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2004 Financial Statement r' . r. , , . r' ~,.' . . t"- , - J ' , r.; ~ ';; -.,;. ., f' ~. .' L ." t. ,\ ~ L r' , ... b' ~ It , I: ~. . . , j L. Auditor of State , Betty Montgomery CITY OF FAIRLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE PAGE Independent Accountants' Report............................................................................ ..................................... 1 Management's Discussion and Analysis............................. ...... ....... .... ......... ...... ..........................................3 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets..................................... .... ........ .................. ....................................... 15 Statement of Activities ......... ............................. .... .......... ............... ............ .... ......... ................. 16 Fund Financial Statements: ,,' Balance Sheet Governmental Funds ........................................................................................................17 Reconciliation of Total Governmental Fund Balances to Net Assets of Governmental Activities .............................................................................. 18 Statement of Revenues, Expenditures and Changes in Fund Balances j" Governmental Funds ......................................................................................................... 19 ~ Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities L Governmental Funds......................................................................................................... 20 Statement of Revenues, Expenditures and Changes f.' in Fund Balance - Budget and Actual (Non-GAAP Budgetary Basis) General Fund ....... ..... ................... ..... ................ ............. ..... ......... ............... .......................21 ii. Statement of Fiduciary Net Assets Fiduciary Funds................................................................................................................. 22 .. Notes to the Basic Financial Statements .................................................................................................... 23 Independent Accountants' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters ,. Required by Government Auditing Standards .........................................................................................45 ~ i , . , , This page intentionally left blank. Auditor of State . Betty Montgomery INDEPENDENT ACCOUNTANTS' REPORT City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333-3007 To the Honorable Mayor and Members of City Council: We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Fairlawn, Summit County, Ohio, (the City) as of and for the year ended December 31, 2004, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. f We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in the Comptroller General of the , United States' Government Auditing Standards. Those standards require that we plan and perform the . ' audit to reasonably assure whether the financial statements are free of material misstatement. An audit : includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial , l~ statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our r audit provides a reasonable basis for our opinions. , In our opinion, the financial statements referred to above present fairly, in all material respects, the f respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Fairlawn, Summit County, Ohio, as of December 31, 2004, and the . respective changes in financial position, thereof and the budgetary comparison for the General for the year then ended in conformity with accounting principles generally accepted in the United States of America. i In accordance with Government Auditing Standards, we have also issued our report dated, September 6, 2005 on our consideration of the City's internal control over financial reporting and our tests of its , compliance with certain provisions of laws, regulations, contracts and grant agreements and other , matters. While we did not opine on the internal control over financial reporting or on compliance, that report describes the scope of our testing of internal control over financial reporting and compliance and the results of that testing. That report is an integral part of an audit performed in accordance with ~ Government Auditing Standards. You should read it in conjunction with this report in assessing the results of our audit. . 101 Central Plaza South /700 Bank One Tower / Canton, OH 44702 Telephone: (330)438-0617 (800) 443-9272 Fax: (330)471-0001 www.auditor.state.oh.us 1 City of Fairlawn Summit County Independent Accountants' Report Page 2 Management's Discussion and Analysis is not a required part of the basic financial statements, but is supplementary information the Governmental Accounting Standards Board requires. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplernentary information. However, we did not audit the information and express no opinion on it. 1J~ MMht~ Betty Montgomery Auditor of State September 6, 2005 2 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED The management's discussion and analysis of the City of Fairlawn's (the "City") financial performance provides an overall review of the City's financial activities for the year ended December 31, 2004. The intent of this discussion and analysis is to look at the City's financial performance as a whole; readers should also review the basic financial statements and the notes to the basic financial statements to enhance their understanding of the City's financial performance. Financial Highlights Key fmancial highlights for 2004 are as follows: ~ The total net assets of the City increased $612,540. Net assets of governmental activities increased $612,540 or 0.82% from 2003, to a total of $75,624,343 in 2004. ~ General revenues accounted for $11,803,151 of total governmental activities revenue. Program specific revenues accounted for $2,565,262 or 17.85% of total governmental activities revenue. ~ The City had $13,755,873 in expenses related to governmental activities; $2,565,262 of these expenses was offset by program specific charges for services, grants or contributions. The remaining expenses of the governmental activities of $11,190,611 were offset by general revenues (primarily property taxes, income taxes and unrestricted grants and entitlements, including Joint Economic Development District (JEDD) revenue). r ~ The City has three major funds, the general fund, bond retirement fund and capital improvement fund. The ~ general fund, the largest major fund, had revenues and other financing sources of $9,297,702 in 2004. This represents an increase of$541,475 from 2003 revenues and other financing sources, largely due to increases in estate and municipal income tax receipts. The expenditures and other financing uses of the general fund, which totaled $9,504,338 in 2004, decreased $2,102,420 from 2003 primarily due to less transfers out to other funds in 2004 than in 2003. The net decrease in fund balance for the general fund was $214,695 or 3.24%. r' ~ The bond retirement fund had revenues of $264,732 in 2004. The expenditures of the bond retirement fund - totaled $301,017 in 2004. The net decrease in fund balance for the bond retirement fund was $36,285 or 13.17%. i ! The capital improvement fund had revenues and other financing sources of $3,572,948 in 2004. ~ The , expenditures of the capital improvement fund totaled $3,869,264 in 2004. The net decrease in fund balance for ; the capital improvement fund was $296,316 or 6.36%. The decrease is attributed to a reduced transfer from the general fund in 2004 as compared to 2003. , Using this Annual Financial Report This annual report consists of a series of financial statements and notes to these statements. These statements are , . organized so the reader can understand the City as a financial whole, an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial activities. , The statement of net assets and statement of activities provide information about the activities of the City as a whole, presenting both an aggregate view of the City's finances and a longer-term view of those finances. Fund t financial statements provide the next level of detail. For governmental funds, these statements tell how. services e were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the City's most significant funds with all other nonmajor funds presented in total in one column. . . 3 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED Reporting the City as a Whole Statement of Net Assets and the Statement of Activities While this document contains a large number of funds used by the City to provide programs and activities, the view of the City as a whole looks at all financial transactions and asks the question, "How did we do financially during 2004?" The statement of net assets and the statement of activities answer this question. These statements include all assets, liabilities, revenues and expenses using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting will take into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the City's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the City as a whole, the financial position of the City has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Non-financial factors include the City's property tax base, current property tax laws in Ohio restricting revenue growth, facility conditions, required community programs and other factors. In the statement of net assets and the statement of activities, the Governmental activities include the City's programs and services including police, fire and rescue, street maintenance, capital improvements and general administration. These services are funded primarily by property and income taxes and intergovernmental revenues including federal and state grants and other shared revenues. The City's statement of net assets and statement of activities can be found on pages 15-16 of this report. Reporting the City's Most Significant Funds Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmental funds and fiduciary funds. Fund financial reports provide detailed information about the City's major funds. The City uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the City's most significant funds. The analysis of the City's major governmental funds begins on page 9. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide fmancial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of the governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, the readers may better understand the long-term impact of the government's near-term fmancing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation. to facilitate this comparison between governmental funds and governmental activities. 