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1987 Financial Statement I, I I I I , .. BUREAU OF INSPECTION AND SUPERVISION OF PUBLIC OFFICES . REPORT OF EXAMINATION . CITY OF FAIRLAWN 20977-04-0427-00 SOUTHEAST REGION, DISTRICT 8 SUMMIT COUNTY REGULAR AUDIT JANUARY 1, 1986 THROUGH DECEMBER 31, 1987 FISCAL YEAR AUDITED UNDER GAGAS: 1987 THOMAS E. FERGUSON Auditor of State AUD-'4754 (formerly Form 106) TO WHOM IT MAY CONCERN: Any person or persons examining this report for the purpose of obtaining information for the general public, as to the results of this examination, should: Always remember that it takes years for a person to build a reputation: Always remember that one of the purpõsés of these examinations is to safeguard the honest, well- meaning official who might have made a mistake, even as you and I; I Always remember that a summary of findings, if any, as found in the body of this report, contains only the bare cold facts. Please read carefully the explan- atory material contained in this report for the precise description of the situations covered in the audit. Always remember that if this course is followed, the general public, which is served by the official, will receive an unprejiJdiced, unbiased report. . Respectfully submitted, BUREAU OF INSPECTION AND SUPERVISION OF PUBLIC OFFICES - STATE OF OHIO ~ efi) --- THOMAS E. FERGUSONG Chief Inspector ,~.... .. CITY OF FAIRLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE Elected Officials Administrative Personnel Index of Funds Auditor's Opinion Combined Statement of Cash, Investments and Fund Cash Balances - All Fund Types Combined Statement of Cash Receipts, Disbursements and Changes in Fund Cash Balances - All Governmental Fund Types Combined Statement of Cash Receipts, Disbursements and Changes in Fund Cash Balances - Agency Fund Types Combined Statement of Receipts - Budget and Actual Combined Statement of Disbursements and Encumbrances Compared with Expenditure Authority Notes to Financial Statements Legal Compliance Noncompliance Citations Status of Prior Audit's Citations and Recommendations Management Comments and Recommendations General Comments Conclusion Statement Assistant Auditor's Certification ":"'," . . ~ .~. '" PAGE (1) (11) (11i) 1 2-3 4 5 6 7-16 17-19 20 21-23 24 25 26 CITY OF FAIRLAWN 3487 SOUTH SMITH ROAD FAIRLAWN , OHIO 44313 SUMMIT COUNTY . , i , ELECTED OFFICIALS AS OF DECEMBER 31, 1987 it ~ ELECTED OFFICIAL TITLE TERM OF OFFICE SURETY AMOUNT PERIOD Peter M. Kostoff Mayor 1/1/86-12/31/87 (A) (B) 5/1/87- 161 Grayling Dr. 5/1/88 Fairlawn. Ohio 44313 William Stalker Council 1/1/86-12/31/87 (A) (B) 5/1/87- 434 Marviel Dr. President 5/1/90 Fairlawn, Ohio 44313 Ginnie Singleton Council 1/1/86-12/31/87 (A) (B) 5/1/87- Member 5/1/88 James Swartz- Council 1/1/86-12/31/87 (A) (B) 5/1/87- Member 5/1/88 Richard Steichen Council 1/1/86-12/31/87 (A) (B) 5/1/87- Member 5/1/88 Gary Shaw Council 1/1/86-12/31/87 (A) (B) 5/1/87- Member 5/1/88 Rosemarie Striegel Council 1/1/86-12/31/87 (A) (B) 5/1/87- !.'. Member 5/1/88 r .~ Frank Martucci Council 1/1/86-12/31/87 (A) (B) 5/1/87- Member 5/1/88 Lawrence W. Pelland Finance 1/1/86-12/31/87 (A) (B) 5/1/87- 469 Cartwright Dr. Director 5/1/90 Fairlawn. Ohio 44313 (A) Allstate Insurance Company (B) $15,000 (i) "." -. . .-,. " ~ I - . - Ti tle Tax Adainistrator Ray Hartung Law Director Jaaes Graves 34 Morz Blvd. Fairlawn, Ohio 44313 (A) CITY OF FAIRLAWN SUMMIT COUNTY ADMINISTRATIVE PERSONNEL AS OF DECEMBER 31, 1987 Term of Office or Contract Period 1/1/84-12/31/87 1/1/84-12/31/87 Allstate Insurance Company . .", "-:"',"-,,".: '., Surety Amount (A) $15.000 (A) $15,000 ( 11) Period 5/1/88- 5/1/90 5/1/87- 5/1/88 .".' '-'" . ',,". . CITY OF FAIRLAWN SUMMIT COUNTY INDEX OF FUNDS GOVERNMENTAL FUND TYPES: General Fund Type: General Pund '1 S»ecial Revenue Fund Types: Street Construction. Maintenance Street Highway Improvement Fund Permissive Tax Fund Income Tax Fund Federal Revenue Sharing Pund Parks and Recreation Fund Recreation Special Events Pund and Repair Fund Capital Projects Fund Types: Park Improvement Pund Sewer Improvement Fund Capital Reserve Fund Capital Improvement Fund Special Assessment Fund Types: Special Assessment Bond Retirement Fund , < FIDUCIARY FUND TYPES: Trust and Agency Fund Types: Agency Fund: ;-1 (Hi) " . .. .,.,'-'",",",.'", ."' ',~. ;";' '," ','. ";" .' ~ -, .; ~PUTY AUDITORS: \ , McCULLOUGH I JAMS. III, ESQUIRE , Administration (614) 466-4514 AICHARD G. NUSS. CPA -¡apartment of Audit ¡ (614) 466-4971 'f¡.< ;JWAINE E. GOULD ~formation Systems ; Audits (614) 466-4971 RUSSELL L. ROUCH M~...agement Advisory I . Service it (614) 466-4717 !OUTHEAST REGION i: !Y. RONALD BEIGHT Regional Administrator IffiC8S" {egiOnal Administrator and Di~trict 8 5560 Dressler Rd. N.W. ÀJite 210 ~nton. Ohio 44720 .2'61497-5400 (800) 443-9272 .Iistrict 7 .'U7S8 Southgate Rd. ðyesvllle. Ohio 43723 (6'4) 432-6371 'SOO) 441-1389 .'