capital assets are capitalized as assets, rather than reported as an expenditure. Proceeds of long-term debt are recorded as liabilities in the government-wide financial statements, rather than as an other financing source.

Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure.

Fund Financial Statements

The underlying accounting system of the District is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.

Fund financial statements for the primary government’s governmental funds are presented after the government-wide financial statements. These statements display information about major funds individually.

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.	Measurement Focus and Basis of Accounting (Continued)

b. Fund Financial Statements (Continued) Governmental Funds
The District implemented the Governmental Accounting Standards Board Statement 54
– Fund Balance Reporting and Governmental Fund Type Definitions. The Statement requires the fund balance for governmental funds to be reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent.

The District has various policies governing the fund balance classifications.

Nonspendable Fund Balance – This classification consists of amounts that cannot be spent because they are either not in spendable form or are legally or contractually required to be maintained intact.

Restricted Fund Balance – This classification includes amounts that can be spent only  for specific purposes stipulated by constitution, external resource providers, or through enabling legislation.

Assigned Fund Balance – This classification consists of the Board of Supervisors’ intent      to be used for specific purposes, but are neither restricted nor  committed.  The assigned  fund balances can also be assigned by the District’s management company.

Unassigned Fund Balance – This classification is the residual classification for the government’s general fund and includes all spendable amounts not contained  in the other classifications.

Fund Balance Spending Hierarchy – For all governmental funds except special revenue funds, when restricted, committed, assigned, and unassigned fund balances are  combined in a fund, qualified expenditures are paid first from restricted or committed fund balance, as appropriate, then assigned and finally unassigned fund balances.

Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Interest associated with the current fiscal period is considered to be an accrual item and so has been recognized as revenue of the current fiscal period.

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Measurement Focus and Basis of Accounting (Continued)

b. Fund Financial Statements (Continued) Governmental Funds (Continued)
Under the current financial resources measurement focus, only current assets  and current liabilities are generally included on the balance sheet. The reported  fund  balance is considered to be a measure of “available spendable  resources”.  Governmental fund operating statements present increases (revenues  and  other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses  of  “available spendable resources” during a period.

Because of their spending measurement focus, expenditure recognition  for governmental fund types excludes amounts represented by non-current liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities.

Amounts expended to acquire capital assets are recorded as expenditures in  the year  that resources are expended, rather than as fund assets. The  proceeds  of  long-term  debt are recorded as an other financing source rather than as a fund liability.

Debt service expenditures are recorded only when payment is due.

Basis of Presentation

Governmental Major Funds

General Fund – The General Fund is the District’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

Debt Service Fund – Accounts for debt service requirements to retire the capital improvement bonds which were used to finance the construction of District infrastructure improvements.

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Presentation (Continued)

Non-current Governmental Assets/Liabilities

GASB Statement 34 requires that non-current governmental assets, such as land and buildings, and non-current governmental liabilities, such as general obligation bonds, be reported in the governmental activities column in the government-wide Statement of Net position.

Assets, Liabilities, and Net Position or Equity

Cash and Investments

Florida Statutes require state and local governmental units to deposit monies with financial institutions classified as "Qualified Public Depositories," a multiple financial institution pool whereby groups of securities pledged by the various financial institutions provide common collateral from their deposits of public funds. This pool is provided as additional insurance to the federal depository insurance and allows for additional assessments against the member institutions, providing full insurance for public deposits.

The District is authorized to invest in those financial instruments as established by Section 218.415, Florida Statutes. The authorized investments consist of:

Direct obligations of the United States Treasury;
The Local Government Surplus Funds Trust or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperative Act of 1969;
Interest-bearing time deposits or savings accounts in authorized qualified public depositories;
Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency.

Restricted Assets

Certain net position of the District will be classified as restricted assets on the statement of net position because their use is limited either by law through constitutional provisions or enabling legislation; or by restrictions imposed externally by creditors. In a fund with both restricted and unrestricted assets, qualified expenses are considered    to be paid first from restricted net position and then from unrestricted net position.

