Deer Run Community Development District

ANNUAL FINANCIAL REPORT

September 30, 2018

Deer Run Community Development District ANNUAL FINANCIAL REPORT
September 30, 2018 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	32-34
INDEPENDENT ACCOUNTANT’S REPORT/COMPLIANCE WITH SECTION
218.415, FLORIDA STATUTES	35

r�tt Berger, Toombs, Elam, CO:, Gaines & Frank
Certified Public Accountants	PL
600 Citrus Avenue
Suite 200
Fort Pierce, Florida 34950
772/461-6120 // 461-1155
FAX: 772/468-9278

REPORT OF INDEPENDENT AUDITORS

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

Report on the Financial Statements

We have audited the accompanying basic financial statements of Deer Run Community Development District as of and for the year ended September 30, 2018, and the related notes to 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 an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Accounting 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 opinion.

Member AICPA

Fort Pierce / Stuart
- 1 -
Member AICPA Division For CPA Firms
Private Companies Practice Section

Member FICPA

��tt Berger, Toombs, Elam,
,OJ Gaines & Frank
CertifiedPublicAccountants   PL

To the Board of Supervisors
Deer Run 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 of Deer Run Community Development District as of September 30, 2018, 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 and budgetary comparison 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 to the required supplementary information 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 June 26, 2019 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 Deer Run Community Development District’s internal control over financial reporting and compliance.
Berger, Toombs, Elam, Gaines & Frank Certified Public Accountants PL
Fort Pierce, Florida June 26, 2019

- 2 -

Management’s discussion and analysis of Deer Run Community Development District (the “District”) financial performance provides an objective and easily readable analysis of the District’s financial activities for the fiscal year ended September 30, 2018. 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. This report also contains other supplementary information in addition to the basic financial statements.

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 debt service.

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 land, buildings and improvements, and infrastructure 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 financial activity for the year ended September 30, 2018.

The District’s total assets were exceeded by total liabilities by $(4,800,071) (net position). Unrestricted net position for Governmental Activities was $(4,449,889) Net investment in capital assets was $(405,995). Restricted net position was $55,813.

Governmental activities revenues and gain on cancellation of debt totaled $6,485,380 while governmental activities expenses totaled $1,241,792.

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	
	Government	al Activities	
	2018	2017	
Current assets Restricted assets Capital assets
Total Assets	$	90,545
3,753,734
3,161,911
7,006,190	$	49,363
97,956
2,755,986
2,903,305

5,691,964
7,255,000
12,946,964

(811,920)
- (9,231,739)
$(10,043,659)	
Current liabilities Non-current liabilities	884,199
10,922,062		
Total Liabilities	11,806,261		
Net Position
Net investment in capital assets Restricted
Unrestricted
Total Net Position	
(405,995)
55,813
(4,449,889)
$ (4,800,071)		

The increase in restricted assets is related to the issuance of new debt for a capital project and funding of the reserve account.

The increase in capital assets and net investment in capital assets is the result of the capital project initiated in the current year.

The decrease in current liabilities was primarily due to accrued interest and matured interest payable being forgiven as part of the issuance of the new debt in the current year.

The increase in non-current liabilities the result of the new debt issued in current year.

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. It is not intended to be a complete  presentation of District-wide financial activity.

Change in Net Position

Governmental Activities

Program Revenues	2018	2017	
Charges for services	$	324,197	$	90,666	
Contributions
General Revenues	95,800	30,000	
Investment earnings	3,345	257	
Miscellaneous revenues	4,500	3,100	
Cancellation of debt	6,057,538	-	
Total Revenues	6,485,380	124,023	

Expenses			
General government	70,066	76,592	
Physical environment	316,567	195,072	
Interest on long-term debt	855,159	816,669	
Total Expenses	1,241,792	1,088,333	
Change in Net Position	5,243,588	(964,310)	
Net Position - Beginning of Year	(10,043,659)	(9,079,349)	
Net Position - End of Year	$	(4,800,071)	$	(10,043,659)	

The increase in charges for services is due to an increase in special assessments in the current year.

The increase in operating contributions is related to the increase in expenses in the current year.

