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1985 Financial Statement BUREAU OF INSPECTION AND SUPERVISION OF PUBLIC OFFICES REPORT OF EXAMINATION CITY OF FAIRLAWN 20977-04-0427-00 r l¡ SOUTHEAST REGION, DISTRICT 8 SUMMIT COUNTY REGULAR EXAMINAITON JANUARY 1, 1984 THROUGH DECEMBER 31, 1985 FISCAL YEAR AUDITED UNDER GAGAS: 1985 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; 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 unprejudiced, unbiased report. Respectfully submitted, BUREAU OF INSPECTION AND SUPERVISION OF PUBLIC OFFICES - STATE OF OHIO ~ e;¡c --- THOMAS E. FERGUSONr 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 and Similar Fiduciary Funds Types Combined Statement of Cash Receipts, Disbursements and Changes in Fund Cash Balances - 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 Schedule of Federal Financial Assistance Legal Compliance Noncompliance Citations - Ohio Revised Code Status of Prior Audit's Findings, Citations, and Recommendations Management Comments and Recommendations General Comments Conclusion Statement Examiner's Certification PAGE (i) ( íí) I[Hi) 1 2-3 4 5 6 7-13 14 ]5-17 18 ]9-22 23 24 25 CiTY OF FAIRLAWN 3487 S. SMITH RD. FAIRLAWN. OHIO 44313 SUMMIT COUNTY ELECTED OFFICIALS AS OF DECEMBER 31, 1985 ELECTED OFFICIAL TITLE TERM OF OFFICE SURETY AMOUNT PERIOD Peter M. Kostoff Mayor 11/19/84-12/31/85 (A) $15,000 5/1/84 161 Grayling Dr. 5/1/8:7 Fairlawn, Ohio 44313 Lawrence W. Pelland Finance 1/1/84-12/31/85 (A) $15,000 5/1/84- 469 Cartwright Dr. Director 5/1/8,7 Fairlawn, Ohio 44313 William Stalker Council 1/1/84-12/31/85 (A) $15,000 5/1/84- 434 Marviel Dr. President 5/1/8'7 Fairlawn, Ohio 44313 Ginnie L. Singleton Council 6/17/85-12/31/85 (A) $15,000 5/1/84- Member 5/1/87 James Swartz Council 12/3/84-12/31/85 (A) $15,000 5/1/84- Member 5/1/87 Richard Steichen Council 1/1/84-12/31/85 (A) $15.000 5/1/84- Member 5/1/87 Gary Shaw Council 1/1/84-12/31/85 (A) $15.000 5/1/84- Member 5/1/87 Stanley Bielew1cz Council 1/1/84-12/31/85 (A) $15,000 5/1/84- Member 5/1/87 Mel Temple Counc il 1/21/85-12/31/85 (A) $15,000 5/1/84- Member 5/1/87 (A) Allstate (1 ) Title Tax Administrator Ray Hartung Law Director James Graves 34 Morz Blvd. Fairlawn, Ohio 44313 (A) Allstate CITY OF FAIRLAWN SUMMIT COUNTY ADMINISTRATIVE PERSONNEL AS OF DECEMBER 31, 1985 Term of Office or Contract Period Surety Amount 1/1/84-12/31/85 (A) $50,000 1/1/84-12/31/85 (A) $15,000 (11) Period 5/1/84- 5/1 87 5/1/84- 5/1/87 CiTY ÔF FAIRLAWN SUMMIT COUNTY INDEX OF FUNDS GOVERNMENTAL FUND TYPES: General Fund Type: General Fund Special Revenue Fund Types: Street Construction Maintenance State Highway Motor Vehicle Tax Income Tax Federal Revenue Sharing Parks and Recreation and Repair Debt Service Fund Types: Bond Retirement Capital Projects Fund Park Improvement Sewer Improvement Capital Reserve Capital Improvement Types: PROPRIETARY FUND TYPES: Internal Service Fund Types: Internal Service (Hi) :PUTY AUDITORS: AMES A. BOLDEN , Administration (614) 466-3786 RICHARD G. NUSS CPA Dept. of Audit (614) 466-4971 '~;SSELL L. ROUCH M lagement Advisory Service (614) 466-2520 EI.dSABETH TSCHANTZ R',ional Administrator :, ~ Regional Administrator " and District 8 5('0 Dressler Rd. S.W. , Suite 210 Canton, Ohio 44720 (216) 497-5400 (800) 443-9272 District 7 68.788 Southgate Rd. a:sville, Ohio 43723 'i" (614) 432-6371 " (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43216-1140 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, Ohio We have examined the combined financial, statements of the City o¡ê Fairlawn as of December 31, 1985, and for the year then ended, as listed in the accompanying table of contents. Our examination was made in aCCI)rdance with generally accepted government auditing standuds and, accordingly, included such tests of the accounting records and such other aud:l ting procedures as we considered necessary in the circumstances. As described in Note 1 to the financial statements, the City prepares its financial statements on the basis of cash receipts and disbursemlmts; consequently, certain revenues and the related assets are recogn:ized when received rather than when earned, and certain expenditures or expenses are recognized when paid rather than when a liability is incurred. Accordingly, the accompanying financial statements are not intended to present financial position and results of operations in conformity with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly the combined cash, investments, and fund cash balances of the various 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 