4 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED The City maintains a multitude of individual governmental funds. The City has segregated these funds into major funds and nonmajor funds. The City's major governmental funds are the general fund, bond retirement fund and capital improvement fund. Information for major funds is presented separately in the governmental fund balance sheet and in the governmental statement of revenues, expenditures, and changes in fund balances. Data from the other governmental funds are combined into a single, aggregated presentation. The basic governmental fund financial statements can be found on pages 17-21 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City's own programs. The City's only fiduciary funds are agency funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve the measurement of results of operations. The basic fiduciary fund financial statement can be found on page 22 of this report. Notes to the Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. These notes to the basic financial statements can be found on pages 23-44 of this report. Government-Wide Financial Analysis , The Statement of Net Assets provides the perspective of the City as a whole. The table below provides a summary ; of the City's net assets for 2004 compared to 2003: Net Assets ~ Governmental Governmental I. Activities Activities 2004 2003 Assets ~, Current and other assets $ 18,569,518 $ 19,851,946 Capital assets 71,129,398 70,402,838 Total assets 89,698,916 90,254,784 Liabilities Current and other liabilities 1,757,3]2 2,258,328 Long-term liabilities ] 2,3] 7,261 12,984,653 ...... Total liabilities 14,074,573 15,242,98 ] Net Assets . Invested in capital assets, net of related debt 59,824,691 58,435,085 Restricted 9,437,976 10,009,098 , Unrestricted 6,361,676 6,567,620 .. Total net assets $ 75,624,343 $ 7.5,011,803 . . 5 CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED Over time, net assets can serve as a useful indicator ofa government's financial position. At December 31, 2004, the City's assets exceeded liabilities by $75,624,343. Capital assets reported on the government-wide statements represent the largest portion of the City's assets. At year-end, capital assets represented 79.30% of total assets. Capital assets include land, land improvements, buildings, machinery and equipment, licensed vehicles, infrastructure and construction in progress. Capital assets, net of related debt to acquire the assets at December 31, 2004, were $59,824,691. These capital assets are used to provide services to citizens and are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources to repay the debt must be provided from other sources, since capital assets may not be used to liquidate these liabilities. A portion of the City's net assets, $9,437,976, represents resources that are subject to external restriction on how they may be used. In the governmental activities, the remaining balance of unrestricted net assets of $6,361,676 may be used to meet the government's ongoing obligations to citizens and creditors. The table below shows the changes in net assets for fiscal years 2004 and 2003. Change in Net Assets Governmental Governmental Activities Activities 2004 2003 Revenues Program revenues: Charges for services $ ],] 78,492 $ 945,974 Operating grants and contributions 393,218 280,] 74 Capital grants and contributions 993,552 795,044 Total program revenues 2,565,262 2,021,192 General revenues: Property and other taxes 978,552 96],954 Income taxes 7,808,575 7.209,630 Unrestricted grants and entitlements 872,057 788,424 lEDD revenue 1,882,346 2,074,] 08 Investment earnings ]81,159 217,007 Miscellaneous 80,462 66,615 Total general revenues 1],803,15] 11,317,738 Total revenues 14,368,413 13,338,930 6 . CITY OF FAIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31,2004 UNAUDITED Change in Net Assets Governmental Governmental Activities Activities 2004 2003 Expenses General government $ 2,530,35 I $ 2,137,747 Security of persons and property 5,488,691 5,423,777 Public health services 110,953 109,066 Transportation 3,722,435 3,843,338 Community environment 34,761 33,676 Basic utility services 918,968 1,048,800 Leisure time activity 398,] ]8 461,9]6 Intergovernmental - 275,4]2 Interest and fiscal charges 55],596 580,179 Total expenses 13,755,873 13,913,911 Change in net assets 6]2,540 (574,981) Net assets at beginning of year 75,011 ,803 75,586,784 f Net assets at end of year $ 75,624,343 $ 75,01] ,803 i' Governmental Activities k: Governmental activities net assets increased $612,540 in 2004. This increase is a result of slightly decreasing ~ expenses and an increase in estate and income tax revenue, versus amounts reported in the prior year. Security of persons and property, which primarily supports the operations of the police and fire departments accounted for $5,488,691 of the total expenses of the City. These expenses were partially funded by $230,503 in direct charges to users of the services and $14,777 in operating grant and contributions. Transportation expenses totaled $3,722,435. Transportation expenses were partially funded by $1,150 in direct charges to users of the services, and $378,441 in operating grants and contributions and $993,552 in capital grants and contributions. The county, state and federal governments contributed to the City a total of $393,218 in operating grants and contributions and $993,552 in capital grants and contributions. These revenues are restricted to a particular program or purpose. Of the total operating grants and contributions, $14,777 subsidized security of persons and property and $378,441 subsidized transportation programs. Of the total capital grants and contributions, $993,552 subsidized transportation programs. General revenues totaled $11,803,151, and amounted to 82.15% of total governmental revenues. These revenues primarily consist of property and income tax revenue of $8,787,127 and Joint Economic Development District revenue of$I,882,346. The statement of activities shows the cost of program services and the charges for services and grants offsetting i.. those services. The following table shows, for governmental activities, the total cost of services and the net cost of services. That is, it identifies the cost of these services supported by tax revenue and unrestricted State grants and entitlements. The graph below illustrates the City's dependence upon general revenues as program revenues are not sufficient to cover total governmental expenses. 