.M THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43266-0040 (614) 466-4514 Me.bers of Council City of Fairlawn Fairlawn, Ohio We have examined the combined financial statements of the various ,runds of the Ci ty of Fair lawn as of December 31, 1987, and for the year the]~ ended, as listed in the accompanying table of contents. Our examination .,as made in accordance with generally' accepted goverlUlent auditing standard:9 for financial and compl1ance audits and, accordingly, included such tei9ts of the accounting records and such other auditing procedures as we considered necessary in the circU8stances. As described in Note 1 to the financial statements, the City prepait'es its financial statements on the bliSis of cash receipts and disbursements: consequently, certain revenues and the related assets are recognizll!d when received rather than when earned, and certain expenditures or expelrlses are recognized when paid rather than when a liability is incurred. Accordingly, the accompanying financial statements àre not intended. to present financial position and results of operations in conformity with generally accepted accounting principles. As more fully described in Note 8, the City of Fairlawn is involved. in pending litigation regarding claims made against the City for $140,011.88. The outcome of any action cannot be determined at this time. In our opinion. the financial statements referred to above present fairly the combined cash, investments, and fund cash balances of the vari,Qus funds of the City, the related combined receipts. disbursements, and changes in fund cash balances, budgeted and actual receipts, prior year carryover and current year appropriations, encumbrances, and disbursements, as of December 31, 1987, and for the year then ended, on the basis of accounting described in Note I, which basis has been applied in a manner consistent with that of the preceding year. 5à--¿9~ THOMAS B. FBRGUSON Auditor of State August 4, 1988 , ~'. CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH. INVESTMENTS. CASH BALANCES - ALL FUND TYPES AS OF DECEMBER 31. 1987 AND FUND Cash Investments: Cash Equivalents $ 461.702 Total 1.552.974 $2.014.676 ========== CASH BALANCES BY FUND CLASS Governmental Funds: General Fund Special Revenue Funds Capital Projects Funds Special Assessment Funds $ 629.617 217.227 1,119.561 1.580 Fiduciary Funds: Trust and Agency Funds 46,691 Total $2.014.676 --------- --------- The notes to the financial statements are an integral part of this statement. -1- -;." . ~ -. .~.. :.- , . " CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH RECEIPTS. DISBURSEMENTS. AND CHANGES IN FUND CASH BALANCES - ALL GOVERNMENTAL FUND TYPES FOR THE YEAR ENDED DECEMBER 31. 1987 General Governmental Fund Tyoes Special Revenue REVENUE RECEIPTS $ 340.968 $2.985.841 296.175 97,848 33,583 0 132,151 0 128.744 46.453 931,621 3.130.142 Local Taxes Intergovernmental Receipts Charges for Services Fines, Licenses and Permits Miscellaneous TOTAL REVENUE RECEIPTS. EXPENDITURE DISBURSEMENTS: Current: Security of Persons and Public Health Services Leisure Time Activities C08munity Environment Basic Utility Services Transportation General Government Capital Outlay Debt Service Property 1.244.020 48.241 61,157 20.593 204.596 264.645 580.827 0 0 Total EXPENDITURE DISBURSEMENTS 2.424.079 Total Revenue Receipts Over (Under) Expenditure Disbursements (1.492.458) "C'''';' 0 0 128.734 0 0 87,804 69.897 22.~29 0 308.664 2.821.478 , '.'.'. - :c.:.:" .~. ':':, 1" ':.,. :.. .,., . :.''': ~ '.~'.~-~.- . . .,.,""'"" "'." \. . . . ,J' ..,. '" ','.,.,,:-... Fund Types Capital Special Projects Assessments Totals (Memorandum Only) $ 77, 118 $ 0 $ 3,403,927 0 0 394,023 0 0 33,583 0 0 132,151 20.896 0 196,093 98,014 0 4,159.777 0 0 1,244,020 0 0 48,241 3,797 0 193,688 0 0 20,593 169,963 0 374,559 246,620 0 599,069 0 0 650,724 0 6,334 28,563 103,708 25,841 129.549 524,088 32,175 3,289,006 (426,074) (32,175) 870,771 -2- .' . "" '.,..' ~......... :.., , CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH RECEIPTS. DISBURSEMENTS. AND CHANGES IN FUND CASH BALANCES - ALL GOVERNMENTAL FUND TYPES FOR THE YEAR ENDED DECEMBER 31. 1987 OTHER FINANCING SOURCES- (USES): Transfers - In Transfers - Out Other Sources Other Uses TOTAL FINANCING SOURCES (USES) Excess of Receipts and Other Financing Sources Over (Under) Expenditure Disbursements and Other Uses Fund Cash Balance - January 1, 1987 Fund Cash Balance - December 31. 1987 Governmental Fund Types Special Revenue General 1,949.535 (56.206) 0 0 1,893,329 0 (3,309.226) 39,636 (64,778) (3.334.368) 400.871 (512.890) 228.746 730.117 $629,617 $217.227 =====-:=1== ======= The notes to the financial statements are an integral part of this statE~lIent. .- Fund Types Capital Special Projects Asse8sments Totals (Memorandum OnlY) 1,716.306 (333.999) 0 (526.101) 856.206 33.590 0 0 0 33,590 3.699.431 (3.699.431) 39.636 (590,879) (551,243) 430,132 1,415 319.528 689.429 165 1. 648 . 