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1989 Financial Statement '0 'o- r \ [ (' 1. ~ L o~ L' L REPORT OF EXAMINATION . CITY OF FAIRLAWN 20977-04-0427-00 SþUTHEAST REGION, DISTRICT 8 / SUMMIT COUNTY ~/ REGULAR AUDIoT JANUARY 1, 1988 THROUGH DECEMBER 31, 1989 FISCAL YEAR AUDITED UNDER GAGAS: 1989 r'" THOMAS E. FERGUSON Auditor of State , AUD-4754 (Revised 12/88) 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 per- son to build a reputation; Always remember that one of the purposes of these examinations is to safeguard the honest, well-meaning official who might have made a mistake, even as you and I; Always remember that any findings, or cit- ations, if any, in this report contain only the bare cold facts. Please read carefully the explanatory material contained in this report for the precise description ofthe situations covered in the audit. Always remember that if this course is fol- lowed, the general public, which is served by the official, will receive an unprejudiced, unbiased report. Respectfully submitted, DEPARTMENT OF AUDIT ~?~ THOMAS E. FERGUSON Auditor of State CITY OF FAIRLA'w'N SUMMIT COUNTY TABLE OF CONTENTS TITLE Elected Officials Administrative Personnel Index of Funds Independent Auditor's Report Combined Statement of Cash, Investments and Fund Cash Balances - All Fund Types Combined Statement of Cash Receipts, Changes in Fund Cash Balances and Similar Fiduciary Funds Disbursements and - All Governmental Fund Types Combined Statement of Cash Receipts, Changes in Fund Cash Balances and Similar .Fiduciary Funds Disbursements and - All Proprietary Fund Types Combined Statement of Receipts - Budget and Actual Combined Statement of Disbursements and Encumbrances Compared with Expenditure Authority Notes to Financial Statements Reports on Legal Compliance Financial Statement - Level of Compliance Ohio Compliance Supplement Report Status of Prior Audit's Citations and Recommendations Report on Internal Control Structure General Comments Conclusion Statement Assistant Auditor Certification f.AGE (i) (H) (Hi) 1 2-3 4 5 6 7-16 17 18-20 21 22-28 29 30 31 CITY OF FAIRLAWN 3487 SOUTH SMITH ROAD FAIRLAWN. OH 44313 SUMMIT COUNTY ELECTED OFFICIALS AS OF DECEMBER 31. 1989 ELECTED OFFICIAL TITLE TERM OF OFFICE SURETY AMOUNT PERIOD Peter M. Kostoff Mayor 1/1/88-12/31/91 (A) (B) 5/1/87- 161 Grayling Dr. 5/1/90 Fairlawn, OH 44313 William Stalker Council 1/1/88-12/31/89 (A) (B) 5/1/87- 434 Marviel Dr. President 5/1/90 Fairlawn, OH 44313 Ginnie Singleton Council 1/1/88-12/31/89 (A) (B) 5/1/87- Member 5/1/90 James Swartz Council 1/1/88-12/31/89 (A) (B) 5/1/87- Member 5/1/90 Richard Steichen Council 1/1/88-12/31/89 (A) (B) 5/1/87- Member 5/1/90 Gary Shaw Council 1/1/88-12/31/89 (A) (B) 5/1/87- Member 5/1/90 Stanley Bielewicz Council 1/1/88-12/31/89 (A) (B) 5/1/87- Member 5/1/90 Frank Martucci Council 1/1/88-12/31/89 (A) (B) 5/1/87- Member 5/1/90 Lawrence W. Pelland Director 1/1/88-12/31/91 (A) (C) 5/1/87- 469 Cartwright Dr. of Finance 5/1/90 Fairlawn, OH 44313 Statutory Legal Counsel: (Director of Law) Richard E. Dobbins 3882 Bywood Rd. Akron, OH 44313 (A) Allstate Insurance Company (B) $10,000 - Renewed annually; represents two periods (C) $50,000 - Three year period (i) Title Tax Administrator Ray Hartung Law Director James Graves 34 Morz Blvd. Fairlawn, OH 44313 Richard Dobbins 3882 Bywood Rd. Akron, OH 44313 CITY OF FAIRLAVN SUMMIT COUNTY ADMINISTRATIVE PERSONNEL AS OF DECEMBER 31. 1989 Term of Office or Contract Period 1/1/88-4/30/90 1/1/88-10/23/89 10/28/89-5/1/91 (A) Allstate Insurance Company Surety (A) (A) (A) (ii) Amount $50,000 $10,000 $10,000 Period 5/1/88- 5/1/90 5/1/87- 5/1/90 10/23/89- 5/1/91 CITY OF FAIRLAWN SUMMIT COUNTY INDEX OF FUNDS GOVERNMENTAL FUND TYPES: General Fund Type: General Fund Special Revenue Fund Types: Street Construction, Maintenance and Repair Fund State Highway Fund Permissive (Motor Vehicle License) Tax Fund Income Tax Fund Parks and Recreation Fund Recreation Special Events Fund Capital Projects Fund Types: Park Improvement Fund Sewer Improvement Fund Capital Reserve Fund Capital Improvement Fund Capital Fire Equipment Fund Seyer/Water Extension Fund Special Assessment Fund Mowing Fund Sewer Fund Bond Retirement Fund Types: PROPRIETARY FUND TYPES: Internal Service Fund Types: Police Training Rotary Fund Sewer and Water Self Insurance Fund FIDUCIARY FUND TYPES: Trust and Agency Fund Types: Expendable Trusts: Police Pension Fund Fire Pension Fund Agency: Mayor's Court Fund General Agency Fund (iii) [ f: , ;£PUTY AUDITORS: McCULLOUGH WILLIAMS, III Administraûon (614) 466-4514 RICHARD G. NUSS, CPA Department of Audit : (614) 466-4971 i ~USSELL L. ROUCH MaDa¡CIDCnt Advisory Service (614) 466-4717 , ASSOCIATE DEPUTY AUDITOR: DWAINE E. GOULD 'Information Systems Audits (614) 466-4971 JU1J'!EAST REGION Offices: :gional Administrator and District 8 5560 Dressler Rd., N.W. Suite 210 !''tb Canton, Ohio 44720 (216) 497-5400 (800) 443-9272 District 7 60788 South8ate Rd. 'yes.ille, Ohio 43723 (614) 432-6371 (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43266-0040 (614) 466-4514 Independent Auditor's Report Members of Council City of Fairlawn Fairlawn, OH We have audited the accompanying financial statements of the City of Fairlawn as of December 31, 1989 and for the year then ended. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we. plan and perform the audit to obtain reasonable assurance about whether the financial statements are 'free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates, if any, made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in note 1 to the combined financial statements, the City prepares its financial statements on the basis of cash receipts and disbursements, with modifications designed to demonstrate the City's compliance with t.he budget laws of the State of Ohio. This basis of accounting is a comprehe,nsive basis of accounting other than generally accepted accounting principles. In our opinion, the aforementioned financial statements present fSLirly, in all material respects, the cash assets arising from transactions of the City as of December 31, 1989, and the related cash receipts and disbursements, and budgeted receipts, appropriations, and encumbrances for the year then ended, on the basis of accounting described in note 1. ~J /e~i) ~~::;:.VF;r~ Auditor of State August 13, 1990 \ CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH. INVESTMENTS. AND FUND CASH BALANCES - ALL FUND TYPES AS OF DECEMBER 31. 