7 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31,2004 UNAUDITED Governmental Activities - Program Revenues vs. Total Expenses $\5,000,000 $\2,500,000 $\ 0,000,000 $7,500,000 C Program Revenues . Expenses $5,000,000 $2,500,000 $- Fiscal Year 2004 Fiscal Year 2003 Governmental Activities Total Cost of Net Cost of Total Cost of Net Cost of Services Services Services Services 2004 2004 2003 2003 Program Expenses: General government $ 2,530,351 $ 1,744,978 $ 2,137,747 $ 1,718,826 Security of persons and property 5,488,691 5,243,411 5,423,777 5,174,755 Public health services 11 0,953 110,953 109,066 109,066 Transportation 3,722,435 2,349,292 3,843,338 2,794,433 Community environment 34,761 34,761 33,676 33,676 Basic utility services 918,968 784,333 1,048,800 850,348 Leisure time activity 398,118 371,287 461,916 356,024 Intergovernmental - - 275,412 275,412 Interest and fiscal charges 551,596 551,596 580,179 580,179 Total $ 13,755,873 $ 11,190,611 $ 13,913,911 $ 11,892,719 The dependence upon general revenues for governmental activities is apparent, with 81.35% of expenses supported through taxes and other general revenues. The chart below illustrates the City's program revenues versus general revenues for 2004: 8 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED Governmental Activities - General and Program Revenues $12,000,000 $10,000,000 $8,000,000 C Program Revenues $6,000,000 II General Revenues $4,000,000 $2,000,000 $- Fiscal Year 2004 Fiscal Year 2003 Financial Analysis of the Government's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal t requirements. r Governmental Funds , i l' ~, The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances , of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance serves as a useful measure of the City's net resources available for spending at year-end. The City's governmental funds (as presented on the balance sheet on page 17) reported a combined fund balance of , $13,208,604 which is $687,802 less than last year's total of $13,896,406. The schedule below indicates the fund balances and the total change in fund balances as of December 31, 2004 and 2003 for all major and nonmajor governmental funds. Fund Balances Fund Balances Increase Percentage 12/31/04 12/31/03 (Decrease ) Chane:e Major funds: General $ 6,413,962 $ 6,628,657 $ (214,695) (3.24) % Bond retirement 239,191 275,476 (36,285) (13.17)% Capital improvement 4,361,292 4,657,608 (296,316) (6.36) % . Other nonmajor governmental funds 2,194,159 2,334,665 (140,506) (6.02) % Total $ 13,208,604 $ 13,896,406 $ (687,802) (4.95) % , ., 9 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED General Fund The City's general fund balance decreased $201,423. The table that follows assists in illustrating the revenues of the general fund. 2004 2003 Percentage Amount Amount Change Revenues Taxes $ 5,984,205 $ 5,523,378 8.34 % Charges for services 16,356 17,625 (7.20) % Licenses and permits 73,108 81,391 (10.18) % Fines and forfeitures 180,670 201,790 (10.47) % Investment income 147,782 181,945 (18.78) % Intergovernmental 906,640 571,067 58.76 % JEDD revenue 1,882,346 2,074,108 (9.25) % Other 99,495 97,023 2.55 % Total $ 9,290,602 $ 8,748,327 6.20 % Tax revenue represents 64.41 % of all general fund revenue. Tax revenue increased by 8.34% over prior year. The decrease in investment income is due to drastic cuts in interest rates by the Federal Reserve Bank throughout the year. The increase in intergovernmental revenue is due to an increase in the collections of estate tax revenue. All other revenue remained comparable to 2003. Revenues - Fiscal Year 2004 Revenues - Fiscal Year 2003 Investment Investment Income ]ntcrgovcm. Income 2.08% Intergovern- mental l.5lJD/o mental 6.53% 9.76% Licenses and Pennits Licenses and 0.93% Pennits O.79'l1o Charges for Services 0.18% 10 CITY OF F AIRLA WN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED The table that follows assists in illustrating the expenditures of the general fund. 2004 2003 Percentage Amount Amount Change Exuenditures General government $ 2,399,962 $ 2,047,151 17.23 % Security of persons and property 4,565,846 4,343,326 5.12 % Public health services 110,953 109,066 1.73 % Transportation 1,470,856 1,543,697 (4.72) % Community environment 226,287 29,324 671.68 % Basic utility services 150,712 140,898 6.97 % Leisure time activity 30,618 35,796 (14.47) % Total $ 8,955,234 $ 8,249,258 8.56 % The most significant increase was in the area of community environment. The increase is primarily due to sewer improvements made to alleviate storm water flooding in the City. The increase in general government is due to general inflation, the addition of personnel in the computer department and increases in personnel costs including medical insurance. All other expenditures remained comparable to 2003. The largest expenditure line item, security of persons and property, increased due to wage and benefit increases and overall cost increases in purchased goods and services. , L Expenditures - Fiscal Year 2004 Expenditures - Fiscal Year 2003 ~ Basic utility Basic utility Leisure time services scrvices ~ Community leisure time activity environment activity 0.43% 2.53% Transport- 0.34% alien 18.71% General General government , 24.82% government 26.80% services 1.32% l services 124% Security of ".