457 $1.119,561 $1.580 $1,967,985 :a:_====-=== ====== _z:_====== -3- " CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH RECEIPTS. DISBURSEMENTS, AND CHANGES IN FUND CASH BALANCES - AGENCY FUND TYPE FOR THE YEAR ENDED DECEMBER 31, 1987 Proprietary Fund Types Agency OPERATING RECEIPTS: $ 0 OPERATING DISBURSEMENTS: Other Operating Expenses Total Operating Disbursements 7,721 7,721 Excess of Cash Operating Receipts Over (Under) Operating Disbursements (7,721) Nonoperating Receipts (Disbursements): Other Nonoperating Receipts Total Nonoperating Receipts (Disbursements) 24,893 24,893 Nonoperating Disbursements: Other Nonoperating Expenses 4,000 l ,. Total Nonoperating Disbursements (4,000) ì Net Excess of Cash Receipts Over (Under) Disbursements 13,172 Fund Cash Balance-January 1. 1987 33.519 $46,691 ~ Fund Cash Balance-December 31, 1987 ======= The notes to the financial statements are an integral part of this statement. -4- '. CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF RECEIPTS - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31. 1987 Variance Favorable Fund Types/Funds BudŒet Actual (Unfavorable) GoverJUlental General $2.391.332 $2.881,156 $ 489.824 Special Revenue 2.936,875 3,169,778 232,903 Capital Projects 1.016.400 1,814,320 797,920 Special Assessments 0 33,590 33,590 Fiduciary Trust and Agency 18,000 24.893 6.893 Total (Memorandum Only) $6.362,607 .$7.923,7:37 $1,561.130 ===-===c:- ::::c=====:::== ========= "., , , The notes to the financial statements are an integral part of this statement. -5- -. ". -..';- :~ ""." ", -, ~', _. . w.,. '~.' CO CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF DISBURSEMENTS AND ENCUMBRANCES COMPARED WITH EXPENDITURE AUTHORITY FOR THE YEAR ENDED DECEMBER 31, 1987 Fund Types/Funds Prior Year Carryover Appropriations 1987 Appropriations Total Governmental General Special Capital Special Revenue Projects Assessments $ 4,968 2,084 61,636 0 $2,582,901 3,074,280 1,497,529 33,591 $2,587,869 3,076,364 1,559,165 33,591 Fiduciary Trust and Agency Total (Memorandum Only) 203 40,203 40,406 $68,891 $7,228,504 $7,297,395 ==::=== ==:===:==== ==:1:==:==== The notes to the financial statements are an integral part of this statement. ."".'" . .~ ': -: " .~ .:0..' ': ~..'-i" . .:." ~. -, , Actual 1987 Disbursements Encwñbrances Outstanding At 12-31-87 Total Variance Favorable (Unfavorable) $2,480,285 3,682,668 1,384,188 32,175 $14,178 27,898 46 , 171 665 $2,494,463 3,710,566 1,430,359 32,840 $ 93.406 (634.202) 128,806 751 11, 721 0 11,721 28,685 $7,591,037 $88,912 $7,679,949 $(382,554) D==-_===== ======= ========== ===:c:===== -6- .'~' , '". :.'" ,..: . CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) A. DESCRIPTION OF THE ENTITY The City of Fairlawn is a body politic and corporate established for the purpose of exercising the rights and privileges conveyed to it by the constitution and laws of the State of Ohio. 1 The City operates under a council-mayor form of provides the following services: public safety and recreation. government and and service, parks Management believes the financial statements included in this report represent all of the funds of the City over which the City' officials have the ability to exercise direct operating control. B. BASIS OF ACCOUNTING The City of Fairlawn prepares its financial statements on a basis. of cash receipts and disbursements. Consequently, certain revenUles and the related assets are recognized when received rather than when earned, and certain expenditures are recognized when paid rather than when the obligation is incurred. A general fixed ass:et group and long-term debt group of accounts are not recorded on the financial statements by the City under the basis of accounting used. By virtue of Ohio law, the City is required to maintain the encumbrance method of accounting and to make appropriations. C. POOLED CASH AND INVESTMENTS The City maintains a cash and investment pool used by all funds. The amounts of this pooled investment are reflected on the Statement of Cash, Investments, and Fund Cash Balances as Cash, Cash Equivalents and/or Other Investments. Le2al Requirements. Statutes require the classification of moneys held by the City into three categories. Category A consists of "active" moneys, those moneys required to be kept in a "cash" or "near cash" status for immediate use by the City. Such moneys m\lst be maintained either as cash in the City treasury or negotiable order of withdrawal (NOW) accounts. -7- "., CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1987 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) c. POOLED CASH AND INVESTMENTS (Continued) Category B consists of "inactive" moneys, those moneys not requirE!d for use within the current two y'ear period of designation of depositories. Inactive monies may be deposited or invested only as certificates of deposit maturing not later than the end of the current period of designation of depositories. Category C consists of "interim" moneys, those moneys which are not needed for immediate use but which will be needed before the end of the current period of depositories. Interim moneys may be investE!d . or deposited in the following securities: 1. Bonds, United States notes, or