1989 Cash (See Note 7) Investments: Other Investments (Cost) $1,555,860 5.865.955. --------- Total $7.421.815 ---.----=- CASH BALANCES BY FUND CLASS "5 Governmental Funds: General Fund Special Revenue Funds Capital Projects Funds Special Assessment Funds $ 302,379 450,269 6.461.307 89.787 Proprietary Funds: Internal Service Funds 71,706 - Fiduciary Funds: Trust and Agency Funds 46,367 -------- Total $7,421,815 ========= 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 AND SIMILAR FIDUCIARY FUNDS FOR THE YEAR ENDED DECEMBER 31. 1989 Governmental Fund Types ---------------------------- General Special Revenue ---------------------------- REVENUE RECEIPTS Local Taxes Intergovernmental Receipts Special Assessments Charges for Services Fines, Licenses and Permits Miscellaneous $ 294,499 $2,970,707 412,756 187,661 0 0 23,825 0 195,008 0 216,576 42,202 ---------- ---------- 1,142,664 3,200,570 Total Revenue Receipts EXPENDITURE DISBURSEMENTS: Current: Security of Persons and Property Public Health Services Leisure Time Activities Community Environment Basic Utility Services Transportation General Government Capital Outlay 1,247,880 48,353 40,022 12,846 164,792 285,134 870,565 0 15,375 0 99,349 0 0 64,999 94,621 68.327 Total Expenditure Disbursements 2,669,592 342,671 Total Revenue Receipts Over (Under) Expenditure Disbursements (1,526,928) 2,857,899 ---------- ---------- Fiduciary Fund Types Totals ------------------------------------------------------------- Capital proj ect Special Assessments Expendable Trust (Memorandum Only) ------------------------------------------------------------- $ 131,802 $ 0 $ 70,688 $3,467,696 0 0 0 600,417 0 6,089 0 6,089 44,106 0 0 67,931 0 0 0 195,008 58,942 99,579. 0 417,299 ---------- ---------- ---------- ---------- 234,850 105,668 70,688 4,754,440 125,953 0 134,589 1,523,797 0 0 0 48,353 22,123 0 0 161,494 0 0 0 12,846 210,167 21,159 0 396,118 0 0 0 350,133 50,680 0 0 1,015,866 384,938 0 0 453,265 ---------- ---------- ---------- ---------- 793,861 21,159 134,589 3,961,872 (559,011) 84,509 (63,901) 792,568 ---------- ---------- ---------- ---------- -2- CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH RECEIPTS. DISBURSEMENTS. AND CHANGES IN FUND CASH BALANCES ALL GOVERNMENTAL FUND TYPES AND SIMILAR FIDUCIARY FUNDS FOR THE YEAR ENDED DECEMBER 31. 1989 Governmental Fund Types ---------------------------- General Special Revenue ---------------------------- Other Financing Sources (Uses): Proceeds from Sale of Public Debt Sale of Notes Transfers In Transfers Out Other Uses 0 1,823,500 (387,789) 0 0 0 (2,805,000) (114,782) --------- ---------- Total Financing Sources (Uses) 1,435,711 (2,919,782) Excess of Receipts and Other Financing Sources Over (Under) Expenditure Disbursements and Other Uses Fund Cash Balance - December 31, 1989 (91,217) (61,883) --------- ---------- 393,596 512,152 --------- ---------- $ 302,379 $ 450,269 ========= ==-======--- Fund Cash Balance - January 1, 1989 The notes to the financial statements are an integral part of this statement. Fiduciary Fund Types Totals ------------------------------------------------------------- Capital Project Special Assessments Expendable Trust (Memorandum Only) ------------------------------------------------------------- 5,000,000 0 0 5,000,000 1,860,956 0 65,000 3,749,456 (530,000) 0 0 (3,722,789) (61,731) 0 0 (176,513) --------- -----.--- ------ ---------- 6,269,225 0 65,000 4,850,154 5,710,214 84,509 1,099 5,642,722 --------- -------- .----- --------- 751,093 5,278 0 1,662,119 --------- ------ ------ --------- $6,461,307 $89,787 $ 1,099 $7,304,841 -=--===-== ====== ====== ========= -3- CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH RECEIPTS. DISBURSEMENTS. AND CHANGES IN FUND CASH BALANCES - ALL PROPRIETARY FUND TYPES AND SIMILAR FIDUCIARY FUNDS FOR THE YEAR ENDED DECEMBER 31. 1989 Proprietary Fund Types Internal Service Fiduciary Fund Type Agency ------------------------------- OPERATING RECEIPTS: Miscellaneous $ 1,187 $ 4,743 - --------- -------- Total Operating Receipts 1,187 4,743 Excess of Cash Operating Receipts Over (Under) Operating Disbursements 1,187 4,743 --------- -------- Nonoperating Receipts: Other Nonoperating Receipts 0 139,044 --------- -------- Total Nonoperating Receipts 0 139,044 Nonoperating Disbursements Other Nonoperating Expenses (41,410) (149,939) --------- -------- Total Nonoperating Disbursements (41,410) (149,939) Excess of Receipts Over (Under) Disbursements Before Irtterfund Transfers and Advances Transfers - In Transfers - Out (40,223) 533,333 (560,000) (6,J.52) 0 0 Net Receipts Over (Under) Disbursements ---------- -------- (66,890) (6,152) 51,420 , . Fund Cash Balance-January 1, 1989 138,596 ---------- -------- Fund Cash Balance-December 31, 1989 $ 71,706 $ 45,268 ========= =-======ø= The notes to the financial statements are an integral part of this statement. .:, Totals --------------- (Memorandum Only) --------------- $ 5,930 ------- 5,930 5,930 ------ 139,044 ------- 139,044 (191,349) -------- (191,349) (46,375) 533,333 (560,000) -------- (73,042) 190,016 -------- $116,974 -.======= -4- , CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF RECEIPTS - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31. 1989 Fund Types/Funds Budget Actual Variance Favorable (Unfavorable) ------------------------------------------------------------------------------ Governmental General Special Capital Special Revenue Proj ects Assessments $2,718,125 2,779,553 1,031,933 3,019 $ 2,966,164 3,200,570 7,095,806 105,668 $ 248,039 421,017 6,063,873 102,649 Proprietary Internal Service 5,000 534,520 5.29,520 17,000 279,475 262,475 --------- ---------- --...----- $6,554,630 $14,182,203 $7,627,573 =========== =========== ====~====== "1 1 Fiduciary Trust and Agency Total (Memorandum Only) The notes to the financial statements are an integral part of this statl:ment. *- ) -5- CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF DISBURSEMENTS AND ENCUMBRANCES COMPARED WITH EXPENDITURE AUTHORITY FOR THE YEAR ENDED DECEMBER 31. 