The increase in physical environment is related to the increase in landscape and irrigation expenses 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 as of September 30, 2018 and 2017.

 	Description	

Construction in progress	Governmental Activities 2018	2017
$	507,415	$	-	
Infrastructure		3,567,906		3,567,906	
Accumulated depreciation

Total Capital Assets (Net)	

  $		 	(913,410)

3,161,911 	

  $		 	(811,920)

2,755,986 	

The activity for the year consisted of $101,490 in depreciation and construction in progress additions of $507,415.

General Fund Budgetary Highlights

Actual expenditures were less than budgeted amounts primarily because of less attorney fees and trustee fees than expected.

The September 30, 2018 budget was amended for additional landscape and irrigation expenses over the amount originally anticipated.

Debt Management

Governmental Activities debt includes the following:

In May 2008, the District issued $8,165,000 Series 2008 Special Assessment Bonds. These bonds were issued to finance the acquisition and construction of certain improvements for the benefit of the District. Many of those improvements have been conveyed to other government. The Series 2008 Special Assessment Bonds were refunded and/or cancelled during the current year.

In August 2018, the District issued debt of $11,175,000 of Special Assessment Revenue and Refunding Bonds, Series 2018. These bonds were issued to refund a portion of the Series 2008 Special Assessment Revenue Bonds and to provide funding for the Series 2018 Project. The balance outstanding at September 30, 2018 was $11,175,000.

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Economic Factors and Next Year’s Budget

The District anticipates the improvements to the Clubhouse will continue.	In addition, it is anticipated that the general operations of the District will remain fairly constant.

Request for Information

The financial report is designed to provide a general overview of Deer Run 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 Deer Run Community Development District, Governmental Management Services, CF, LLC, 135 West Central Boulevard, Suite 320, Orlando, FL 32801.

	Governmental
Activities	
ASSETS
Current Assets		
Cash	$	30,096	
Assessments receivable	643	
Due from developer	52,224	
Due from other governments	181	
Prepaid expenses	 	7,401 	
Total Current Assets	 	90,545 	
Non-current Assets Restricted assets
Investments	3,753,734
Capital assets,not being depreciated
Construction in progress	507,415
Capital assets, being depreciated
Infrastructure	3,567,906	
Less: accumulated depreciation	 	(913,410)	
Total Non-current Assets	 	6,915,645 	
Total Assets	 	7,006,190 	

LIABILITIES
Current Liabilities
Accounts payable and accrued expenses	597,056	
Accrued interest	60,693	
Unearned revenues	21,450	
Bonds payable - current portion	 	205,000 	
Total Current Liabilities	 	884,199 	

Non-current Liabilities Bonds payable
Total Liabilities

 	10,922,062 
 	11,806,261 

NET POSITION		
Net investment in capital assets	(405,995)	
Restricted-debt service	55,813	
Unrestricted	 	(4,449,889)	
Total Net Position	  $	(4,800,071)	

See accompanying notes to financial statements.

STATEMENT OF ACTIVITIES
For the Year Ended September 30, 2018

Program Revenues
Operating

Net (Expense) Revenues and Changes in Net Position

Functions/Programs	Expenses	Charges for
Services	Grants and
Contributions	Governmental
Activities	
Governmental Activities								
General government	$	(70,066)		$	44,879		$	23,540		$	(1,647)	
Physical environment	(316,567)		137,764		72,260		(106,543)	
Interest on long-term debt	(855,159)		141,554		-		(713,605)	
Total Governmental Activities	  $ (1,241,792)		  $	324,197 		  $	95,800 		(821,795)	

General revenues:	
Investment earnings	3,345	
Miscellaneous revenues	 	4,500 	
Total General Revenues	7,845	

Cancellation of debt	
6,057,538	

Change in Net Position	
5,243,588	
Net Position - October 1, 2017	 	(10,043,659)	
Net Position - September 30, 2018	  $	(4,800,071)	