- . persons and property 52.65% . Bond Retirement Fund The bond retirement fund had revenues of $264,732 in 2004. The expenditures of the bond retirement fund totaled . $301,017 in 2004. The net decrease in fund balance for the bond retirement fund was $36,285 or 13.17%. II CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED Capita/Improvement Fund The capital improvement fund had revenues and other financing sources of $3,572,948 in 2004. The expenditures of the capital improvement fund totaled $3,869,264 in 2004. The net decrease in fund balance for the capital improvement fund was $296,316 or 6.36%. The decrease is attributed to a lesser general fund transfer into the capital improvement fund. Budgeting Highlights The City's budgeting process is prescribed by the Ohio Revised Code (ORC). Essentially the budget is the City's appropriations which are restricted by the amounts of anticipated revenues certified by the County Budget Commission in accordance with the ORC. Therefore, the City's plans or desires cannot be totally reflected in the original budget. If budgeted revenues are adjusted due to actual activity then the appropriations can be adjusted accordingly. Budgetary information is presented for the general fund. In the general fund, one of the most significant changes was between the original and final budgeted amount in the area of revenues, which decreased $734,229 from $8,769,629 to $8,035,400. Actual revenues of $9,318,330 exceeded final budgeted revenues by $1,282,930. Budgeted revenue was reduced to reflect the decline in JEDD revenue, however increases in the amounts received for estate tax and income tax exceeded budget estimates. The other significant change was between the final budgeted expenditures and actual expenditures. Actual expenditures came in $697,480 lower than the final budgeted amounts due to less than full staffing in the police and dispatch departments; less than anticipated utility expenses due to the City's aggregation programs; a reduced transfer to the parks fund; and overall prudent management. Capital Assets and Debt Administration Capita/ Assets At the end of fiscal 2004, the City had $71,129,398 (net of accumulated depreciation) invested in land, land improvements, buildings, machinery and equipment, licensed vehicles, infrastructure and construction in progress. The following table shows fiscal 2004 balances compared to 2003: Capital Assets at December 31 (Net of Depreciation) Governmental Activities 2004 2003 Land $ 3,234,757 $ 3,234,757 Land improvements 564,331 544,924 Buildings 12,147,247 11,572,286 Machinery and equipment 1,871,886 1,979,632 Licensed vehicles 1,732,433 1,802,033 Infrastructure 51,513,661 50,120,341 Construction in progress 65,083 1,148,865 Totals $ 71,129,398 $ 70,402,838 12 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2004 UNAUDITED The following graphs show the breakdown of governmental capital assets by category for 2004 and 2003. Capita' Assets - Governmental Activities 2004 Capital Assets - Governmental Activities 2003 Buildings Land imp. 17.1% 0.8% Machinery and elP equipment 1.6% CIPO.IO/c 2.6% Licensed Licensed vehicles vehicles 2.5% 2.6% Infrastruclure 72.4% The City's largest capital asset category is infrastructure which includes roads, bridges, culverts, sidewalks and curbs. These items are immovable and of value only to the City, however, the annual cost of purchasing these items ..., is quite significant. The net book value of the City's infrastructure (cost less accumulated depreciation) represents ., S'.: approximately 72.42% of the City's total governmental capital assets at December 31,2004. Ii" ! See Note 8 for more detail on the City's capital assets. Debt Administration The City had the following long-term obligations outstanding at December 31, 2004 and 2003: , Governmental Activities 2004 2003 , General obligation bonds $ 9,565,000 $ 10,065,000 Special assessment bonds 1,065,000 1,180,000 OPWC loans 674,706 722,753 ". Compensated absences 1,012,555 1,016,900 Total long-term obligations $ 12,317,261 $ 12,984,653 See Note 9 for more detail on the City's long-term obligations. Economic Conditions and Next Year's General Fund Budget Outlook The City of FairlaWD is a residential community with a strong diversified business base. The City is home to several large corporations, a multitude of small, diverse businesses, and five thriving retail centers, including Summit Mall, Rosemont Commons, the Shops at Fairlawn, the Fairlawn Towne Center, and Miller-Market Square. The City's convenient location continues to attract and retain growing businesses and it has recently welcomed Newell-Rubbermaid. 13 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31,2004 UNAUDITED The City's primary revenue source is the 2% local income tax withheld on the estimated 40,000 people working in the City. The City is fortunate to be able to weather the economic conditions through its broad tax base and is projecting nominal growth for 2005. The City is proud to offer outstanding city services to its residents. In addition to excellent police and fife protection, Fairlawn safety forces are active in the community offering education programs such as Drug Abuse Resistance Education (DARE), Fire Prevention, and Safety Town for our youngest residents. FairIawn police support neighborhood Block Parent groups, offer residential checks and a Senior Call program to check on senior citizens living alone. The popular Special Traffic Enforcement Program boosts traffic control where residents most see a need. The City's highly trained emergency medical teams are outfitted with advanced medical equipment and provide emergency medical care, free of charge to Fairlawn residents. The new Municipal Service Center Complex houses all public service functions and equipment in one area. The City provides trash and recycling services at no charge to residents at the Andrew Sombati