Decellber 31, 1985, and for the year then ended, on the basis of accounting described in Note 1, which basis has been applied in a manner consistent with that of the preceding year. Our examination was made for the purpose of forming an opinion on the combined financial statements taken as a whole. The Schedule of Federal Financial Assistance is presented for the purpose of additional analysis and is not a required part of the combined financial statements of the City of Fairlawn. This information has been subjected to the auditing procedures applied in the examination of the combined financial statements, and in our opinion, is fairly stated in all material respects in relation to the combined financial statements taken as a wholE~. 2-t:-- ¿9~ THOMAS E. FERGUSON Auditor of State August 29, 1986 CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF CASH, INVESTMENTS, CASH BALANCES - ALL FUND TYPES AS OF DECEMBER 31, 1985 AND FUND Cash Investments: Cash Equivalents $ 5,047 Total 1,903,786 $1,908,833 --------- --------- CASH BALANCES BY FUND CLASS Governmental Funds: General Fund Special Revenue Funds Debt Service Funds Capital Projects Funds Special Assessment Funds $ 472,967 303,891 165 1,077,078 Proprietary Funds: Internal Service Funds 54,732 Total $1,908,833 --------- --------- 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, 1985 Governmental General REVENUE RECEIPTS Property Taxes Municipal Income Taxes Other Local Taxes State-Levied Shared Taxes Charges for Services Fees, Licenses, Permits Interest Earnings Fines and Forfeits All Other Revenue Receipts $ 405,469 0 0 353,634 6,097 16,590 146,698 24,750 2,345 Total Revenue Receipts 955,583 EXPENDITURE DISBURSEMENTS: Security of Persons and Property Public Health and Welfare Leisure Time Activities Community Development Basic Utility Services Transportation General Government Capi tal Outlay 1,142,356 47,410 0 11 , 507 38,935 243.447 633.104 0 Total Expenditure Disbursements 2,116,759 Total Revenue Receipts Over (Under) Expenditure Disbursements (1,161,176) Fund Types Special Revenue $ 0 $ 2,123,066 169,833 60,496 0 20,412 0 0 63,920 2,437.727 0 0 59,444 0 45,000 156,149 65.438 58,843 384,874 2,052,853 Debt Service 0 0 0 0 0 0 0 0 0 -- 0 0 0 0 0 0 0 0 ~- 0 -- 0 f ¡' ¡ # ( J:' , Fund Types Capital Projects Totals (Memorandum Q!!!li $ 0 $ 405,469 0 2,123,066 0 169,833 54,304 468,434 0 6,097 0 37,002 0 146,698 0 24,750 0 66,265 54,304 3,447,614 17,611 0 24,428 0 85,083 345,801 24,541 548,254 1,159,967 47,410 83,872 11 , 507 169,018 745,397 723.083 607,097 1,045,718 3,547,351 (991.414) (99,737) -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, 1985 Governmental General Fund Types Special Revenue Debt Service Other Financing Sources (Uses): Operating Transfers-In Operating Transfers-Out Other Financing Sources Other Financing Uses Total Financing Sources (Uses) 1, 430,913 0 6,778 0 1,437,691 0 (2,572.561) 5,942 (41,364) (2,607,983) [) 0 l[) -~ ---:~ Excess of Receipts and Other Over (Under) Disbursements Other Uses Sources and Fund Cash Balance - January 1, 1985 276.515 (555,130) () 196,452 859,021 --!§iL- $ 472,967 $ 303,891 $ 1615 =====::::=== ========= ----_._--- ---------- Fund Cash Balance - December 31, 1985 The notes to the financial statements are an integral part of this statement. , ;t Fund Capital Projects 1.525.568 (382.568) 503.588 0 1.646.588 655.174 421.904 $1.077.078 ===::1===== Types Totals (Memorandum Only) 2.956.481 (2,955.129) 516.308 (41.364) 476,296 376.559 1,477.542 $1.854.101 ========== -3- CITY. OF FAIRLAWN SiJMMìT COtJNTY COMBINED STATEMENT OF CASH RECEIPTS. DISBURSEMENTS. AND CHANGES IN FUND CASH BALANCES - ALL PROPRIETARY FUND TYPES FOR THE YEAR ENDED DECEMBER 31. 1985 , Proprietary Fund Types Internal Service r Nonoperating Receipts (Disbursements): Other Nonoperating Receipts Other Nonoperating Disbursements Total Nonoperating Receipts (Disbursements) f ~. Operating Transfers-Out Net Excess of Cash Receipts Over (Under) Disbursements Fund Cash Balance-January 1, 1985 Fund Cash Balance-December 31, 1985 40,217 (9,998) 30,219 (1,352) 28,867 25.865 $ 54,732 --------- --------- The notes to the financial statements are an integral part of this statêment. -I;~ ì; ~. -4- CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF RECEIPTS - BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31, 1985 r> r Fund Types/Funds Budget Actual Variance Favorable (Unfavorable) Governmental General Special Revenue Debt Service Capital Projects $1,920,641 2,223,600 0 1.014,800 $2,393.274 2,443,669 0 2,083,460 $ 472,633 220,069 0 1,068,660 Proprietary Internal Service 35,000 40,218 5.218 Total (Memorandum Only) $5,194,041 $6,960,621 $1,766,580 --------- --------- ========== ========= The notes to the financial statements are an integral part of this statement. -5- CITY OF FAIRLAWN SUMMIT COUNTY COMBINED STATEMENT OF DISBURSEMENTS AND ENCUMBRANCES COMPARED WITH EXPENDITURE AUTHORITY FOR THE YEAR ENDED DECEMBER 3~. 