BALANCE SHEET GOVERNMENTAL FUNDS
September 30, 2018

									Total	
					Debt		Capital		Governmental	
ASSETS
Cash	 	
$	General	
30,096		 	
$	Service	
-		 	Projects	
$	-		 	Funds	
$	30,096	
Assessments receivable		-			643		-		643	
Due from other funds		6,510			-		-		6,510	
Due from developer		52,224			-		-		52,224	
Due from other governments		181			-		-		181	
Prepaid items		7,401			-		-		7,401	
Restricted assets										
Investments, at fair value	 	- 	 	519,153 		    3,234,581 		3,753,734

  $	3,850,789 	
Total Assets	  $		96,412 		  $		519,796 		  $3,234,581 			

LIABILITIES DEFERRED INFLOWS OF										
RESOURCES AND FUND BALANCES										
LIABILITIES										
Accounts payable and accrued expenses	$	69,361		$	-		$ 527,695		$	597,056	
Due to ther funds		-			-		6,510		6,510	
Unearned revenues	 	21,450 	 	- 		 	- 		21,450

 	625,016 	

Total Liabilities	
 	90,811 	
 	- 		
 	534,205 			
DEFERRED INFLOWS OF RESOURCES										
Deferred revenues	 	27,224 	 	- 		 	- 		 	27,224 	
FUND BALANCES										
Nonspendable										
Prepaid items		7,401			-		-		7,401	
Restricted										
Debt service		-			519,796		-		519,796	
Capital projects		-			-		2,700,376		2,700,376	
Unassigned

Total Fund Balances

Total Liabilities, Deferred Inflows		(29,024)

(21,623)			- 519,796		- 2,700,376		(29,024)

3,198,549	
of Resources and Fund Balances	  $		96,412 		  $		519,796 		  $3,234,581 		   $	3,850,789 	

RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES
September 30, 2018

Total Governmental Fund Balances	$	3,198,549	
Amounts reported for governmental activities in the Statement of Net Position			
are different because:			
Capital assets not being depreciated, construction in progress, $507,415, used in	
governmental activities are not current financial resources and therefore,			
are not reported at the fund level.		507,415	
Capital assets being depreciated, infrastructure, $3,567,906, net of accumulated	
depreciation, $(913,410), used in governmental activities are not current financial	
resources and therefore, are not reported at the fund level.		2,654,496	
Long-term liabilities, such as bonds payable $(11,175,000), net of bond discounts, net,	
$47,938, are not due and payable in the current period and therefore, are not	
reported at the fund level.		(11,127,062)	
Certain revenues that are not available are reflected as deferred inflows of resources	
at the fund level, however, revenues are recognized when earned at the			
government-wide level.		27,224	
Accrued interest expense for long-term debt is not a current financial use			
and therefore, is not reported at the fund level.		(60,693)	

Net Position of Governmental Activities	
  $		
(4,800,071)	

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – GOVERNMENTAL FUNDS
September 30, 2018

								Total	
				Debt		Capital		Governmental	
	 	General			 	Service			 	Projects			 	Funds		
REVENUES									
Special assessments	$	182,643		$	141,554		$	-		$	324,197	
Developer contributions		68,576		-		-		68,576	
Investment earnings		-		2,202		1,143		3,345	
Miscellaneous revenues	 	4,500 		 	- 		 	- 		 	4,500 
 	400,618 	
Total Revenues	 	255,719 		 	143,756 		 	1,143 			
EXPENDITURES									
Current									
General government		70,066		-		-		70,066	
Physical environment		215,077		-		-		215,077	
Capital outlay		-		-		507,415		507,415	
Debt service									
Principal		-		7,389,893		107		7,390,000	
Interest		-		614,556		-		614,556	
Other debt service		-		-		414,540		414,540

9,211,654	
Total Expenditures

Excess of Revenues over/(under)		285,143		8,004,449		922,062			
Expenditures

Other Financing Sources/(Uses)		(29,424)		(7,860,693)		(920,919)		(8,811,036)	
Transfers in		-		-		3,397,689		3,397,689	
Transfers out		-		(3,397,689)		-		(3,397,689)	
Issuance of long-term debt		-		10,903,406		271,594		11,175,000	
Bond discount		-		-		(48,094)		(48,094)	
Gain on cancellation of debt		-		5,178,038		-		5,178,038	