1989 Fund Types/Funds Prior Year Carryover Appropriations 1989 Appropriations Total ------------------------------------------------------------------------------ Governmental General Special Capital Special $ 393,596 512,151 751,093 5,278 $3,080,270 2,942,048 1,466,125 ° $3,473,866 3,454,199 2,217,218 5,278 Revenue Proj ects Assessments Proprietary Internal Service 138,596 45,000 183,596 Fiduciary Trust and Agency Total (Memorandum Only) 42,666 175,400 218,066 --------- --------- --------- $1,843,380 $7,708,843 $9,552.223 ========= ===-=-==== ===-==---= The notes to the financial statements are an integral part of this statement. Actual 1989 Disbursements Encumbrances Outstanding At 12/31/89 Total Variance Favorable (Unfavorable) -------------------------------------------------------------------- $3,057,381 3,262,453 1,385,592 21,159 $ 303,553 450,269 1,002,334 10,194 $ 3,360,934 3,712,722 2,387,926 31,353 $ 112,932 (258,523) (170,708) (26,075) 601,410 71,705 673,115 (489,519) 284,528 34,804 319,332 (101,266) --------- --------- ---------- -------- $8,612,523 $1,872,859 $10,485,382 $(933,159) ======-=== ========= ========== ======="== -6- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 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. The City operates under a council-mayor the following services: public safety, general public services. form of government and provides parks and recreation, ~~d Management believes the financial statements included in this rleport represent all of the funds of the City over which the City offi,:ials 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 revenues 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 asset group and long-t,erm 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 Combined Statement of Cash, Investments, and Fund Cash Balances as Cash, Cash Equivalents and/or Other Investments. Leaal Reauirements. Statutes require the classification of monies held by the City into three categories. Category A consists of "active" monies, those monies required to in a "cash" or "near cash" status for immediate use by the City. monies must be maintained either as cash in the City treasury or negotiable order of withdrawal (NOW) accounts. be kept Such -7- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) C. POOLED CASH AND INVESTMENTS (Continued) Category B consists of "inactive" monies, those monies not required for use within the current two year 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" monies, those monies which are not needed for immediate use but which will be needed before the end of the current period of depositories. Interim monies may be inve,sted or deposited in the following securities: 1. Bonds, notes, or other obligations of or guaranteed by the United States, or those for which the faith of the Unit,ed States is pledged for the payment of principal anj interest; Z. Bonds, notes, debentures, or other obligations or securities issued by any federal government agency, Export-Import Bank of Washington; or the 3. Repurchase agreements in the securities enumerated abov,e; 4. Interim deposits in the eligible institutions applying for interim monies; 5. Bonds and other obligations of the State of Ohio; and 6. The State Treasurer's investment pool. Notwithstanding the foregoing requirements, monies 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 for which the faith of the United States payment of principal and interest; States, or those is pledged for the -8- CITY OF FA!RLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMEN1S DECEMBER 31. 1989 (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 deposits was $1.555,860 and the bank balance was $1.622.424 which was covered by federal depository insurance. by collateral held by the City or by collateral held by a qualified third party trustee in the n~me 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 be held in the City's name by the pledging bank's trust department. Investments. The City's investments are categorized below 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. Category 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. Categor:y 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. Statutory provisions require that all securities acquired by the City be held by the City treasurer or deposited with a qualified trustee ~~less 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 such a trustee. Category 1 Category 2 Category 3 Carrying Value .Market Value Investment in State Treasurer's Investment Pool Total Investments $5.865.955 $5.865.955 $5,865,955 $5.865.955 ========= ========= -9- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1989 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) D. FUND ACCOUNTING The City maintains its accounting records in accordance with the principles of "fund" accounting. Fund accounting is a concept deyeloped to meet the needs of governmental entities in which legal or other restraints require 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 restric:tions associated with each class of funds are as follows: GOVERNMENTAL FUNDS General Fund The General Fund is the general operating fund to account for all financial resources except contract to be accounted for in another fund. of the City. It is used those required by law or Special Revenue Funds To account expendable restricted for the proceeds trusts, or major to disbursements of specific revenue sources (other th.m capital projects) that are legally for specified purposes. Capital Pro;ects Funds To account for financial resources to be construction of major capital facilities Proprietary Funds and Trust Funds). used for the acquisition or (other than those financl~d by Special Assessment Funds To account for the financing of public improvements or services nl~eded to benefit the properties against which special assessments are ll~vied. Internal Service Funds To account for the financing of goods or services provided by department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost-reimbursement basis. one -10- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER :31. 1989 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) D. FUND ACCOUNTING (Continued) GOVERNMENTAL FUNDS (Continued) FIDUCIARY FUNDS Trust and Agency Funds To account for assets held by a governmental unit in a or as an agent for individuals, private organizations, governmental units, and/or other funds. These include Funds and Agency Funds. trustee c:apacity oth,er Expendable Trust E. BUDGETARY PROCESS 1. Budget ìj ! j A budget of estimated cash receipts and disbursements is submitted to the county auditor, as secretary of the county budget commiss:ion, by July 20 of each year, for the period January 1 to December 31 of the following year. 2. Estimated Resources The county budget commission certifies its actions to the City by September 1. As part of this certification, the City receivE!s 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 furld 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, 1989 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. The appropriation measure may be amended or supplemented during 1~he year as new information becomes available. Appropriations may no;~ exceed estimated resources. -11- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS . DECEMBER 31. 