other obligations of or guaranteed by the States, or those for which the faith of the United is pledged for the payment of principal and interest; 2. Bonds, notes, debentures, or other obligations or securities issued by any federal government agency, or the Export-Import Bank of Washington; 3. Repurchase agreements in the securities enumerated above; 4. Interim deposits in the eligible institutions applying for interim moneys; 5. Bonds and other obligations of the State of Ohio: and 6. The State Treasurer's investment pool. Notwithstanding the foregoing requirements, moneys not required to be used for a period following classes of investments: the City may invest any of six months in the 1. Bonds or other obligations of the United States, or which the faith of the United States is pledged for payment of principal and interest; those for the -8- '.: . CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1987 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) C. POOLED CASH AND INVESTMENTS (Continued) 2. Discount notes of the federal national mortgage association; 3. Bonds issued by the home owners' loan corporation; 4. Bonds of the State of Ohio; and 5. Bonds of any municipal corporation, village, county, township, or other political subdivision of this state, as to which there is no default of principal, interest. or coupons. Deposits. At year-end, the carrying amount of the City's depositll was $461.702 and the bank balance was $463.685. Of the Bank Balance: 1..$463.685 was covered by federal depository insurance, by collateral held by the City or by collateral held by a qualified third party trustee in the name of the City; Statutory provisions require that collateral pledged for deposits be held in trust by an institution other than the pledging bank. During the year the City routinely permitted collateral on deposits to b.~ held in the City's name by the pledging bank's trust department. Investments. The City's investments are categorized on page 10 to give an indication of the level of risk assumed by the entity at year-end. Category 1 includes investments that are insured or registered or for which the securities are held by the City. C;il.tegory 2 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the broker or dealer or by its trust department but not in the City name. -9- CITY OF FAIRLAWN SUMMIT COONTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) C. POOLED CASH AND INVESTMENTS (Continued) [Statutory provisions require that all securities acquired by the City be held by the City treasurer or deposited with a qualified trustee unless the counterparty is a designated depository of the City for the current period of designation of depositories in which case the securities may be held in trust by the depository. Securities acquired under a repurchase agreement must be deposited with sllch a trustee. The City frequently allowed securities to be retained by the broker or dealer other than an eligible depository institution rather than securing custody or requiring that they be deposited with a qualified trustee.] Category Carrying Market 1 2 3 Value Value Pederal Government Securities $0 $0 $1.163.485 $1.163,485 $1,16:3,485 Investment in State Treasurer's Investment Pool 389,489 38i~ ,489 Total Investments $1,552.974 $1.55:~. 974 ---------- ---------- ----.----- ----.----- D. FUND ACCOUNTING The City maintains its accounting records in accordance with the principles of "fund" accounting. Pund accounting is a concept developed to melat the needs of governmental entities in which legal or other restraints r,aquire the recording of specific receipts and disbursements. The transactions of each fund are reflected in a self-balancing group of accounts. an accounting entity which stands separate from the activities reported in other funds. The restrictions associated with each class of funds are as follows: GOVERNMENTAL FUNDS General Fund The General Fund is the general operating, fund of the City. It is used to account for all financial resources except those required by law or contract to be accounted for in another fund. -10- .~ ";"' CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) D. FUND ACCOUNTING (Continued) Special Revenue Funds To account expendable restricted for the proceeds of specific revenue sources (other than trusts or major capital projects) that are legally to disbursements for specified purposes. Capital Projects Funds To account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Proprietary Funds and Trust Funds). Special Assessment Funds To account for the financing of public improvements or deemed to benefit the properties against which special are levied. services assessments PIDUCIARY FUNDS Trust and AŒenCy Funds To account for assets held by a governmental unit in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. These include Agency Funds. E. BUDGETARY PROCESS 1. BudŒet A budget of estimated cash receipts and disbursements is submitted to the county auditor, as secretary of the county budget commission, by July 