Total Other Financing Sources/(Uses)		
-		
12,683,755		
3,621,189		

16,304,944	
Net change in fund balances		(29,424)		4,823,062		2,700,270		7,493,908	
Fund Balances - October 1, 2017		7,801		(4,303,266)		106		(4,295,359)	
Fund Balances - September 30, 2018	$	(21,623)		$	519,796		$ 2,700,376		$ 3,198,549	

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, 2018

Net Change in Fund Balances - Total Governmental Funds	$	7,493,908	
Amounts reported for governmental activities in the Statement of Activities are		
different because:		
Governmental funds report capital outlays as expenditures, however		
in the Statement of Activities, the cost of those assets is allocated over		
their estimated useful lives as depreciation. This is the amount that capital		
outlay, $507,415, exceeded depreciation, $(101,490), in the current period.	405,925	
Repayment of bond principal is an expenditure in the governmental funds,		
but the repayment reduces long-term liabilities in the Statement of Net Position.	7,390,000	
The issuance of new debt is reflected as an other financing source at the fund level,		
however, it is an increase in non-current liabilities at the government-wide level.	(11,175,000)	
The bond discount associated with new debt is reflected as an other financing use at		
the fund level, however at the government-wide level it is reflected as a contra-liability	48,094	
Revenues that are not available at year end are reflected as a deferred inflow of		
resources at the fund level, however, at the government-wide level revenues are		
recognized when earned.	27,224	
Certain interest accrued at the government-wide level was cancelled as part of the		
issuance of new debt.	879,500	
Bond discounts associated with new debt are recorded as an other financing use at the		
fund level, however, at the government-wide level it is reflected as a		
contra-liability and amortized over the life of the debt. This the amount of the		
current year amortization.	(156)	
In the Statement of Activities, interest is accrued on outstanding bonds, whereas in		
governmental funds, interest expenditures are reported when due.		
This is the net amount between the prior year and the current year accruals.

Change in Net Position of Governmental Activities	174,093	
	
$	5,243,588	

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND
For the Year Ended September 30, 2018

Revenues
Special assessments Developer contributions Miscellaneous revenues
Total Revenues	

Original Budget

$  182,971
- 4,800
187,771	

Final Budget

$ 182,971
109,227
4,800

296,998		

$	

Actual

182,643
68,576
4,500
255,719	Variance With Final Budget Positive (Negative)

$	(328)
(40,651)
(300)

(41,279)	

Expenditures Current
General government Physical environment
Total Expenditures	

82,992
106,570

189,562	

82,299
222,500

304,799			

70,066
215,077
285,143			

12,233
7,423
19,656	

Net change in fund balances	
(1,791)	
(7,801)			
(29,424)			
(21,623)	
Fund Balances - October 1, 2017	1,791	7,801			7,801			-	

Fund Balances - September 30, 2018	
  $		
- 		
   $		
- 		
  $		
(21,623)		
  $		
(21,623)	

NOTES TO FINANCIAL STATEMENTS
September 30, 2018

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of Deer Run Community Development District (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 May 15, 2007 by an ordinance of the Board of City Commissioners of the City Of Bunnell, Florida, under the Uniform Community Development District Act of 1980, Chapter 190, Florida Statutes, as amended (the "Act"), as a Community Development District. 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 governed by a five-member Board of Supervisors, who are elected by the property owners for terms of four and two years. The District operates within the criteria established by Chapter 190, Florida Statutes. The Board has the responsibility for assessing and levying assessments, approving budgets, exercising control over facilities and properties, controlling the use of funds generated by the District, approving the hiring and firing of key personnel, and financing improvements.

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

Based upon the application of the above-mentioned criteria as set forth in 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

Government-wide Financial Statements

Government-wide financial statements report all non-fiduciary information about the reporting government as a whole. These statements include 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.

b. Fund Financial Statements (Continued) Governmental Funds
The District has 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 the state 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. Unassigned fund balance is considered to be utilized first when expenditure is incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used.

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.