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

4. Assets, Liabilities, and Net Position or Equity (Continued)
Capital Assets
Capital assets, which include land improvements and infrastructure are reported in governmental activities.
The District defines capital assets as assets with an initial, individual cost of $750 or more and an estimated useful life in excess of one year. The valuation basis for all  assets is historical cost.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its useful life are not capitalized.
Depreciation of capital assets is computed and recorded by utilizing the straight-line method over the assets’ estimated useful lives ranging from 3 to 39 years.
Bond Discounts
Bond discounts are amortized over the life of the bonds.
Prepaid Bond Insurance
Prepaid bond insurance associated with the issuance of refunding bonds are presented  on the financial statements as a non-current asset and amortized over the life of the bonds using the straight-line method.
Budgets
Budgets are prepared and adopted after public hearings for the governmental funds, pursuant to Chapter 190, Florida Statutes. The District utilizes the same basis of accounting for budgets as it does for revenues and expenditures in its various funds. Formal budgets are adopted for the general fund. The legal level of budgetary control is at the fund level. All budgeted appropriations lapse at year end. Formal budgets are adopted for the general and debt service funds. As a result, deficits in the budget columns of the accompanying financial statements may occur.
Net Position
Net position represents the difference between assets and liabilities and is reported in three categories. Net investment in capital assets, represents capital assets, net of accumulated depreciation and any outstanding debt related to those assets. Net position is reported as restricted when there are legal limitations imposed on their use by legislation, or external restrictions imposed by other governments, creditors, or grantors. Unrestricted net position is assets that do not meet definitions of the classifications previously described.

NOTE	B	–		RECONCILIATION	OF	GOVERNMENT-WIDE	AND	FUND	FINANCIAL STATEMENTS
Explanation of Differences Between the Governmental Fund Balance Sheet and the Government-wide Statement of Net position
“Total fund balances” of the District’s governmental funds, $202,275, differs from “net position” of governmental activities, $(1,060,449), reported in the Statement of Net Position. This difference primarily results from the long-term economic focus of the Statement of Net position versus the current financial resources focus of the Governmental Fund Balance Sheet. The effect of the differences is illustrated below.
Capital related items
When capital assets (land improvements and infrastructure that are to be used in governmental activities) are purchased or constructed, the cost  of those assets is  reported  as expenditures in governmental funds. However, the Statement of Net Position included those capital assets among the assets of the District as a whole.

Land and improvements		$	46,653	
Infrastructure		2,216,522	
Accumulated depreciation		 	(812,724)	
Net Capital Assets		$	1,450,451	
Prepaid bond insurance
Prepaid bond insurance is recognized	

as an	

asset at the government-wide level and	
amortized over the life of the long-term debt.
Prepaid bond insurance	$	71,592
Long-term debt transactions
Long-term liabilities and the deferred amount on refunding applicable to the District’s governmental activities are not current uses  or resources and accordingly are not reported  at the fund level. All uses and resources (both current and long-term) are reported in the Statement of Net Position. Balances at September 30, 2019 were:

Bonds payable		$	(2,785,000)	
Bond discount, net		 	39,795	
Total

Accrued interest

Accrued liabilities in the Statement	

of Net Position differ from	$	(2,745,205)

the amount reported in	
governmental funds due to the accrued interest on bonds.
Accrued interest	$	(39,562)

NOTE	B	–		RECONCILIATION	OF	GOVERNMENT-WIDE	AND	FUND	FINANCIAL STATEMENTS (CONTINUED)

Explanation of Differences Between the Governmental Fund Operating Statements and the Statement of Activities

The “net change in fund balances” for government funds, $(22,836), differs from the “change in net position” for governmental activities, $76,502, reported in the Statement of Activities. The differences arise primarily from the long-term economic focus of the Statement of Activities versus the current financial resources focus of the governmental funds. The effect of the differences is illustrated below.

Capital related items

When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the Statement of Activities, the costs of those assets are allocated over their estimated useful lives as depreciation. The loss on disposal of capital assets is recognized at the government-wide level. The following is the amount of depreciation in the current year.