1985 Fund Types/Funds Governmental General Special Revenue Debt Service Capital Projects Proprietary Internal Service Total (Memorandum Only) Prior Year Carryover Appropriations 1985 Appropriations Total $ 0 0 0 0 $2,155,911 2,364,654 . 0 1,676,310 $2,155,911 2,364,654 0 1,676,310 0 22,400 22,400 $ 0 $6;219,275 $6,219,275 ------ ========= ========== ------ The notes to the financial statements are an integral part of this statement. r Encumbrances Variance Actual 1985 Outstanding Favorable t Disbursements At 12-31-85 Total (Unfavorable) $2.116.759 $ 0 $2,116.759 $ 39.152 2.998,799 0 2,998,799 (634,145) 0 0 0 0 1.428.286 0 1,428.286 248.024 11 . 350 0 11 . 350 11 . 050 $6,555.194 $ 0 $6,555.194 $(335.919) ======:a== ----- ========== --------- --------- -6- " CITY OF FAIRLAWN SUMMIT COUNTY r ¡ NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1985 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 form of government and provides the following services: public safety, public servic(!s, health, recreation and development. Education services are provided by Copley-Fairlawn City School District. The District is a separate governmental entity and its financial statements arE! not included in these financial statements. Management believes the financial statements included in this report represent all of the funds of the City over which the CJl ty officials have the ability to exercise direct operating contro:l. B. BASIS OF ACCOUNTING The City of Fairlawn prepares its financial statements on a batlis of cash receipts and disbursements. Consequently. certain rev(mues 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-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. INVESTMENTS AND INACTIVE FUNDS Investment procedures are restricted by the provisions of the Revised Code. Purchased investments are valued at cost and arE' neither charged when purchased nor credited at the time of redemption to their respective fund balances. Interest earned is recognized and recorded when received. -7- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1985 (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 developed 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 restrictions associated with each class of funds are as folloW!I: 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 requilred by law or contract to be accounted for in another fund. Special Revenue Funds To account expendable restricted for the proceeds trusts, or major to disbursements of specific revenue sources (other than capital projects) that are legally for specified purposes. Debt Service Funds To account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. According to governmental accounting principles, the debt service fund accounts for the payment of long-term debt for governmentaLl funds only. Under Ohio law, the debt service fund might also be used to account for the payment of the long-term debt of proprietary funds and the short-term debt of both governmental and proprietary funds. For purposes of this report, these funds halve been classified into the proper groups, if practicable. 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). -8- CITY OF FÀIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1985 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Required by Various Statutes) (Continued) f PROPRIETARY FUNDS 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. clDe 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. 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 fjlscal 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 recej.pts as shown on the accompanying financial statements do not include January 1. 1985 unencumbered fund balances. HOWeVE!r. 