Measurement Focus and Basis of Accounting (Continued)

b. Fund Financial Statements (Continued) Governmental Funds (Continued)
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are considered to be available when they are collected within the current period or soon thereafter to pay liabilities of the current period. For this purpose, the District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period.

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.

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 were 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.

Basis of Presentation (Continued)

Governmental Major Funds (Continued)

Debt Service Fund – Accounts for debt service requirements to retire certain special assessment revenue and refunding bonds which were used to refund existing debt and finance certain additional improvements. The bond series is secured by a pledge of debt service special assessment revenues in any fiscal year related to the improvements. A lien is placed on all benefited land in relationship to the debt outstanding.

Capital Projects Fund – The Capital Project Fund accounts for construction of certain additional improvements within the boundaries of the District, which is funded by bond proceeds. A lien is placed on all benefited land in relationship to the debt outstanding.

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 special assessment 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.

Assets, Liabilities and Net Position or Equity (Continued)

Cash and Investments (Continued)

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.

Cash equivalents include time deposits and certificates of deposit with original maturities of three months or less and held in a qualified public depository as defined by Florida Statute 280.02.

Receivables and Payables

Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds”. Any residual balances outstanding between the governmental activities and business- type activities are reported as “internal balances”.

Restricted Net Position

Certain assets of the District and a corresponding liability or portion of net position is classified as restricted 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 net position, qualified expenses are considered to be paid first from restricted net position and then from unrestricted net position.

Capital Assets

Capital assets, which include land and infrastructure, are reported in the applicable governmental activities column.

The District defines capital assets as assets with an initial, individual cost of $5,000 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.

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

4. Assets, Liabilities and Net Position or Equity (Continued)

Capital Assets (Continued)

Major outlays for capital assets and improvements are capitalized as projects are constructed.

Depreciation of capital assets is computed and recorded by utilizing the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows:

Infrastructure and improvements	20 years

Unamortized Bond Discount

Bond discounts are presented on the government-wide financial statements. The costs are amortized over the life of the bonds using the method of accounting. For financial reporting, the unamortized bond discount is netted against the applicable long-term debt.

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. 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 variance columns of the accompanying financial statements may occur.

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

1. 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 $3,198,549 differs from “net position” of governmental activities $(4,800,071) 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.

NOTE	B	–		RECONCILIATION	OF	GOVERNMENT-WIDE	AND	FUND	FINANCIAL STATEMENTS (CONTINUED)
Explanation of Differences Between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Position (Continued)
Capital related items
When capital assets (land, infrastructure and improvements 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.

Infrastructure	$	3,567,906	
Construction in progress	507,415	
Accumulated depreciation	 	(913,410)	
Total	$	3,161,911	
Long-term debt transactions
Long-term liabilities applicable to the	

District’s governmental activities are not due and	
payable in the current period and accordingly are not reported as fund liabilities.  All liabilities (both current and long-term) are reported in the Statement of Net Position. Balances at September 30, 2018 were:

Bonds payable	$	(11,175,000)	
Bond discount, net	 	47,938	
Total	$	(11,127,062)	
Deferred inflows of resources
Certain revenues that were not available at year end were reflected as deferred inflows of resources at the fund level. Revenues are recognized when earned at the government-wide level.
Deferred revenues	$	27,224
Accrued interest
Accrued liabilities in the Statement of Net Position differ from the amount reported in governmental funds due to accrued interest on bonds.
Accrued interest on bonds payable	$	(60,693)
Explanation of Differences Between the Governmental Fund Operating Statements and the Statement of Activities
The “net change in fund balances” for government funds $7,493,908 differs from the “change in net position” for governmental activities $5,243,588 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 as follows.

NOTE	B	–		RECONCILIATION	OF	GOVERNMENT-WIDE	AND	FUND	FINANCIAL STATEMENTS (CONTINUED)
2. Explanation of Differences Between the Governmental Fund Operating Statements  and the Statement of Activities (Continued)
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, at the government-wide level, the costs of those assets is allocated over their estimated useful lives and reported as depreciation. As a result, fund balances decrease by the amount of financial resources expended, whereas net position decrease by the amount of depreciation charged for the year.
Depreciation	$	(101,490)
Capital outlay	 	507,415
Total	$	405,925
Deferred inflows of resources
Revenues that are available at year end are recognized as deferred inflows of resources, however, revenues are recognized as earned at the government-wide level. This is the amount deferred in the current year.
Deferred revenues	$	27,224
Long-term debt transactions
Repayments of bond principal are reported as an expenditure in the governmental funds and, thus, have the effect of reducing fund balance because current financial resources have been used.