1989 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) E. BUDGETARY PROCESS (Continued) 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 of each appropriation reverts to the respective fund from which it was appropriated and becomes subject to future appropriatiotls. The encumbered appropriation balance is carried forward to the succeeding fiscal year and need not be reappropriated. F. PROPERTY. PLANT AND EOUIPMENT Fixed assets acquired or constructed for general governmental service are recorded as expenditures. Depreciation is not recorded for these fixed assets. G. ACCUMULATED UNPAID VACATION AND SICK PAY Accumulated unpaid vacation, personal leave, and sick pay are ne,t accrued under the cash basis of accounting described in Note 1. At December 31, 1989, management estimates that $24,363 in personal leave, $357,618 in sick leave, and $29,712 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 tQ determine the actuarial value of these benefits as of December 31, 1989. H. TOTAL COLUMNS ON FINANCIAL STATEMENTS Total columns on the financial statements are captioned "Memoran.dum Only. to indicate that they are presented only to facilitate financial analysis. This data is not comparable to a consolidation. Interfund-type eliminations have not been made in the aggregation of this data. 2. DEBT OBLIGATIONS Debt outstanding at December 31, 1989 consisted of the following: General Obligation Notes Principal Outstanding Interest Rate $5,000,000 6.375% -12- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 (Continued) (Continued) 2. DEBT OBLIGATIONS Special Assessment Bonds Principal Outstanding Interest Rate $31.000 7.5% All outstanding notes at December 31 had been issued for one year or less. These notes were of the general obligation type and had been renewed. Proceeds from the notes were used for sewer and water improvements. Outstanding special assessment bonds consist of obligations which are payable from the proceeds individual property owners. general long-term of tax assessments algainst New note debt was issued in 1989. The annual requirements to amortize all bonded debt outstanding as of December 31. 1969. including interest payments of $10.725 are as follows: Year Ending December 31 Special Assessment Bonds 1990 1991 1992-1997 $ 5.325 6.100 30.300 $41.725 Total 8:===== The annual requirements to amortize all note debt outstanding as of December 31. 1969, including interest payments of $316,750 are as follows: Year Ending December 31 General Obligation Notes 1989 $5.316.750 ========= -13- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 (Continued) 3. PROPERTY TAX Real property taxes are levied on assessed values which equal 35% of appraised value. The county auditor reappraises all real property every six years with a triennial update. The last update was completed for ta.x year 1987. Real property taxes become a lien on all non-exempt real property lCocated in the county on January 1. Real property taxes are payable annually Cor 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, 1988 was $2.70 per $1000 of assessed valuation. After adjustment of the rate for inflationary increases in property values, the effective tax rate was $2.70 per $1000 of assessed valuation for rea.l 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 i.s 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 i.s assessed for tax purposes at varying statutory percentages of cost. The tax rate applied to tangible personal property for the fiscal year endedl December 31, 1989 was $2.70 per $1000 of assessed valuation. Real Property - 1988 Valuation Residential/Agricultural Commercial/Industrial Minerals $ 58,438,290 55,210,050 23,810 Tangible Personal Property - 1989 Valuation General Public Utilities 12,928,953 4.038.200 Total Valuation $130,639,303 ============ 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 FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 (Continued) 4. LOCAL INCOME TAX This locally levied tax of 1.5% 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 cert.ain 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 $2,952,931 in 1989. 5. INSURANCE The City carriers policies damage. maintains comprehensive insurance coverage with private for real property, building contents, and vehicles. Vehicle include liability coverage for bodily injury and property Real property and contents are 90% 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, 1989, the City employees contributed 8.5% of their gross wages. ThE! City matches this with a contribution equal to 13.95% 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 state.ments. Policemen and firemen contribute 10% of their gross wages to the plan and the City matches this with a contribution equal to Z4% of firemen's and 19.5% of policemen's gross wages. 7. MAYOR'S COURT Due to considerations outlined below, the Mayor's Court is considerl3d to be part of the City's reporting entity and all activity of the CQurt has been recorded in an agency fund. The Court's activity had been excluded from the City's financial statements prior to 1989. Accordingly, the fund balance for the agency fund has been restated as of January 1, 1989 to include the beginning cash balance for the Mayor's Court as follows: Agency fund balance at January 1, 1989, as previously stated Mayor's Court cash balance at January 1, 1989 $42,666 8.754 Agency fund balance at January 1, 1989, as reported $51,420 ====== -15- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 (Continued) 7. MAYOR'S COURT (Continued) BASIS OF ACCOUNTING The City's oversight responsibility of the Mayor's Court is demonstrated by the following: 1. The City budgeting and appropriating for the operation of t11e Court; 2. The City established the compensation of certain Court empllJyees; and 3. The City being ultimately responsible for any operating deficits sustained by the Court. Financial accountability for the Mayor's Court is that of an agent, acting in a fiduciary capacity for others. The Court has no equity or o~1ership over the money it controls. By virtue of Ohio law, money collected by the Court is distributed within a specific period of time to 'specific . recipients. The records are kept on a cash basis. The cash assets of the Court totalled $11,564 at December 31, 1989, and this amount is in,:luded as Cash on the Combined Statement of Cash, Investments, and Fund Cash Balances. 