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 pE!riod 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 the year as new information becomes available. Appropriations may not exceed estimated resourc:es. -9- r CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1985 (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Requi~ed by Va~ious Statutes) ( Continued) E. BUDGETARY PROCESS (Continued) i' ¡" , , ~: 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 cOlDIRitments for the expenditure of funds are ~ecorded 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 appropriations. The encumbered appropriation balance is carried forward to the succeeding fiscal year and need not be reappropriated. F. PROPERTY. PLANT AND EQUIPMENT Fixed assets acquired or constructed for general governmental service are recorded as expenditures. Depreciation is not recclrded for these fixed assets. G. ACCUMULATED UNPAID VACATION AND SICK PAY Accumulated unpaid vacation. personal leave. and sick pay are not accrued under the cash basis of accounting described in Note 1. At December 31, 1985, management estimates that $226,497 in sick leave. and $18.252 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 these benefits as of December 31, 1985. H. TOTAL COLUMNS ON FINANCIAL STATEMENTS Total columns on the financial statements are captioned "Memorandum 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. 1985 consisted of the following: General Obligation Notes Principal Outstanding Interest Rate $500,000 5.14% -11)- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1985 (Continued) 2. DEBT OBLIGATIONS (Continued) All outstanding notes at December 31, had been issued for one year or less. These notes were of the general obligation type and have been renewed. Proceeds from the noted were used to improve municipal building facilities. The annual requirements to amortize all note debt outstanding as of December 31. 1985, including interest payments of $25.700 are as follows: Year Ending December 31 General Obligation Notes 1986 $525.700 $525.700 Total =======.= 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 was 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 Decembeir 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 ende'd December 31. 1984 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 fc,r real property classified as residential/agricultural and $2.70 per $1000 of assessed valuation for all other real property. Real pro~lerty 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, 1985 was $2.70 per $1000 of assessed valuation. -11- CITY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1985 (Continued) 3. (Continued) PROPERTY TAX Real Property - 1984 Valuation Residential/Agricultural Commercial/Industrial $ 58,469,630 41,949,680 Tangible Personal General Public Utilities Property - 1985 Valuation 11,949,490 3,017,560 Total Valuation $115,386,360 ============ 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. 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 Fairlawn and to earnings of non residents (except certain transients) earned in the government. It also applied to net income to business organizations conducted within Fairlawn. Tax receipts are credited to the City and amounted to $2,123,066 in 1985. 5. INSURANCE The City maintains comprehensive insurance coverage with private carriers for real property, building contents, and vehicles. Veh:lcle policies include liability coverage for bodily injury and propert17 damage. Real property and contents are 90 percent coinsured. 6. FEDERAL GRANTS (Intergovernmental Receipts) For the period January I, 1985 through December 31, 1985, the Ci t17 received federal grants amounting to $45,232. Pursuant to the Single Audit Act of 1984, Public Law 98-502, these federal grants were audited by the Auditor of State's Office. Provisions of the act are available for federal agencies to conduct any additional audit work necessary to carry out their responsibilities under federal law Ol~ regulation, and to arrange for funding the cost of such additionajl audits. -12- ! """ ~ CÌTY OF FAIRLAWN SUMMIT COUNTY NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1985 (Continued) 7. 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. 1985. the City employees contributed 8.5 percent of their gross wages. The City matches this with a contribution equ¡¡ll to 13.71 percent of employees' gross wages. The firemen and policem¡en 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 8.5 percent of their gross wages to the plan and the C:ity matches this with a contribution equal to 24.59 percent of firemen's and 20.03 percent of policemen's gross wages. 8. LEGAL COMPLIANCE Pursuant to Section 117.09 of the Revised Code. the Auditor of State performed tests of compliance with various provisions of local. state and/or federal laws, as appropriate. The Auditor's recommendations and citations are included in a separate part of this presentation. -13- Federal Grantor/ Sub Grantor! Program Title CITY OF FAIRLAWN SUMMIT COUNTY SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED DECEMBER 31. 