Compactor site, an all-weather drive-thru trash compactor facility. The City operates fifty-three (53) acres of parks which offer year-round recreational programs for children and adults. The Learning Resource Center, staffed with a full-time Naturalist, offers nature-related programs and lectures to groups of all ages. The City is currently exploring the feasibility of joining forces with neighboring communities to create ajoint recreational center. The City is projecting moderate growth in general fund revenue in 2005 to remain consistent with prior years. Expenditures for 2005 are budgeted at I % lower than the prior year due to a reduction in healthcare costs realized when the City changed insurers. Programs supported by the general fund are budgeted at the same level of service as last year. There are no new hires planned for 2005. Contacting the City's Financial Management This financial report is designed to provide our citizen's, taxpayers, and investors and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mr. Jerome E. Apple, Finance Director, City ofFairlawn, 3487 S. Smith Road, Fairlawn, Ohio 44333. 14 CITY OF FAIRLA WN, OHIO STATEMENT OF NET ASSETS DECEMBER 31, 2004 Governmental Activities Assets: Equity in pooled cash and cash equivalents. . . . . . . . . $ 12,511,721 Cash and cash equivalents in segregated accounts . . . . . 29,569 Receivables (net of allowances for uncollectibles): Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,689,065 Real and other taxes . . . . . . . . . . . . . . . . . . . 804,850 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 40,563 Accrued interest. . . . . . . . . . . . . . . . . . . . . 37,716 Special assessments. . . . . . . . . . . . . . . . . . . 2,326,073 Due from other governments. . . . . . . . . . . . . . . . 693,778 Prepayments. . . . . . . . . . . . . . . . . . . . . . . . 202,656 Materials and supplies inventory. . . . . . . . . . . . . . 233,527 Capital assets: Land and construction in progress. . . . . . . . . . . . 3,299,840 Depreciable capital assets, net . . . . . . . . . . . 67,829,558 Total capital assets. . . . . . . . . . . . . . . . . . . . 71,129,398 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . 89,698,916 Liabilities: .' Accounts payable. . . . . . . . . . . . . . . . . . . . . . 227,440 Contracts payable. . . . . . . . . . . . . . . . . . . . . . 249,796 Accrued wages and benefits . . . . . . . . . . . . . . . . 221,279 i: Due to other governments . . . . . . . . . . . . . . . . . 222,062 [.,: Deferred revenue. . . . . 775,865 " Accrued interest payable. . 60,870 Long-tenn liabilities: Due within one year. . . . . 1,036,475 Due in more than one year 11,280,786 Totalliabilities . . . . . . . .. . . . . . . .. .. .. 14,074,573 i Net assets: Invested in capital assets, net of related debt. . . . . . . 59,824,69 ] Restricted for: Capital projects. . . . . . . . . . . . . . . . . . . . . 6,032,725 Debt service. . . . . . . . . . . . . . . . . . . . . . ],953,731 Other purposes . . . . . . . . . . . . . . . . . . . . . 1,451,520 , Unrestricted. . . 6,36] ,676 Total net assets . $ 75,624,343 l SEE ACCOMPANYING NOTES TO THE BASIC FINANC]AL STATEMENTS . , , 15 CITY OF FAIRLA WN, OHIO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31,2004 Net (Expense) Revenue and Changes in Pro\lram Revenues Net Assets Operating Capital Charges for Grants and Grants and Governmental Expenses Services Contributions Contributions Activities Governmental Activities: General government. . . . . . . . . . . . . . . . $ 2,530,351 $ 785,373 $ $ $ (1,744,978) Security of persons and property. . . . . . . . . . 5,488,69] 230,503 ]4,777 (5,243,411) Public health services . . . . . . . . . . . . . . . 110,953 (110,953) Transportation. . . . . . . . . . . . . . . . . . . 3,722,435 1,150 378,44 ] 993,552 (2,349,292) Community environment.. . . . . . . . . . . . . 34,761 - (34,761) Basic utility services. . . . . . . . . . . . . . . . 918,968 134,635 (784,333) Leisure time activity . . . . . . . . . . . . . . . . 398,118 26,831 (371,287) Intergovernmental. . . . . .. . . . . . . . . . . - Interest and fiscal charges . . . . . . . . . . 551,596 (55],596) Total governmental activities. . . . . . . . . 13,755,873 1.178,492 393,218 993,552 (11,190,611) General Revenues: Property and other taxes levied for: General purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626,657 Police and fire pension . . . 178,765 Parks and recreation . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,130 Income taxes levied for: General purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,389,809 Capital projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,4]8,766 JEDD revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,882,346 Grants and entitlements not restricted to specific programs. . . . . . . . 872,057 Investment earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 181,159 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,462 Total general revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,803,151 Change in net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 612,540 Net assets at beginning of year. . . . . . . . . . . . . . . . . . . . . . 75,011,803 Net assets at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,624,343 SEE ACCOMPANYING NOTES TO THE BAS]C FINANCIAL STATEMENTS 16 CITY OF FAIRLA WN, OHIO BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2004 Other Total Bond Capital Governmental Governmental General Retirement Improvement Funds Funds Assets: Equity in pooled cash and cash equivalents. . . . . . . . . . ..... . $ 5,732,161 $ 239,191 $ 4,257,618 $ 2,282,751 $ 12,511,721 Cash and cash equivalents in segregated accounts . . . . . . . . . . . . 