8. LEGAL COMPLIANCE Pursuant to Section 117.11 Revised Code, the Auditor of State perf<ormed tests of compliance with various provisions of local, state, and/or federal laws, as appropriate. The Auditor's citations are included in a s'eparate 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 WILLIAMS, III Administration (614) 466-4514 ÌlICHARD G. NUSS, CPA pe>artment of Audit :' (614) 466-4971 ",USSELL L. ROUCH Management Advisory Service (614) 466-4717 ¡ ASSOCIATE DEPUTY AUDITOR: ¡DWAINE E. GOULD ,,' Information Systems Audits (614) 466-4971 j)UT.HEAST REGION Offices: 'egional Administrator " and District 8 5S6O Dressler Rd,. N, W. Suite 210 ~..Tth Canton, Ohio 44720 (216) 497-5400 (800) 443-9272 District 7 60788 South8ate Rd. '3yesville, Ohio 43723 (614) 432-6371 (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS. OHIO 43266-0040 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, OH Re: Financial Statement-Level of Compliance We have audited the basic financial December 31, 1989, and for the year thereon dated August 13, 1990. statements of the City of Fa,irlawn as of then ended, and have issued our report We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller Ge~leral of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicslble to the City is the City's management's responsibility. As part of our audit, we assessed the risk that noncompliance with certain provisions of laws, regulations, contracts, and grants could cause the financial statements to be! materially misstated. We concluded that the risk of such material misstatement was sufficiently low that it was not necessary to perform tests of the City's compliance with such provisions of laws, regulations, contracts and grants. However, see the second succeeding paragraph, below. In connection with our audit, nothing came to our attention that caused us to believe that the City had not complied, in all material respects, with the provisions of laws, regulations, contracts, and grants referred to in the preceding paragraph. Notwithstanding our conclusion in paragraph 3, above, that the risk of material misstatement was sufficiently low that it was not necessary to perform tests of the City's compliance with such provisions of laws, regulations" contracts and grants, as a matter of public policy, certain provisions of laws, regulations, contracts, and grants are required by the Auditor of State to bE~ tested. We have issued a separate compliance report on our tests of provisions of such laws, regulations, contracts, and grants dated August 13, 1990. 2(~~1t5J~51;~~ THOMAS E. FERGUSON Auditor of State August 13, 1990 -17- PuTY AUDITORS: McCULLOUGH . WILLIAMS, III Administration (614) 4664514 RICHARD G. NUSS, , CPA ÌOpartment of Audit : (614) 4664971 RUSSELL L. ROUCH Management Advisory { Service , (614) 4664717 ASSOCIATE DEPUTY AUDITOR: tWAINE E. GOULD Information SystelDS Audits (614) 4664971 "JUT,HEAST REGION , Offices: ;-gíonal Administrator and District 8 5560 Dressler Rd., N.W. . Suite 210 ~ ~h Canton, Ohio 44720 (216) 497-5400 i (800) 443-9272 District? 'm88 Southgate Rd. :yesviUe, OhIo 43723 , (614) 432-6371 (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43266-0040 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, OH Re: Ohio Compliance Supplement Report We have applied procedures to test the City of Fairlawn's compliance with provisions of laws and regulations that the Auditor of State has determined to be significant as a matter of public policy, public stewardship, or public accountability, as identified in the Auditor of State's Ohio Compliance Supplement, revised December 5, 1989, for the period January 1, 1988 to December 31, 1989. Compliance with laws and regulations applicable to the City is the responsibility of the City's management. Our responsibility is 1:0 examine, on a test basis, evidence about the City's compliance with these requirements. However, our procedures were'substantially less in scope than an audit whose objective is to express an opinion on the City's compliance with these requirements. Accordingly, we do not express such an opinion. The results of our procedures indicate that, for the items tested, the City complied with provisions of laws and regulations that the Audito:~ of State has determined to be significant as a matter of public policy, publil: stewardship, or public accountability, as identified in the Auditor of State' 13 Ohio Compliance Supplement, revised December 5, 1989, except as described below. Nothing came to our attention that caused us to believe that for the items not tested, the City was not in compliance with provisions of laws and regulations that the Auditor of State. has determined to be significant as a matter of public policy, public stewardship, or public accountability, as identified in the Auditor of State's Ohio Compliance Supplement, revised December 5, 1989, except as described below. -18- City of Fairlawn Summit County Ohio Compliance Page -2- Supplement Noncompliance Citations Records Commission Section 149.39, Revised Code, identifies the requirements for establishing a records commission. No documents could be located as to the existence of a records commission for the City of Fairlawn. ~Mavorls Court Section 733.40, Revised Code, requires the mayor statement on the mayor's court activities to the to submit a monthly fi.nancial legislative body of the City. A monthly financial statement was prepared Finance. The monthly financial statements legislative body. and sent to the Department c,f were not submitted to the Budeetarv Process *1. Sections 5705.36 and 5705.39,- Revised Code, provide appropriations from each fund shall not exceed the estimated revenue available for expenditures as certified by the county budget commission. The following funds were identified as having had appropriations in exc:ess of the amount of revenue certified as available by the county budget commission. (a) General (b) Parks and Recreation (c) Police Pension (d) Fire Pension 2. Section 