20 of each year, for the period January 1 to December 31 of the following year. -11- . . CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) E. BUDGETARY PROCESS (Continued) 2. Estimated Resources The county budget commission certifies its actions to the City by September 1. As part of this certification. the City receives the official certificate of estimated resources which states the projected receipts of each fund. On or about January 1, this certificate is amended to include any unencumbered balances from the preceding year. Prior to December 31, the City must revise its bUdget so that the total contemplated expenditures from a fund during the ensuing fiscal year will not exceed the amount stated in the certificate of estimated resources. The revised budget then serves as the basis for the annual appropriation measure. Budgeted receipts as shown on the accompanying financial statements do not include January 1, 1987 unencumbered fund balances. However, those fund balances are available for appropriations. 3. Appropriations A temporary appropriation measure to control cash disbursements may be passed on or about January 1 of each year for the period January 1 to March 31. An annual appropriation measure must be passed by' April 1 of each year for the period January 1 to December 31. Th.e appropriation measure may be amended or supplemented during the year as new information becomes available. Appropriations may no,t exceed estimated resources. 4. Encumbrances The City is required to use the encumbrance method of accounting by virtue of Ohio law. Under this system, purchase orders, contracts, and other commitments for the expenditure of funds are recorded In order to reserve the portion of the applicable appropriation. At the close of each fiscal year, the unencumbered balance approprJation reverts to the respective fund from which it appropriated and becomes subject to future appropriations. encumbered appropriation balance is carried forward to the succeeding fiscal year and need not be reappropriated; of eac:h was The F. PROPERTY. PLANT AND EQUIPMENT Fixed assets acquired or constructed for general governmental service are recorded as expenditures. Depreciation is not recorded for these fixed assets. -12- .,'.".¥," CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) G. ACCUMULATED UNPAID VACATION. PERSONAL LEAVE AND SICK PAY ~ 't Accumulated unpaid vacation. personal leave and sick pay are not accrued under the cash basis of accounting described in Note 1. At Decembe.r 31, 1987, management estimates that $11,547 in personal leaVE!. $308,416 in sick leave, and $24,076 in vacation leave has been accumulated by the employees of the City. All leave will either be absorbed by time off from work, or within certain limitations, be paid to the employees. It is not practicable to determine the actuarial value of tþese benefits as of December 31, 1987. H. TOTAL COLUMNS ON FINANCIAL STATEMENTS Total columns on the financial statements Only" to indicate that they are presented analysis. This data is not comparable to Interfund-type eliminations have not been this data. are captioned "Memorandum only to facilitate financial a consolidation. made in the aggregation of 2. DEBT OBLIGATIONS Debt outstanding at December 31, 1987 consisted of the following: 1 Special Assessment Bonds Principal Outstanding Interest Rate $34,500 7.5~ ~ . Outstanding special assessment bonds consist of type which are payable from the proceeds of tax individual property owners. the general obligation assessments against No new debt was issued in 1987. The annual requirements to amortize all bonded debt outstanding as of December 31, 1987, including interest payments of $16,332 are as follows: Year Ending December 31 Special Assessment Bonds 1989 1990 1991 1992 1993-1997 $ 3,019 6,088 5,325 6,100 30,300 Total $50,832 ======= -13- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1987 (Continued) 3. PROPERTY TAX Real property taxes are levied on assessed values which equal 35 percent of appraised value. The county auditor reappraises all real property every six years with a triennial update. The last update WélS completed for tax year 1984. Real property taxes become a lien on all non-exempt real property located in the county on January 1. Real property taxes are payable annually or semiannually. If paid annually, payment is due December 31; if paid semiannually. the first payment is due December 31 with the remainder payable by June 20 of the following year. Under certain circumstances. state statute permits later payment dates to be established. The full tax rate applied to real property for the fiscal year ended December 31, .1987 was $2.70 per $1000 of assessed vaiuation. After adjustment of the rate for inflationary increases in property values. the effective tax rate was $2.70 per $1000 of assessed valuation for real property classified as residential/agricultural and $2.70 per $1000 of assessed valuation for all other real property. Real property owners' tax bills are further