1985 U. S. Department of the Treasury Direct Program Federal Revenue Sharing Total Federal Assistance Federal CFDA Number 21. 300 Pass-Through Grantor's Number 362077502 Program or Award Amount S45,232 $45,232 ------ ------ Fund or Program Balance 1/1/85 $ 0 $ 0 ====== Receipts $45.232 $45.232 ------ ------ Disbursements $45,000 $45.000 ====== -14- Ending Balance 12/31/85 $232 $232 ---- , í r ~ t EPUTY AUDITORS: JAMES A. BOLDEN Administration (614) 466-3786 f :': ~:.~ RI,CHARD G. NUSS CPA Dept. of Audit (614) 466-4971 ('USSELL L. ROUCH r nagement Advisory :. . Service (614) 466-2520 ELISABETH TSCHANTZ ~.;¡ional Administrator L Offices Regional Administrator 9 '. and District 8 ;>0 Dressler Rd.S.W. . Suite 210 Canton, Ohio 44720 (216) 497-5400 (800) 443-9272 District 7 60788 Southgate Rd. ~.esville, Ohio 43723 ...c (614) 432-6371 (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43216-1140 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, Ohio Re: Le~al Compliance We have examined' the combined financial statements of the varioul¡ funds, as listed in the Index of Funds, of the City of Fairlawn as of December 31, 1985, and have issued our audit report thereon dated August a9, 1986. Our examination was lIade in accordance with generally accepted guvernment auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedur.es as we considered necel>sary in the circumstances. In the course of our examination, we (1) performed tests of compliance in regard to the federal grants with federal laws and regulations gl)verning the programs the City participated in, and (2) compared the data on the Schedule of Federal Financial Assistance with the audited 1985 records of the City. Material citations are set forth below, in the section entitled "Federal Assistance Programs". For the period January 1, 1984 through December 31. 1985, we pedormed tests of compliance with various provisions of state statutes, regulations. and case law, and applicable local authority, Material citations are set forth below in the appropriate sections. NONCOMPLIANCE CITATIONS Revised Code *1. Section 5705.41 (B) of the Revised Code prohibits a subdivi ¡ion from making an expenditure unless it has been properly appropriated. The Municipal Income Tax and Parks and Recreation Funds were found tu have expenditures which exceeded appropriations. *2. Sections 5705.36 and 5705.39 of the Revised Code provide that appropriations from each funds shall not exceed the estimated revenue available for expenditure as certified by the county budget commission. The following funds were found to have appropriations in excess uf the amount certified as available by the budget commission: 1- 2. 3. General Federal Capital Revenue Sharing Improvement Section 5705.36, Revised Code, permits a subdivision to obtain an amended certificate from the budget commission for revenues received in (~xcess of the prior estimate or from a new source. For each of the aformentioned funds the City of Fairlawn could have obtained an amended certificate in an amount greater than total fund appropriations. -15- City of Fairlawn SUDlllit County Legal Compliance Page -2- NONCOMPLIANCE CITATIONS (Continued) r " Revised Code 3. Section 5705.41 (A), Revised Code, also prohibits a political subdivision or taxing unit from making a fund appropriation in excess of the estimated revenue available for expenditure from that fund. The Park Improvement Fund was found to have appropriations in excess of the amount certified as available by the budget commission. r Unlike the funds cited in citation number 2, sufficient to permit the City of Fairlawn to of estimated resources greater than or equal the above mentioned fund. actual obtain to the fund receipts werl! not an amended certiUcate appropriations from ~. *4. Section 5705.41 (D), Revised Code, states that no subdivision shall make any contract or order any expenditure of money unless the certifJ.cate of the fiscal officer is attached. The fiscal officer must certify that the amount required to meet such a commitment has been lawfully appropriated and is in the treasury or in the process of collection to the credit of an appropriate fund free from any previous encumbrance. Liabilities, contracts and open purchase commitments incurred prior tCI December 31, 1985 were not encumbered against 1985 appropriations. Consequently these obligations will be improperly charged against 198€i appropriations, and unencumbered fund balances reported to the county auditor for budgetary purposes will be overstated. The following amounts