Debt principal payments	$	7,390,000	
Issuance of new debt	(11,175,000)	
Bond discount	 	48,094	
Total	$	(3,736,906)	

Some expenses reported at the government-wide level do not require the use of current financial resources, and therefore, are not reported as expenditures in at the fund level.

Interest on matured interest and bonds payable	$	174,093	
Amortization of bond discount	$	(156)	
Cancellation of debt	$	879,500	

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 does not have a formal deposit policy for custodial credit risk, however, they follow the provisions of Chapter 280, Florida Statutes regarding deposits and investments. As of September 30, 2018, the District's bank balance was $30,281 and the carrying value $30,096. Exposure to custodial credit risk was as follows. The District maintains all deposits in a qualified public depository in accordance with the provisions of Chapter 280, Florida Statutes, which means that all deposits are fully insured by Federal Depositors Insurance or collateralized under Chapter 280, Florida Statutes.

As of September 30, 2018, the District had the following investments and maturities:

 	Investment		 Maturities	    Fair Value		
FIMM Government Portfolio	36 days*	  $ 3,753,734 	
* Weighted average maturity			

The District categorizes its fair value measurement within the fair value hierarchy 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 realizable and is based on quoted price for identical assets, or liabilities, in an active market. Level 2 uses significant other observable inputs when obtained 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 uses the best information available under the circumstances which includes the District's own data in measuring unobservable inputs.

The investment listed above is a level 1 asset.

Credit Risk
The District's investments in 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, 2018, the District's investment in the FIMM Government Portfolio was rated AAAm by Standard & Poor's.
Concentration of Credit Risk
The District places no limit on the amount it may invest in any one fund. The investment in the FIMM Government Portfolio is 100% of the District’s total investments.
The types of deposits and investments and their level of risk exposure as of September 30, 2018 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
Special assessment revenues recognized for the 2017-2018 fiscal year were levied in October 2017. All taxes certified to the County’s Tax Collector are due and payable on November 1, and certified to the County's Tax Collector. Per Section 197.162, Florida Statutes discounts are allowed for early payment at the rate of 4% in November, 3% in December, 2% in January, and 1% in February. Taxes paid in March are without discount.

NOTE E – CAPITAL ASSETS
Capital Asset activity for the year ended September 30, 2018 was as follows:

	Balance						Balance	
	October 1,					September 30,	
	 	2017			   Additions 	  Deletions 	 	2018		
Governmental Activities:						
Capital assets, not being depreciated								
Construction in prgress	  $		- 	  $ 507,415 	  $		- 	  $		507,415 	
Capital assets, being depreciated:								
Infrastructure	 	3,567,906 	 	- 	 	- 	 	3,567,906 	
Less accumulated depreciation for:						
Infrastructure	 	(811,920)	 	(101,490)	 	- 	 	(913,410)	
Capital assets being depreciated, net	 	2,755,986 	 	(101,490)	 	- 	 	2,654,496 	
Governmental Activities Capital Assets	  $ 2,755,986 	  $ 405,925 	  $	- 	  $	3,161,911 	

Depreciation of $101,490 was charged to physical environment.