Depreciation	$	(73,884)

Contribution of land	$	7,892

Long-term debt transactions
Repayment of long-term liabilities are reported as expenditures at the fund level but such repayments reduce liabilities at the government-wide level.
Debt principal payments	$	170,000

Amortization of the bond discount and prepaid bond insurance does not require the use of current resources and therefore is not reported at the fund level.

Bond discount	$	(2,364)

Prepaid bond insurance	$	(4,296)

Some expenses reported in the Statement of Activities do not require the use of current financial resources, therefore, are not reported as expenditures in governmental funds.
Change in accrued interest payable	$	1,990

NOTE C – CASH AND INVESTMENTS
All deposits are held in qualified public depositories and are included on the accompanying balance sheet as cash and investments.

Custodial Credit Risk – Deposits
Custodial credit risk is the  risk that in the event of a bank failure, the District's deposits may not     be returned to it. The District follows the provisions of Chapter 280, Florida Statutes regarding deposits and investments to manage custodial credit risk.   The District maintains  all deposits in       a qualified public depository, so that all deposits are fully  insured  by  Federal  Depositors  Insurance or collateralized under Chapter 280, Florida Statutes. As of September 30, 2019, the District's bank balance was $77,754 and the carrying value was $55,268.
As of September 30, 2019, the District had the following investments and maturities:

 	Investment		 Maturities	 Fair Value	
Local Government Surplus Funds, Florida PRIME	37 Days*	$	210	
U S Bank Money Market	N/A	129,313	
Total		
 $	129,523	

* Weighted Average Maturity			
The District categorizes its fair value measurements within the fair value hierarchy recently established by generally accepted accounting principles. The fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The hierarchy is based on the valuation inputs  used to measure the fair value of the asset. The District uses a market approach in measuring  fair value that uses prices and other relevant information generated by market transactions involving identical or similar assets, liabilities, or groups of assets and liabilities.
Assets or liabilities are classified into one of three levels. Level 1 is the most reliable and is based on quoted price for identical assets, or liabilities, in an active market. Level 2 uses significant other observable inputs when obtaining quoted prices for identical or similar assets, or liabilities, in markets that are not active. Level 3 is the least reliable and uses significant unobservable inputs that use the best information available under the circumstances, which includes the District’s own data in measuring unobservable inputs.
Based on the criteria in the preceding paragraph, the District has no investments subject to the fair value hierarchy.
Investments
The District’s investment policy allows management to invest funds  in  investments  permitted under Section 218.415, Florida Statutes.  Among  other  investments,  the  policy  allows  the  District to invest in the State Board of Administration Local Government Surplus Trust Funds.

NOTE C – CASH AND INVESTMENTS (CONTINUED)
Investments (Continued)
Cash placed with the State Board of Administration represents the District’s participation in the Local Government Surplus Trust Funds Investment Pool and is reported at fair value. As a pool participant the District invests in pools of investments in which shares are owned in the pool rather than the underlying investments.
Interest Rate Risk
The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.
Credit Risk
The District's investments in treasury funds, commercial paper, and government loans  are limited by state statutory requirements and bond compliance. The District has no investment policy that would further limit its investment choices. As of September 30, 2019, the District's investment in SBA Local Government Surplus Fund was rated AAAm by Standard & Poor's.
Concentration of Credit Risk
The District places no limit on the amount it may invest. The investments in U S Bank Money Market represent 99% and the investments in Local Government Surplus Fund, Florida PRIME represents 1% of the District’s total investments.
The types of deposits and investments and their level of risk exposure as of  September  30, 2019 were typical of these items during the fiscal year then ended. The District considers any decline in fair value for certain investments to be temporary.

NOTE D – SPECIAL ASSESSMENT REVENUES
Assessments are non-ad valorem assessments on benefitted property within the District. Operating and Maintenance Assessments are based upon adopted general fund budget and levied annually. Debt Service Assessments are levied when bonds are issued and collected annually. The District may collect assessments directly or utilize the uniform method of collection (Chapter 197.3632, Florida Statutes). Direct collected assessments are due as determined by annual assessment resolution adopted by the Board  of  Supervisors.  Assessments collected under the uniform method are mailed by the Nassau County Tax Collector on November 1 and due on or before March 31 of each year.