5705.4l(B), Revised Code, prohibits an entity (political) from making an expenditure unless it has been properly appropriated. The following funds were identified as having had expenditures which exceeded appropriations. (a) Income Tax (b) Capital Fire Equipment (c) Park Improvement (d) Capital Reserve (e) Sewer/Water Extension (f) Special Assessments (Operating) (g) Sewer and Water Self Insurance (h) Agency (Landscaping) -19- City of Fairlawn Summit County Ohio Compliance Page -3- Supplement GAAP Financial Statements Administrative Rule 117-06-01 of the Ohio Administrative Code lists the schedules of various levels of local government for conversion of their financial statements to conform to Generally Accepted Accounting Principles. The City of Fair1awn did not comply with this requirement. Further, n'D waiver had been granted to the City of Fairlawn by the office of the Auditor of State. We performed the audit procedures described in Auditor of State Audit Bulletin 89-009 designed to identify those transactions subject to applicable competitive bidding requirements. These transactions were subjected to a detailed audit of compliance with such requirements. With respect to such transactions, we noted no instances of such noncompliance with such applicable competitive requirements. .?o¿J'Y~0~~tf;'~~r~ .. . THOMAS E. FERGUSON Auditor Df State August 13, 1990 -20- CITY OF FAIRLAWN SUMMIT COUNTY STATUS OF PRIOR AUDIT'S CITATIONS AND RECOMMENDATIONS The prior audit report, as of December 31, 1987, 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 citation is indicated with an asterisk (*). -21- - ;PUTY AUDITORS: McCULLOUGH WlLUAMS, III Administration (614) 466-4514 RICHARD G. NUSS, CPA :pepartment of Audit ,¡ (614) 466-4971 J i 1', .ìuSSELL L. ROUCH Management Advisory Service (614) 466-4717 }. , t ASSOCIATE DEPUTY AUDITOR: c ~ ØWAINE E. GOULD UnformaûoD Systems c- Audits (614) 466-4971 l>UT.HEAST REGION Offices: ';egional Administrator 1 and District 8 5560 Dressler Rd., N.W. Suite 210 I"nIth Canton, Ohio 44720 ì (216) 497-5400 ¡ (800) 443-9272 J District 7 60788 Southgate Rd. lIyesville, Ohio 43723 ¡ (614) 432-6371 : (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43266-0040 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, OH Re: Internal Control Structure We have audited the basic financial December 31, 1989, and for the year thereon dated August 13, 1990. statements of the City of Fairlawn as of then ended, and have issued ou¡~ report We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statt~ments are free of material misstatement. . In planning and performing our audit of the basic financial stateml3fits of the City for the year ended December 31, 1989, we considered its inte~lal control structure in order to determine our auditing procedures for the pu:t"pose of expressing our opinion on the basic financial statements and not t'J provide assurance on the internal control structure. The City's management is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure 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 such accounting principles as are prescribed or permitted by the Auditor of State. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. -22- City of Fairlawn Summit County Internal Controls Page -2- " For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: Revenue Cycle Payments Cycle Payroll Cycle Budget Cycle Cash Investments Receipts Disbursements Debt Budgetary For all of the internal control structure categories listed above, an understanding of the design of relevant policies and procedures they have been placed in operation, and we assessed control risk. we øbtained and whether We noted certain matters involving the internal .control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal cO!ltrol structure that, in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with i:he assertions of management in the basic financial statements. Depository Agreements Chapter 135 of the Uniform Depository Act, Revised Code, requires qualified banks and savings and loan associations are to be designed as public depositories for a two year period commencing when the previous period of designation expires. . The City did not have sufficient and appropriate depository agreements for active and interim funds with two depositories designated by the council for the City of Fairlawn. The Department of Finance must implement all ordinances passed by the city council as they relate to the fiscal responsibilities of the City. Budgetarv Process A review of budgetary controls revealed the amount of the amended certificate of estimated resources exceeded actual receipts plus unencumbered January 1st fund balances. This condition can cause fund expenditures plus encumbrances to exceed available resources. -23- City of Fairlawn Summit County Internal Controls Page -3- This condition affected the following funds: (a) Parks and Recreation (b) Recreation Special Events (c) Motor Vehicle License Tax (d) Sewer Improvement (e) Police Training Rotary (f) Trust (Permissive Tax) The Director of Finance should routinely compare If at any time actual receipts are significantly a reduced amended certificate should be acquired commission, and a corresponding reduction should actual to estimated rl:ceipts. less than original estimates, from the county budget be made in the approp:dations. Electronic Data Processing Review 1. Backuu couies of all data. program and system files should be regularly rotated to a remote off-site storage location. Backup copies of data, program and system files .are stored in the same room as the computer for both the "General Office" and "Police/Fire" computer systems. There is no rotation of these backup files to an off-site storage location. The storage of backup files in the same room as the computer increases the risk that a disaster or other adverse conditions such as fire or flooding could destroy all copies of data, program and system files. In addition to the loss of all data, the loss of program files could prove to be very costly a!1 the programs being processed have been customized by the software vendor ac:cording to specifications made by the City of Fairlawn. Therefore, these programs would need to be rewritten. We recommend that a regular off-site rotation schedule be established for all data, program and system files for both the "General Office" system and the "Police/Fire"system. We understand that during our