represent minimums by which December 31, 1985 funds' encumbrances are understated. General Street Construction Capital Improvement Income Tax M & R $50,232 8,003 36,380 2,377 Total $96,992 ------ ------ 5. Section 735.07, Revised Code, requires that proper prior approval be given before any payments are made to contractors for contract alterations or modifications. Our review of contracts revealed that change orders were paid without the proper prior approvals. -16- City of Fairlawn Sum.it County Legal Compliance Page -3- In our opinion, for the items tested, the City (1) complied with the aforeaentioned provisions of the Federal Assistance Program regulations. and (2) complied with the tested provisions of state statutes, regulations, and case law, except as noted above. Further, based upon our exa.ination, nothing came to our attention to indicate that the City had not complied with the requirements thereof for the untested items. C:\P? ~9 ~~ ¿ /I.~ THOMAS E. FERGUSON . Auditor of State August 29, 1986 -17- CITY OF FAIRLAWN SUMMIT COUNTY STATUS OF PRIOR AUDIT'S FINDINGS, CITATIONS, AND RECOMMENDATIONS The prior audit report, as of December 31, 1983, included various citations and recommendations. Each of these has either been satisfied/corrected or is reflected again in the appropriate section ;)f this report. Such citations/recommendations are indicated with an asterisk (*). ~. -18- :PUTY AUDITORS: lAMES A. BOLDEN Administration (614) 466-3786 RICHARD G. NUSS CPA Dept. of Audit (614) 466-4971 PJJSSELL L. ROUCH v, 1agement Advisory . Service (614) 466-2520 õLlSABETH TSCHANTZ :¡. 'ional Administrator . Offices :¡egional Administrator and D.istrict 8 ,{o Dressler Rd. S. W. Suite 210 'Canton, Ohio 44720 (216) 497-5400 (800) 443-9272 District 7 60788 Southgate Rd. Bsville, Ohio 43723 (614) 432-6371 (800) 441-1389 THOMAS E. FERGUSON AUDITOR OF STATE COLUMBUS, OHIO 43216-1140 (614) 466-4514 Members of Council City of Fairlawn Fairlawn, Ohio Re: ManaŒement Comments and Recommendations We have examined the financial statements of the City of Fairlawn for the year ended December 31, 1985, and have issued our report thereon dated August 29, 1986. As part of our examination, 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 system as required by generally accepted government auditing standards. For the purpose of this report, we have classified 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. Cash Activity 1. Receipts 2. Disbursements (a) Purchasing (b) Payroll and Receiving C. Budgetary Balances and Activity D. Debt Balances and Activity E. Property and Equipment Balances and Activity -19- City of Fairlawn SUllllit County Management Comments Page -2- and Recommendations 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 evaluELtion 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 tCI 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 inl accordance with management's authorization and recorded properly to pe>rmit the preparation of financial statements in accordance with the basis clf 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 amounts that would be material in relation to the financial statements of the City may occur and not be detected within a timely period. Disbursements Our examination of disbursement records of the City revealed the following: 1. Purchase orders when written were not attached to the voucher check copy. 2. Mileagè reimbursements were not always being properly itemized and no written policy exists for procedures involving mileage reimbursements. 3. Uniform allowance reimbursements were handled by each department or on an individual basis with no consistency. . 4. The board of audit review minutes covering a portion of our audit period were not on file in the finance department. -20- City of Fairlawn Summit County Management Comments Page -3- and Recommendations To improve recordkeeping: 1. Purchase orders should be written for all disbursements and attached the voucher copy of the check. 2. All reimbursements for mileage should be properly itemized showin~: date, destinations. and miles driven. 3. A written policy should be established for uniform allowances, preferably requiring receipts of items purchased. 