Assessments and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period.  Only the portion of assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government.

NOTE E – CAPITAL ASSETS

Capital Asset activity for the year ended September 30, 2019 was as follows:

Governmental Activities:
Capital assets, not being depreciated

Balance	Balance
October 1,	September 30,
 	2018		 Additions	 Deletions	 	2019	

Land and improvements	 $	38,761	$	7,892	$	-	$	46,653

Capital assets, being depreciated:
Infrastructure	 2,216,522	 	2,216,522
Less accumulated depreciation for:
Infrastructure	 	(738,840)	(73,884)		-	(812,724)	
Total Capital Assets Depreciated, Net	    1,477,682	(73,884)		-	1,403,798	

Governmental Activities, Capital Assets	
 $ 1,516,443	
$ (65,992)		
$	-	$	1,450,451	

Depreciation of $73,844 was charged to physical environment.

NOTE F – LONG-TERM DEBT

The following is a summary of debt activity for the District for the year ended September 30, 2019:

Long-term debt at October 1, 2018	$	2,955,000	
Principal payments	 	(170,000)	
Long-term debt at September 30, 2019	$	2,785,000	
Less: bond discount, net	 	(39,795)	
Total long-term debt, September 30, 2019	$	2,745,205	

Long-term debt for Governmental Activities is comprised of the following:		
Capital Improvement Revenue Refunding Bonds		
$2,315,000 Series 2017A-1 Senior Capital Improvement Revenue Refunding Bonds due in annual principal installments maturing May 2036. Interest is due semi-annually on May 1 and November 1, at various rates between 2% and 3.375%. Current portion is $110,000.	

$	2,025,000	
$850,000 Series 2017A-2 Subordinate Capital Improvement Revenue Refunding Bonds due in annual principal installments maturing May 2036. Interest is due semi-annually on May 1 and November 1 with a fixed interest rate of 5%. Current portion is
$35,000.	

 	760,000	
Bond payable	2,785,000	
Bond Discount, net	 	(39,795)	
Bonds Payable, Net	$	2,745,205	

NOTE F – LONG-TERM DEBT (CONTINUED)
The annual requirements to amortize the principal and interest of bonded debt outstanding as of September 30, 2019 are as follows:

Year Ending									
 September 30,

2020	   Principal			  	Interest		 	Total		
	$	145,000		$	94,706		$	239,706	
2021		130,000			90,963			220,963	
2022		130,000			87,463			217,463	
2023		140,000			83,963			223,963	
2024		140,000			80,113			220,113	
2025-2029		770,000			332,851			1,102,851	
2030-2034		915,000			187,764			1,102,764	
2035-2036		415,000			24,351			439,351	
Totals	$	2,785,000		$	982,174		$	3,767,174	

Summary of Significant Bond Resolution Terms and Covenants Capital  Improvement  Revenue   Refunding   Bonds Significant Bond Provisions
The Series 2017 Senior and Subordinate Bonds are subject to redemption at the option of the District prior to their maturity, in whole or in part, at any time after May 1, 2027 at a redemption price equal to the principal amount of the Series 2017 Senior and Subordinate Bonds to be redeemed, together with accrued interest to the date of redemption.  The Series  2017  Senior and Subordinate Bonds are subject to extraordinary mandatory redemption prior to maturity in the manner determined by the Bond Registrar if certain events occurred as outlined in the Trust Indenture.

The Trust Indenture established certain amounts be maintained in a reserve account.  In  addition, the Trust Indenture has certain 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.

NOTE F – LONG-TERM DEBT (CONTINUED)

Depository Funds

The bond resolution establishes certain funds and determines the order in which revenues are   to be deposited into these funds. A description of the significant funds, including their purposes, is as follows:

Reserve Fund – The Series 2017A-1 and Series 2017A-2 Reserve Account requirements are equal to 50 percent of the maximum annual debt outstanding for Series 2017A-1 and Series 2017A-2 Bonds. The Series 2017A-1 Bonds Reserves are satisfied by the Reserve Insurance Policy which will terminate on the final maturity date or upon earlier, in full, payment of the Series 2017A-1 Bonds. The Series 2017A-2 Bonds were funded from the proceeds  of the  Series 2017A-2 Bonds in amounts. Monies held in the reserve accounts will be used only for the purposes established in the Trust Indenture.