NOTE F – LONG-TERM DEBT

The following is a summary of activity for long-term debt of the District for the year ended September 30, 2018:

Long-term debt at October 1, 2017	$	7,390,000	
Issuance of long-term debt	11,175,000	
Principal	 	(7,390,000)	
Long-term debt at September 30, 2018	11,175,000	
Bond discount, net	 	(47,938)	
Long term-debt at September 30, 2018, net	$ 11,127,062	
Long-term debt is comprised of the following:		
Special Assessment Revenue and Refunding Bonds		
$11,175,000 Series 2018 Special Assessment Revenue and		
Refunding	Bonds	due	in	annual	principal	installments		
beginning May 2019, maturing in May 2044. Interest at		
various rates between 5.4% and 5.5% due in November and		
May, beginning November 2018. Current portion is $205,000.	$	11,175,000	

The annual requirements to amortize the principal and interest of bonded debt outstanding as of September 30, 2018 are as follows:

Year Ending							
    September 30,	
2019	 	Principal		 	Interest		 	Total		
	$	205,000	$	416,421	$	621,421	
2020		215,000		595,860		810,860	
2021		225,000		584,250		809,250	
2022		240,000		572,100		812,100	
2023		250,000		559,140		809,140	
2024-2028		1,480,000		2,577,000		4,057,000	
2029-2033		1,945,000		2,129,610		4,074,610	
2034-2038		2,540,000		1,543,980		4,083,980	
2039-2043		3,300,000		776,555		4,076,555	
2044	 	775,000 	 	42,625 	 	817,625 	
Totals	  $		11,175,000 	  $		9,797,541 	  $		20,972,541 	

NOTE F – LONG-TERM DEBT (CONTINUED)

Summary of Significant Bonds Resolution Terms and Covenants
The District levies special assessments pursuant to Section 190.022, Florida Statutes and the assessment rolls are approved by resolutions of the District Board. The collections are to be strictly accounted for and applied to the debt service of the bond series for which they were levied. The District covenants to levy special assessments in annual amounts adequate to provide for payment of principal and interest on the bonds. Payment of principal and interest is dependent on the money available in the debt service fund and the District’s ability to collect special assessments levied.

The bonds are subject to extraordinary mandatory redemption prior to maturity, in whole on any date, or in part on an interest payment date, without premium, together with accrued interest to the redemption date if monies are available to retire the debt in accordance with the provisions of the indenture.

The bond resolution and the trust indenture provide for the establishment of certain accounts. The accounts include a construction, revenue, redemption, reserve, interest and prepayment account and are maintained by a trustee.

The bond indenture provides for Debt Service Reserve Funds, which shall be held by the Trustee separate and apart from all other funds. The following is a schedule of reserve requirements and balances in the reserve accounts at September 30, 2018:

Reserve	Reserve	
 	Balance		   Requirement 	
Series 2018	  $ 	403,429 	  $		403,290 	

In August 2018, the District issued $11,175,000 of Series 2018 Special Assessment Revenue and Refunding Bonds, which retired a portion of the Series 2008 Special Assessment Revenue Bonds. As a result of this transaction, the District decreases its aggregate debt payment for Series 2018 Bonds by $420,313 over the next 26 years and realized an economic gain of approximately $1,148,725. In addition, matured principal of $835,000, unmatured principal of
$25,000, and matured interest of $4,318,038 was cancelled during the current year.

NOTE G – MANAGEMENT COMPANY

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

NOTE H – 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.

NOTE I – DEVELOPER AGREEMENT

The Developer owns a portion of the land within the District; therefore, assessment revenues in the General Fund include assessments levied on the Developer owned property.

Additionally, the District entered into a deficit funding agreement with the Developer. Pursuant  to the deficit funding agreement dated October 1, 2017, the Developer has agreed to fund any deficit of the District’s operating and maintenance expenditures in excess of the special assessments collected up to the total amount expended by the District for the fiscal year, without any reimbursement to the Developer. Pursuant to this agreement, the Developer contributed $68,576 for the year ended September 30, 2018.

r�tt Berger, Toombs, Elam, CO:, Gaines & Frank
Certified Public Accountants	PL
600 Citrus Avenue
Suite 200
Fort Pierce, Florida 34950
772/461-6120 // 461-1155
FAX: 772/468-9278

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
Deer Run Community Development District Flagler County, Florida

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Deer Run Community Development District, as of and for the year ended September 30, 2018, and the related notes to the financial statements, and have issued our report thereon dated June 26, 2019.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Deer Run 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 Deer Run Community Development District’s internal control. Accordingly, we do not express an opinion on the effectiveness of Deer Run 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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��tt Berger, Toombs, Elam,
,OJ Gaines & Frank
CertifiedPublicAccountants   PL

Board of Supervisors
Deer Run Community Development District

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Deer Run 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.