reduced by homestead and rollback deductions, when applicable. The amount of these homestead and rollback reductions is reimbursed to the City by the State of Ohio. Owners of tangible personal property are required to file a list of such property, including costs, by April 30 of each year. The property is assessed for tax purposes at varying statutory percentages of cost. The tax rate applied to tangible personal property for the fiscal year ended December 31, 1987 was $2.70 per $1000 of assessed valuation. Real Property - 1986 Valuation Residential/Agricultural Commercial/Industrial Minerals $ 58,094,640 46,930,180 29,180 J Tangible Personal Property - 1987 Valuation General Public Utilities Total Valuation 12,154.142 3.221.890 $120,430,032 =========== The Summit County Treasurer collects property tax on behalf of all taxing districts within the county. The Summit County Auditor periodically remits to the taxing districts their portions of the taxes collected. -14- "". CITY OF FA I RLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 (Continued) 4. LOCAL INCOME TAX This locally levied tax of 1.5 percent applied to gross salaries, wages and other personal service compensation earned by residents both in and out of the City of Fairlawn and to earnings of nonresidents (except certain transients) earned in the government. It also applies to net income to business organizations conducted within the City of Fairlawn. Tax receipts are credited to the City and amounted to $2,836,958 in 1987. 5. INSURANCE The City maintains comprehensive insurance coverage with private carriers for real property, building contents, and vehicles. Vehicle policies include liability coverage for bodily injury and property daaage. Real property and -contents are 80 percent coinsured. 6. RETIREMENT COMMITMENTS The employees of the City were covered by the Public Employees Retirement System of Ohio. The State of Ohio accounts for the activities of the retirement system, and the amount of that fund is not reflected in the accompanying financial statements. As of December 31, 1987, the City employees contributed 8.5 percent of their gross wages. The City matches this with a contribution equal to 13.95 percent of employees' gross wages. The firemen and policemen of the City are covered by the Police and Firemen's Disability Pension Fund, also accounted for by the State of Ohio and also not reflected in the, accompanying financial statements. Policemen and firemen contribute 9.5 percent of their gross wages to the plan and the City matches this with a contribution equal to 24 percent of firemen's and 19.5 percent of policemen's gross wages. 7. PENDING LITIGATION The City of Fairlawn is involved in several cases of pending litigation; however, only one could materially affect the financial statements in the event of an unfavorable outcome. The total claims against the City of Fairlawn is $140,011.88. Such claim involves the nonpayment of admissions taxes, and the matter is now pending before the Ninth District Court of Appeals. It is legal counsel's conclusion..... "that although there will not be a negative impact on- the finances of the City; that the sum involved is not insubstantial and may have a slight impact on the parks department." -15- .., . -- . .~ CITY. OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1987 (Continued) 8. LEGAL COMPLIANCE Pursuant to Section 117.11 Revised Code, the Auditor of State performt~d tests of compliance with various provisions of local. state, and/or federal laws. as appropriate. The Auditor's citations are included ill a separate part of this presentation. Material adjustments with which the City officials agree have been posted to the books of account, and such adjustments are reflected in the accompanying financial statements. -16- ,PUTY AUDITORS: ) McCULLOUGH II i¡>.MS, III, ESQUIRE .: Administration (614) 466.4514 'I RICHARD G. NUSS, CPA )partment of Audit ¡ (614) 466-4971 ~' -~WAINE E. GOULD :ormation Systems Audits (614) 466-4971 t -£ RUSSELL L. ROUCH ~"$agement Advisory ì Service .1:' (614) 466.4717 fOUTHEAST REGION 1e ff' If. RONALD BEIGHT Regional Administrator ,~ f!lli:!! ~, J;egional Administrator and District 8 'i560 Dressler Rd. N.W. fuite 210 .{ Janto", Ohio 44720 (216) 497.5400 (800) 443.9272 , ;',istrict 7 :0788 Southgate Rd. Byesville. Ohio 43723 (614) 432-6371 )300) 441.1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43266-0040 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, Ohio Re: Lel!'al COllpliance We have examined the combined financial statements of the various funds, as listed in the Index of Funds, of the City of Fairlawn as of Dece'lIber 31, 1987, and have issued our audit report thereon dated August 4, 1988. Our examination was aade in accordance with generally accepted gove,rnment auditing standards. for financial and compliance audits and, accordi.ngly, included such tests of the accounting records and such other auditi.ng procedures as we considered necessary in the circumstances. For the period January 1. 