29,569 29,569 Receivables (net of allowance for uncollectibles): Income taxes. . . . . . . . . . . . . . . . . . . 1,140,119 548,946 1,689,065 Real and other taxes. . . . . . . . . . . . . . 618,406 186,444 804,850 Accounts. . . . . . . . . . . . . . . . . . . . . 5,995 34,568 40,563 Accrued interest. . . . . . . . . . . . . . . . . 36,055 1,66] 37,716 Special assessments. . . . . . . . . . . . . . . 1,740,994 585,079 2,326,073 Duefromotherfunds. ... . .. . .. ... . . 5,948 5,948 Due from other governments. . . . . . . . . . . 480,948 84,167 128,663 693,778 Prepayments. . . . . . . . . . . . . . . . . . . 200,397 2,259 202,656 Materials and supplies inventory. . . . . . . . . 218,630 14,897 233,527 Total assets. . . . . . . . . . . . . . . . . . . . . $ 8.462.280 $ 1.980,185 $ 5.475,810 $ 2,657,191 $ 18,575.466 . '. Liabilities: , Accounts payable . . . . . . . . . . . . . . . . $ 148,772 $ $ 67,307 $ 11,361 $ 227,440 Contracts payable . . . . . . . . . . . . . . . . 6,766 209,556 33,474 249,796 Accrued wages and benefits. . . . . . . . . . . 214,457 6,822 221,279 Due to other funds. . . . . . . . . . . . . . . . 5,948 5,948 Due to other governments. . . . . . . . . . . . . 95,427 126,635 222,062 Deferred revenue. . . . . . . . . . . . . . . . . ] ,576,948 1,740,994 837,655 284,740 4,440,337 ! . t Total liabilities . . . . . . . . . . . . . . . . . . . 2,048,318 1,740,994 1,114,518 463,032 5,366.862 f" Fund Balances: r Reserved for encumbrances. . . . . . . . . . . . 332,627 154,639 166,418 653,684 ~ Reserved for prepayments. . . . . . . . . . . . . 200,397 2,259 202,656 Reserved for materials and supplies inventory. . 218,630 14,897 233,527 Reserved for unclaimed monies. . .. . 16,794 16,794 Reserved for debt service . . . . . ., . 239,191 239,191 i, Unreserved: Undesignated, reported in: I Generalfund. . . . . . . . . . . . . . . . . . 5,645,514 5,645,514 Special revenue funds . . . . . . . . . . . . . - 1,]94,499 1,194,499 , Capital projects funds . . . . . . . . . . . . . 4,206,653 816,086 5,022,739 Total fund balances. . . . . . . . . . . . . . . . . 6,413,962 239,191 4,361,292 2,194,159 13,208,604 . Total liabilities and fund balances . . . . . . . . . $ 8.462,280 $ 1.980,185 $ 5.475.810 $ 2.657,191 $ 18,575.466 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS . , . 17 CITY OF FAIRLAWN, OHIO RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET ASSETS OF GOVERNMENTAL ACTIVITIES DECEMBER 31, 2004 Total governmental fund balances $ 13,208,604 Amounts reportedfor governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 7],129,398 Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the funds. Income taxes $ 773,053 Investment income 50,886 Special assessments 2,326,073 Licenses and permits 4,498 Other 105 Intergovernmental revenues 509,857 Total 3,664,472 Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. The long-term liabilities are as follows: Accrued interest payable (60,870) General obligation bonds (9,565,000) Special assessment bonds (],065,000) OPWC loans (674,706) Compensated absences (1,0]2,555) (12,378,13]) Net assets of governmental activities $ 75,624,343 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 18 CITY OF FAIRLA WN, OHIO STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2004 Other Total Bond Capital Governmental Governmental General Retirement Improvement Funds Funds Revenues: Incometaxes. . . . . . . . . . . . . . . . . . $ 5,357,548 $ $ 2,403,233 $ - $ 7,760,781 Property and other taxes . . . . . . . . . . . . 626,657 351.895 978,552 Charges for services . . . . . . . . . . . . . . 16,356 525,908 542,264 Licenses and pennits . . . . . . . . . . . . . . 73,108 105,171 178,279 Fines and forfeitures. . . . . . . . . . . . . . 180,670 97,824 278,494 Intergovernmental . . . . . . . . . . . . . . . 906,640 998,323 407,802 2,312,765 Special assessments. . . . . . . . . . . . . . . 264,732 74,845 339,577 Investment income. . . . . . . . . . . . . . 147,782 7,530 155,312 Rentals. . . . . . . . . . . . . . . . . . . . . 37,950 18,357 56,307 Contributions and donations. . . . . . . . . . 11,175 11,175 JEDD revenue. . . . . . . . . . . .... . 1,882,346 1,882,346 Other. . . . . . . . . . . . . . . . . . . . . . 61,545 3,114 5,590 70,249 Total revenues . . . . . . . . . . . . . . . . . 9,290,602 264.732 3,479,515 1,531,252 14,566,101 Expenditures: Current: General government. . . . . . . . . . . . . 2,399,962 13,175 258 2,413,395 Security of persons and property . . . . . . 4,565,846 660,81 I 5,226,657 Public health services. . . . . . . . . . . . 11 0,953 110,953 Transportation. . . . . . . . . . . . . . . . 1,470,856 838,63 ] 2,309,487 Community environment . . . . . . . . . . 226,287 226,287 Basic utility services. . . . . . . . . . . . . 150,712 195,605 346.3 I 7 Leisure time activities . .. . 30,618 271,129 301,747 Capital outlay. . . . . . . . . . . . . . . . . 2,938,946 161,427 3,100,373 e_ Debt service: Principal retirement. . . . . . . . . . . . . 163,047 500,000 663,047 Interest and fiscal charges. . . . . . . . . . 124,795 430,3 I 8 555,113 Total expenditures. . . . . . . . . . . . . . . 8,955,234 301,017 3,869,264 2,127,861 15,253,376 Excess (deficiency) of revenues over (under) expenditures. . . . . . . . . . 335,368 (36,285) (389,749) (596,609) (687,275) Other financing sources (uses): Proceeds from sale of capital assets . . . . . . 7,100 7,100 Transfers in . . . . . . . . . . . . . . .. . 93,433 455,67 I 549.104 Transfers out ................ . (549,104) (549,104) Total other financing sources (uses) .. . (542,004) 93,433 455,67 J 7,100 Net change in fund balances . . . . .. . (206,636) (36,285) (296.316) (140,938) (680,175) Fund balances at beginning of year. . . . . . . 