The following is a schedule of required reserve deposits as of September 30, 2019

Capital Improvement Revenue Refunding		 Balance	 Requirement

Senior Series 2017A-1	$	81,258	$	81,258	
Subordinate Series 2017A-2	$	34,813	$	34,125	

NOTE G – 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 for which the government carries commercial insurance. There were no claims or settled claims from these risks that exceeded commercial insurance coverage in the last three years.

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
Heron Isles Community Development District Nassau 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 Heron Isles Community Development District, as of and for the year ended September 30, 2019, and the related notes to the financial statements, and have issued our  report thereon dated April 14, 2020.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Heron Isles Community Development District's internal control over financial reporting 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 Heron Isles Community Development District’s internal control. Accordingly, we do not express an opinion on the effectiveness of Heron Isles Community Development District's internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or 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 over financial reporting 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.

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To the Board of Supervisors
Heron Isles Community Development District

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Heron Isles Community Development District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant 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.

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.

Berger, Toombs, Elam, Gaines & Frank Certified Public Accountants PL
Fort Pierce, Florida April 14, 2020

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MANAGEMENT LETTER

To the Board of Supervisors
Heron Isles Community Development District Nassau County, Florida

Report on the Financial Statements

We have audited the financial statements of the Heron Isles Community Development District as of and for the year ended September 30, 2019, and have issued our report thereon dated    April 14, 2020.

Auditor’s Responsibility

We conducted our audit in accordance with auditing standards generally accepted in the United States; 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 Florida 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 Financial Statements Performed in Accordance with Government Auditing Standards and our Independent Auditor’s Report on an examination conducted in accordance with AICPA Professionals 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 April 14, 2020, should be considered in conjunction with this management letter.

Prior Audit Findings

Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding financial audit report. There were no findings or recommendations in the preceding audit.

Financial Condition and Management

Section 10.554(1)(i)5.a. and 10.556(7), Rules of the Auditor General, require us to apply appropriate procedures and communicate the results of our determination as to whether or not Heron Isles Community Development District has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and to identify the specific conditions met. In connection with our audit, we determined that Heron Isles Community Development District did not meet any of the conditions described in Section 218.503(1) Florida Statutes.

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To the Board of Supervisors
Heron Isles Community Development District

Pursuant to Sections 10.554(1)(i)5.c. and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures for Heron Isles Community Development District. It is management’s responsibility to monitor the Heron Isles Community Development District’s financial condition; our financial condition assessment was based in part on the representations made by management and the review of the financial information provided by the same as of September 30, 2019.

Section 10.554(1)(i)2., Rules of the Auditor General, requires that we communicate any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations.

Additional Matters

Section 10.554(1)(i)3., Rules of the Auditor General, requires us to communicate 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 warrants the attention of those charged with governance. In connection with our audit, we did not note any such findings.

Purpose of this Letter

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, the Board of Supervisors, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties.

Berger, Toombs, Elam, Gaines & Frank Certified Public Accountants PL
Fort Pierce, Florida April 14, 2020

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INDEPENDENT ACCOUNTANT’S REPORT/COMPLIANCE WITH SECTION 218.415, FLORIDA STATUTES

To the Board of Supervisors
Heron Isles Community Development District Nassau County, Florida

We have examined Heron Isles Community Development District's compliance with Section 218.415, Florida Statutes during the year ended September 30, 2019. Management is responsible for Heron Isles Community Development District’s compliance with those requirements. Our responsibility is to express an opinion on Heron Isles Community Development District’s compliance based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about Heron Isles Community Development District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on Heron Isles Community Development District’s compliance with the specified requirements.

In our opinion, Heron Isles Community Development District complied, in all material respects, with the aforementioned requirements during the year ended September 30, 2019.

Berger, Toombs, Elam, Gaines & Frank Certified Public Accountants PL
Fort Pierce, Florida April 14, 2020

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