review, plans were being made to begin rotating the nightly backups to the fire department which is located next door to the Municipal Building which houses the "General Office" and "Police/Fire" systems. While we encourage these efforts, the ClOSE! proximity of the off-site storage presents the risk that a disaster affecting the computer systems located in the Municipal Building such a tornado, plane crash, bomb threat or other such occurrence, could likewise affect the backups located at the fire department. We recommend that management consider using a commercial storage facility for storing off-site backups. Rotation schedules should be established based upon time frames where it becomes critical to recover certain applications. -24- City of Fairlawn Summit County Internal Controls Page -4- Electronic Data Processing Review (Continued) 2. A disaster impact recoverv reauirements those reauirements. analysis should be performed in order to identif'L and a contingency 'Plan should be developed that meets There is no formal contingency plan in place which ensures the continuity or essential organizational functions at the City of Fairlawn in the event of a loss of computer resources. There is no recovery strategy which identifies the impact of the loss of resources should such an outage occur. A disaster impact analysis would identify essential organizational functions, the critical applications which support those functions and the outage tolerances for each application (i.e., the time frame where it becomes critical to recover). This analysis would then serve as a basis for implementing a recovery strategy that will restore processing of critical applications in the required time frame. A contingency plan should identify requirements for hardware, software, personnel and the data communication network. It should also be in sufficient detail so that data processing employees and users are aware of their responsibilities. We recommend that a comprehensive disaster impact analysis be performed in order to serve as the basis for selecting an appropriate recovery strategy for each system at the City of Fairlawn. A high degree of end user involvement in the impact analysis will ensure that users have appropriate input in the determination of critical applications. The recovery strategy should be based upon the time frames identified for critical applications. Once the recovery strategy has been identified, a comprehensive contingency plan should be developed and documented. The plan should then be continually maintained and periodically tested to ensure its continued viability. 3. Establish procedures to ensure that system reference manuals are k~ up-to-date System reference manuals for the Applied Digital Data Systems (ADDS) Mentor PICK operating system have not been updated since they were originally provided when the system was installed in 1985. Based upon discussions with Finance Department personnel and review of system reports, updates have been made to the operating system since that time. System reference manuals are useful in resolving system problems and can serve as a valuable training tool in the event of staff turnover. The lack of up-to-date system documentation increases the risk that personnel will not properly utilize computer resources. We recommend that arrangements be made with the software vendor (ADDS) which require that documentation be provided for all changes made to the operating system. Procedures should then be established at the City of Fairlawn to ensure that all documentation updates are incorporated into the appropriate system reference manuals. -25- City of Fairlawn Summit County Internal Controls Page -5- Electronic Data Processing Review (Continued) 4. Establish procedures whereby the modem is disabled except for times that the software vendor reauires access to the system. A modem is located in the Finance Department which is used to allow thE! software vendors access to either the "General Office" or "Police/Fire" systems. A switch on the modem controls which system can be accessed. The modem is normally set to the "Police/Fire" system and is enabled at all times in order to provide a software vendor with access in the event that emE!rgency changes would need to be made. Since the Finance Department is open only 8 hours per day, 5 days a week, Police Department personnel would be physically restricted from enabling the modem during off hours. Leaving the modeDŒ enabled at all times not only provides the software vendors with access to the Police/Fire system, it also creates the potential for outside individuals to log into the system and perform, or attempt to perform, unauthorized pJ=ocessing with this sensitive system. We recommend that control procedures be implemented whereby the modem is enabled only when system access is required by the vendor. These controls should include procedures for ensuring that the.vendor is accessing thE! system for a valid reason and that such access is appropriately monitored. WE! understand that Police Department personnel do not have physical access to the modem during the hours in which the Finance Department is closed. This can be alleviated by relocating the modem from the Finance Department to the ]?olice Department and will allow Police Department personnel to enable the modem when necessary and disable it at all other times. 5. Training in regard to system security should be provided to an individual employed by the City of Fairlawn. While a certain degree of application based security for the Police/Fire system is maintained by supervisory personnel in those departments, most logil:al access controls are administered by the software vendor. Creative Microsystems, Inc. (CMI). No individual from the City of Fairlawn has the appropriate training to administer access controls. This has resulted in security being lax in the following areas: Sharing of User-id's - User-id's serve as the basis for identifying a user of a system and granting access privileges to which the individual is authorized to access. The sharing of user-id's could potentially grant an individual unauthorized access to system resources and reduces individual accountability. Controlling Changes to Access Privileges - Changes to access privileges should be approved by an appropriate level of supervisory 'personn.el. Current procedures consist of calling the software vendor when changes are needed. These procedures do not provide an appropriate level of control over additions, changes or deletions to access control information. -26- City of Fairlawn Summit County Internal Controls Page -6- Electronic Data Processing Review (Continued) We recommend that an individual from the City of Fairlawn receive appropriate training in order to properly administer logical access controls to system resources. Furthermore, security policies should be implemented which: Prohibit the sharing of user-id's Provide for a method of obtaining supervisory approval for all access privileges granted to system users. 