1986 through December 31, 1987, we performed tests of compliance with various provisions of state statutes, regulations, and case law, and applicable local authority, if any. Material citations are set forth below in the appropriate sections. NONCOMPLIANCE CITATIONS - OHIO REVISED CODE 1. Personnel (eaployees) placed orders for aaterials .and supplies without using officially certified purchase orders. Section 5705.41(D) , Revised Code, states in part..... for the expenditure of aoney shall be .ade unless the fiscal officer is attached." . no contract clr order certificate (If the *2. Sections 5705.36 and 5705.39, Revised Code, provide appropriatJlons from each fund shall not exceed the estimated revenue available for expenditure as certified by the budget commission (county). The following funds were identified as having appropriations in eX(Jess of the amount certified as available by the budget commission: Recreatior. Special Events Fund Capital Improvement Fund -17- City of Fairlawn SUDIIRit County Legal Compliance Page -2- NONCOMPLIANCE CITATIONS (Cont1nued) OHIO REVISED CODE *2. (Continued) Section 5705.39. Revised Code. permits a subdivision to obtain an amended certificate from the budget commission for revenues received in excess of the prior estimate for from a new source. For the Capital Improvement Fund. the City could have obtained an amended certificate in an amount greater than total fund appropriations. *3. Section 5705.41(A) , Revised Code. prohibits a political subdivision/taxing unit from making a fund appropriation in excess estimated revenue available for expenditure from the fund. of the The Recreation Special Events Fund were found to have appropriations in excess of the amount certified as available by the budget commission. Unlike the previous citation. actual fund receipts were not sufficient to permit the City to obtain an amended certificate of estimated resources greater than or equal to the appropriations. 4. Section 5705.09. Revised Code, authorizes the establishment of a Bond Retirement Fund for the retirement of note debt. Ohio Supreme Court Case. State ex. reI National Education. 52 Ohio St. 2nd 81 (1977) ruled note through a Bond Retirement Fund. City Bank v. Board of debt must be retired The City of Fairlawn did not retire its note debt as paragraph two (2). The City of Fairlawn retired its Capital Improvement Fund. required per note debt through the 5. Sections 5705.34 and 5705.35 of the Revised Code requires the city council to pass annual legislation entitled. "Resolution Accepting Amounts and Rates as Determined by the Budget Commission and Authorizing the Necessary Tax Levies and Certifying them to the County Auditor," Schedule "A" of the aforementioned resolution, passed by the Fairlawn City Council. identified ,30 mill to be earmarked for the Police Pension and Fire Pension Funds individually. but within the ten (10) mill limit. Separate Pension Funds were not maintained on the City's official financial records. Instead. money earmarked for the Pension Funds per official tax settlements was commingled in the General Fund. So as to insure compliance with the requirements of the necessary local companion legislation, the City account for the mon~y in separate Pension Funds. the Revised Code and of Fairlawn must -18- ," 1 , City of Fairlawn Summit County Legal Compliance Page -3- In our opinion, for the items tested, the City complied with the tested provisions of state statutes, regulations, and case law and applicable local authority, except as noted above. Further, based upon our exaaination, nothing came to our attention to indicate that the City had not complied with the requirements thereof for the untested items. Ç'~¿9 ""-;', /~ THOMAS E. FERGUSON 'J Auditor of State August 4, 1988 -19- d CITY OF FAIRLAWN SUMMIT COUNTY STATUS OF PRIOR AUDIT'S CITATIONS AND RECOMMENDATIONS The prior audit report, as of December 31, 1985, included various citations and recommendations. Each of these has either been satisfied/corrected or is reflected again in the appropriate section of this report. Such citations/recommendations are indicated with an asterisk (*). -20- " fpUTY AUDITORS: } McCULLOUGH l ¡'MS, III, ESQUIRE ~ Administration (614) 466-4514 ""'i T RICHARD G. NUSS, CPA . ppartment of Audit ¡ (614) 466-4971 -, :~ ;WAINE E. GOULD ¡ormation Systems Audits (614) 466-4971 RUSSELL L. ROUCH \lc¡;oagement Advisory ¡ Service (614) 466-4717 ')UTHEA5T REGION k .1. RONALD BEIGHT Regional Administrator 4:!IS.!! . ."Jagional Administrator and District 8 ";;60 Dre..ler Rd. N.W. jJte 210 ~nton. Ohio 44720 (216) 497-5400 (800) 443.9272 ~~¡ ;'Istrict 7 þ788 South9at. Rd. 8yesville, Ohio 43723 (614) 432-6371 :00) 441.1389 ,- .