4. All original minutes of the board of audit review should be kept on filed in the finance office. Copies should be made when it becomes necessary to take portions of the minutes out of the office. The preceding conditions were considered in determining the nature, timing, and extent of the audit tests to be applied in our examination of the 1985 financial statements, and this report does not affect our report on these financial statements dated August 29, 1986. We also noted other conditions that. we regarded as weaknesses in the Ci ty I s system of internal accounting control. While we do not considE!r these conditions as material weaknesses, they are nevertheless potentjlal sources or errors or irregularities. Cash Receipts Our review of cash receipting procedures revealed the following: 1. Numerous receipt books were being used by the parks and recreation department with no apparent controls. 2. Pay-in order numbers were not posted to tax settlement sheets. 3. Receipt numbers were not always posted to pay-in orders when department collections were received by the finance department. To improve receipting controls: 1. The parks and recreation department should limit the number of receipt books used at anyone time to two. A control sheet should be maintained by the department head that shows which employees have been assigned receipt books and the receipt numbers in these books. 2. Pay-in order numbers should be cross-referenced on tax settlement sheets. 3. All pay-ins written by the finance department for departmental collections should show the departments receipt numbers that correspoI1ld to the amounts collected. Sick Leave A review of sick leave records of the City revealed that leave forms ~Iere not required for time off due to illness or injury. To improve recordkeeping: Leave forms should be required for all absences. These forms should be properly approved by department heads and maintained on file. -21- City of Fairlawn Summit County Management Comments Page -4- and Recommendations Petty Cash Funds Our examination of Petty Cash Funds showed that the police department Petty Cash Fund was increased without proper approval and although a policy exists limiting the amount of expenditure from Petty Cash Fund it is not being followed by the departments. To improve controls over Petty Cash Funds: 1. Petty Cash Funds should be increased only after proper approval is given by either the board of audit review or council. 2. The policy on the amount and types of expendi tures to be made out c)f Petty Cash Funds should be properly adhered to. Property and Equipment Our review of property and equipment records maintained by the City revealed the following: 1. Some items were not 2. Several items shown vice-versa. properly tagged with the city number. on insurance pOlicy were no on inventory list and To improve property and equipment records: 1. Any new items purchased should be properly tagged and inventory Hsts should be maintained on a perpetual basis. 2. A periodic review of insurance coverage should be made to delete items when sold or disposed of and add new items when purchased. C).r-? ~ç. ;;(~ ¿ /'~ THOMAS E. FERGUSON Auditor of State August 29, 1986 -22- Although the accompanying balances through December conducted a cash count on were conducted up to this audit working papers. CITY OF FAIRLAWN SUMMIT COUNTY GENERAL COMMENTS financial statements reflect activity and 31. 1985. the Auditor of State's office July 10, 1986. Limited audit procedures al~;o date and such procedures are reflected in the City personnel were cooperative and available for questions and assistance during regular working hours. ~ -23- 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 29, 1986: Peter Kostoff Lawrence Pelland Ray Hartung William Stalker Frank Martucci James Graves Mayor Finance Director Assistant Finance Director President of Council Council Member Law Director 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. -24- ~ . . EXAMINER CERTIFICATION ¡,..ør we, the undersigned hereby certify that ~ we, have examined the books, rec:ords and accounts of the within named, l!..;~'f of I="Q;".\6...:1", $"'''''''''1" County, and ~ we, further certify that tht, .' foregoing is a true and accurate summation of the same as ¡,.- we, verily believe. BUREAU OF INSPECTION AND SUPERVISION OF PUBLIC OFFICES - STATE OF OHIO -J1 lð~~~k ð State Examiner ~/Vt(£- ~LJ7f St¿ xaminer TYPIST CERTIFICATION I hereby certify that the foregoing report is a true and correct copy of the original repart of the examination of said taxing district. Dale 1./-2.+- Up ,-4aJ(j1~t L/d¡~f Typist Signed: Proofreader Area Supervisor BUREAU CERTIFICATION A true and correct copy of this report is filed in the Offices of the Bureau of Inspect'ion and Supervision of Puhlic Offices at Columbus, Ohio. THE BUREAU OF INSPECTION AND SUPERVISION OF PUBLIC OFFICES By '?~o(? ~~ Cleric NOV 2 8 1986 Date: AUD.4753 (Replaces Form 95) -25-