6. Password change intervals should be established to ensure the confidentiality of passwords. There are no procedures in place for changing passwords. Passwords serve as the basis for authenticating that the individual attempting to log onte> an account is the user authorized to use that account. Therefore, maintaining the confidentiality of passwords is critical in ensuring a secure environme,nt. The lack of password changes increases the risk of unauthòrized password disclosure which could result in-unauthorized system access. We recommend that password change intervals be impl~mented. Normally, a minimum of four changes per year is desirable. Passwords with sensitiv.e capabilities should be changed even more frequently. access 7. Establish system parameters which limit the number of failed sign-on attempts. There are no system standards/parameters which prevent unlimited sign-on attempts to the system. Since there is no parameter to prevent unlimited sign-on attempts, an individual attempting a break-in to the system could try several combinations of user-id's and passwords which would increase the likelihood of gaining unauthorized access. We recommend that management contact the software vendor and investigate the possibility of implementing such system parameters in order to ensure ~~ more secure processing environment. 8. The adeauacy of data processin~ insurance should be reviewed. Based upon our review of insurance policies in place for the City of F~~irlawn, it appears that data processing coverage might not be adequate. Our rE!view of the property insurance policy noted sections which specifically excludE!d data processing equipment. There did not appear to be any riders in place ~7hich addressed datå processing. We recommend that a comprehensive evaluation be performed of data processing insurance coverage. Such insurance normally concerning the following: the adequacy of includes <:overage -27- City of Fairlawn Summit County Internal Controls Page -7- Electronic Data Processing Review (Continued) Data processing equipment Data processing media Costs of reconstructing data and reprogramming. Losses incurred due to interruption (commonly referred to as Business Interruption insurance) 9. Access to sensitive utilities should be appropriately restricted and monitored. Based upon review of the system reference manuals, sensitive system utilities exist which provide users with the ability to directly modify data file,s or application programs (via the EDITOR utility). There are no procedures: in place to control the use of this utility which could result in unauthorized changes being made to critical data or application programs. Based upon discussions with the software vendor, there are certain procedures the users perform that require the use of this utility. We understand that restricting access to this utility may be impractica.l due to user considerations. As an alternative to preventive controls which restrict access, we recommend that management consider implementing detective cClntrols whereby the use of sensitive utilities can be appropriately monitored. Our discussions with the vendor indicated that future releases of the opera,ting system will have certain logging and capabilities which may be useful in monitoring system activity. A material weakness is a reportable condition in which the design or operation of one or more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that could be material to the basic financial statements being audited may occur and not be detected within a timely period by employees (or Clfficers) in the normal course of performing their assigned or statutory functions. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be rE!portable conditions, and, accordingly, would not necessarily disclose all report~able conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. We also noted other matters involving the internal control structure and its operation that we have reported to the management of the City of Fairl,Lwn in a separate communication dated August 13, 1990. ~'I C;;;iC'.; >¡ ~~rg,. .~~ ~?: /.¥ <'ii' r-"" ""\ -I: .-.1' ~; ,,,,"1"" '-"j\A.<oß~ ~';/.,;;j':.';:j-/;<':;;-u "'"'''' ./J..."..':~'^'~l~':; v"-"-- III /.- l THOMAS E. FERGUSON Auditor of State August 13, 1990 -28- CITY OF FAIRLAWN SUMMIT COUNTY GENERAL COMMENTS Although the accompanying financial statements reflect activity and balances through December 31, 1989. the Auditor of State's office conducted a c,ash count on May 15, 1990. 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 assistance during regular working hours. -29- CITY OF FAIRLAVN . SUMMIT COUNTY CONCLUSION STATEMENT The audit report, including citations and recommendations, was reviewed with and acknowledged by the following officials on August 13, 1990: Peter Kostoff Lawrence Pelland Patricia Bertsch David F. Effler Frank J. Martucci Mayor Director of Finance Assistant Director of Ward 6 Councilman Ward 3 Councilman Finance These officials were informed that they had five working days for the Auditor of State and sixty days for the federal government from the date of the post audit conference to respond to, or contest, in writing, thE! contents of this report. No such written response was received during the five day period. -30- ASSISTANT AUDITOR CERTIFICATION I, or we, the undersigned hereby certify that I, or we, have auditlsd the City Dt Ç1Ail~l\ð,.wt0 - ,S\.iIMIM;t County, in accordance with generally accepted government auditing standards. DEPARTMENT OF AUDIT Auditor of State of Ohio ~ Assistant Auditor of State Assistant Auditor of State Assistant Auditor of State Date y ~1,() - r?() - Signed: ...-/Ñ'l-ULf"£ 0:;u,'¡j?(~ Typist ,y CLERK'S CERTIFICATION A true and correct copy of this report is filed in the Office of the Auditor of State in Columbus, Ohio. ,~ &'ÍI By: Date: SEP 2 7 1990 AUD-4753 (Revised 2/88) , -31-