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
Fort Pierce, Florida June 26, 2019

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r�tt Berger, Toombs, Elam,
CO:, Gaines & Frank
Certified Public Accountants	PL
600 Citrus Avenue
Suite 200
Fort Pierce, Florida 34950
772/461-6120 // 461-1155
FAX: 772/468-9278

MANAGEMENT LETTER
To the Board of Supervisors
Deer Run Community Development District Flagler County, Florida
Report on the Financial Statements

We have audited the financial statements of the Deer Run Community Development District as of and for the year ended September 30, 2018, and have issued our report thereon dated June 26, 2019.
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 that report, which is dated June 26, 2019, 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 made to address findings and recommendations made in the preceding financial audit report. The following findings or recommendations were made in the preceding financial audit report:

Finding 2013-01/2014-01/2015-01/2016-01/2017-01 Reserve Requirement

Finding:	The Debt Service reserve requirement for the Series 2008 Bonds was not met at September 30, 2017.

Recommendation:	The District should make the necessary arrangements to ensure funds are available to make debt service payments.

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To the Board of Supervisors
Deer Run Community Development District

Management Response: The District is working directly with the Trustee and Bondholders to resolve all financial issues related to the non-payment of assessments which resulted in a foreclosure lawsuit, settlement agreement, insufficient funds to meet debt service requirements, fund balance deficits and failure to meet Debt Service Reserve Fund requirements.

Current Status:	The bonds were refunded and/or cancelled during the year and this finding was corrected in the current year.

Finding 2013-02/2014-02/2015-02/2016-02/2017-02 Financial Condition Assessment

Finding:	The District’s financial condition continues to deteriorate. As of September 30, 2018, the District reported a fund balance deficit for which sufficient resources were not available to cover the deficit in the Debt Service Fund. The District has not had sufficient funds to make  a scheduled debt service payment since November 2011 and the Series 2008 Bonds remain in default. Also, the 2008 Construction Project was halted and the future of the project remains uncertain.

Recommendation:		The District should continue taking the necessary steps to improve the deteriorating financial condition.

Management Response: The District is working directly with the Trustee and Bondholders to resolve all financial issues related to the non-payment of assessments which resulted in a foreclosure lawsuit, settlement agreement, insufficient funds to meet debt service requirements, fund balance deficits and failure to meet Debt Service Reserve Fund requirements.
Current Status:	This finding has been corrected as of September 30, 2018.

Financial Condition and Management

Section 10.554(1)(i)5.a. and 10.556(7), Rules of the Auditor General, requires us to apply appropriate procedures and communicate the results of our determination as to whether or not Deer Run 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 the Deer Run Community Development District did meet one of the conditions described in Section 218.503(1), Florida Statutes. See Finding above.
Pursuant to Sections 10.554(1)(i)5.c. and 10.556(8), Rules of the Auditor General, we applied financial conditions assessment procedures as of September 30, 2018 for the Deer Run Community Development District. It is management’s responsibility to monitor the Deer Run 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.

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.

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To the Board of Supervisors
Deer Run Community Development District

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 which 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 June 26, 2019

- 34 -

r�tt Berger, Toombs, Elam, CO:, Gaines & Frank
Certified Public Accountants	PL
600 Citrus Avenue
Suite 200
Fort Pierce, Florida 34950
772/461-6120 // 461-1155
FAX: 772/468-9278

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

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

We have examined Deer Run Community Development District's compliance with Section 218.415, Florida Statutes during the year ended September 30, 2018. Management is responsible for Deer Run Community Development District’s compliance with those requirements. Our responsibility is to express an opinion on Deer Run 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 Deer Run 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 Deer Run Community Development District’s compliance with the specified requirements.

In our opinion, Deer Run Community Development District complied, in all material respects, with the aforementioned requirements during the year ended September 30, 2018.

Berger, Toombs, Elam, Gaines & Frank Certified Public Accountants PL
Fort Pierce, Florida June 26, 2019

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