- m~ÙOITOR 0,,. ,~ ..f'...... ô-~-~ d. - - 0 1-.,> }'., -~.:' -ì' ~; ;.y,(,~ 0' THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 432e6-0040 (614) 466-4514 Members of Council City of Fairlawn Fairlawn. Ohio Re: ManaEement Comments and Recommendations We have examined the cOllbined financial statements of the City of F'airlawn for the year ended December 31, 1987, and have issued our report tbereon dated August 4, 1988. As part of our exallination. we made a study and evaluation of the system of internal accounting control of the City to the extent we considered necessary to evaluate the systell as required by generally accepted government auditing standards for financial and compliance audits. For the purpose of this report, we have classif'ied the significant internal accounting controls in the following categories: Internal Control Classifications A. Cash and Cash Equivalents Balance 1. Reconciliation 2. Petty Cash 3. Cash Equivalent Investments B. Investments Balances C. . Cash Act! vi ty 1. Receipts 2. Disbursements (a) Purchasing (b) Payroll and Receiving D. Budgetary Balances and Activity E. Debt Balances and Activity F. Property and Equipment Activity -21- , . City of Fairlawn Summit County Management Comments Page -2- and Recòmmendations Our study included all of the control categories listed above. The purpose of our study and evaluation was to determine the nature, timing, and extent of performing the auditing procedures necessary for expressing an opinion on the entity's financial statements. Our study and evaluati.on was more limited than would be necessary to express an opinion on the system of internal accounting control taken as a whole or on any of the categories of controls identified above. The management of the City is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgements by management are required to assess the expected benefits and related cost of control procedures. The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with the basis of accounting prescribed by the Auditor of State. Because of the inherent limitations in any system of internal accounting control, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study and evaluation made for the limited purposes described in the first paragraph would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City taken as a whole. However, our study and evaluation disclosed the following conditions that we believe result in more than a relatively low risk that errors or irregularities in aaounts that would be material in relation to the financial statements of the City may occur and not be detected within a timely period. However, our study and evaluation disclosed no condition that we believE' to be a material weakness. While we found no condition we considered to be a material weakness, thE,re is a certain immaterial weakness that we wish to bring to your attention. as follows: -22- City of Fair lawn SUlllllit County Management Comments Page -3- and Recommendations BUDGETARY PROCESS The review of the budgetary process revealed the Street Construction. Maintenance and Repair Fund as well as the State Highway Fund were identified on the "amended certificate of estimated resources" as exceeding actual receipts plus unencumbered January 1st fund balances. This situation resulted in fund expenditures plus encumbrances exceedin~: available resources. To avoid the situation. it is recommended the fiscal officer. routinely compare actual to estimated receipts. If actual receipts are significantly less than original estimates. a reduced amended certificate should be obtained from the budget commission. and a corresponding reduction made in the appropriations. :)'}. ¡ ~¿ß THOMAS E. FERGUS~ Auditor of State :- ,~ August 4. 1988 -23- CITY OF FAIRLAWN SUMMIT COUNTY GENERAL COMMENTS Although the accompanying financial statements reflect activity and balances through December 31, 1987, the Auditor of State's office conducted a cash count on April 27, 1988. Limited audit procedures also were conducted up to this date and such procedures are reflected in the audit working papers. ' city personnel were cooperative and available for questions and assistanc:e during regular working hours. ! -24- CITY OF FAIRLAWN SUMMIT COUNTY CONCLUSION STATEMENT The audit report. including citations and recommendations. was reviewed with and acknowledged by the following officials on August 4. 1988: Peter M. Kostoff Lawrence W. Pelland Frank Martucci Ray Hartung Mayor Finance Director Council Member Assistant Finance Director These officials were informed that they had five working days from the date of the post audit conference to respond to, or contest. thecontent~1 of this report. No such written response was received. -25- ~ > '. ASSISTANT AUDITOR CERTIFICATION " ' : ~- Ihe undersigned hereby certify that I, ." \~, have audiled lhe '~~lllL) - - S\1M1Ml+ County, in accordance with generally accepled government auditing standards. . DEPARTMENT OF AUDIT Auditor of Slate of Ohio -- Assislanl AuØitor 01 Stale Assislant Auditor of Slate l Assistanl Auditor of Slate Date $-/& - Yf , . , Signed: 0/J f( 11//1 P L 'I1(}Æ 11 Typist . CLERK'S CERTIFICA TtON A true and correcl copy of Ihis report is filed in Ihe Olfiee of the Auditor of Slate in Columbus, Ohio. &f.~~~ ~. , Clerk Dale: <....c r. 1'? I~C~OCi .I"" I . ,,- :"~}\~) ~UD.47531~ 2/_, -26-