6,628,657 275,476 4,657,608 2,334,665 13,896,406 Increase (decrease) in reserve for inventory. . (8,059) 432 (7,627) Fund balances at end of year. . . . . . . . . . $ 6,413,962 $ 239,191 $ 4,361,292 $ 2,194,159 $ 13.208.604 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 19 CITY OF F AIRLA WN, OliO RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2004 Net change in fund balances - total governmental funds $ (680,175) Amounts reportedfor governmental activities in the statement of activities are different because: Government funds report capital outlays as expenditures. However, in the statement of activities, the cost ofthose assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays ($2,744,4\3) exceeded depreciation expense ($1,936,906) in the current period. 807,507 Governmental funds only report the disposal of capital assets to the extent proceeds are received from the sale. In the statement of activities, a gain or loss is reported for each disposal. (80,947) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. (\ 97,688) Governmental funds report expenditures for inventory when purchased. However, in the statement of activities, they are reported as an expense when consumed. (7,627) Repayment of bond and loan principal is an expenditure in the governmental funds, but the repayment reduces long-tenn liabilities in the statement of net assets. 663,047 In the statement of activities, interest is accrued on outstanding bonds and loans whereas in governmental funds, an interest expenditure is reported when due. 3,517 Some expenses reported in the statement of activities, such as compensated absences do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. 104,906 Change in net assets of governmental activities $ 612,540 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 20 CITY OF F AIRLA WN, OHIO STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2004 Variance with Budl!eted Amounts Final Budget Positive Oril!inal Final Actual (Nel!ative) Revenues: Income taxes. . . . . . . . . . . . . . . . . . . . . $ 4,528,075 $ 4,473,027 $ 5,327,468 $ 854,441 Property and othertaxes. . . . . . . . . . . . . . . 600,911 607,685 622,091 14,406 Charges for services. . . . . . . . . . . . . . . . . 18,000 9,600 13,957 4,357 Licenses and permits. . . . . . . . . . . . . . . . . 77,400 77,400 73,145 (4,255) Fines and forfeitures. . . . . . . . . . . . . . . . . 225,000 225,000 187,326 (37,674) JEDD revenue. . . . . . . . . . . . . . . . . . . . 2,500,000 1,825,000 1,882,346 57,346 Intergovernmental. . . . . . . . . . . . . . . . . . 450,785 450,785 952,148 501,363 Investment income . . . . . . . . . . . . . . . . . 289,721 289,721 160,811 (128,910) Rentals. . . . . . . . . . . . . . . . . . . . . . . 45,000 42,445 37,950 (4,495) Other .. .. .. .. .. .. .. .. .. .. .. . 34,737 34,737 61,088 26.351 Total revenues. . . . . . . . . . . . . . . . . . . 8.769.629 8.035.400 9.318,330 1,282.930 Expenditures: Current: General government . . . . . . . . . . . . . . 2,823,058 2,904,480 2,634,835 269,645 Security of persons and property. . . . . . . . 5,019,984 5.003,707 4,651,351 352,356 Public health services. . . . . . . . . . . . . . 112,528 112,628 110,953 1,675 Transportation . . . . . . . . . . . . . . . . . 1,605,905 1,659,279 1,588,344 70,935 Community environment. . . . . . . . . . . . 30,000 227,490 226,287 1,203 Basic utility services . . . . . . . . . . . . . . 138.974 150,974 150,725 249 Leisure time activities. . . . . . . . . . . . . 32,875 32,875 3 J .458 1.417 , ~~'> Total expenditures. . . . . . . . . . . . . . . . 9,763.324 10,091.433 9.393,953 697 .480 Excess (deficiency) of revenues over (under) expenditures. . . . . . . . . . . . (993.695) (2.056.033) (75,623) 1,980.410 Other financing sources (uses): Proceeds from sale of capital assets. . . . . . . . 7,100 7,]00 Transfers out. . . . . . . . . . . . . . . . . . . (572.994) (572,854) (549,104) 23,750 , Total other financing sources (uses) . . . . . . . . (572.994) (572,854) (542,004) 30,850 Net change in fund balance . . . . . . . . . . . . . (l,566,689) (2,628,887) (617,627) 2,0 11,260 Fund balance at beginning of year . . . . , . . . 5,553,502 5,553,502 5,553,502 Prior year encumbrances appropriated. , . . . . 322.628 322,628 322,628 - Fund balance at end of year . . . . . . . . . . . . $ 4.309.441 $ 3.247.243 $ 5,258.503 $ 2.011.260 . SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS ~ , 21 CITY OF F AIRLA WN, OHIO STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS DECEMBER 31,2004 A2ency Assets: Equity in pooled cash and cash equivalents. . . . . . $ 85,431 Total assets. . . . . . . . . . . . . . . . . . . . . . . 85,431 Liabilities: Undistributed monies. . . . . . . . . . . . . . . . . . 85,431 Total liabilities . . . . . . . . . . . . . . . . . . . . $ 85.431 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 22 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE I - DESCRIPTION OF THE CITY The City of Fairlawn (the "City") is a charter municipal corporation established and operated under the laws of the State of Ohio. The City is organized as a Mayor/Council form of government. The Mayor, Council and Finance Director are elected. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements (BFS) of the City have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to local governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial principles. The City also applies Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989, to its governmental funds provided they do not conflict with or contradict GASB pronouncements. The most significant of the City's accounting policies are described below. A. Reporting Entity For financial reporting purposes, the City's BFS include all funds, agencies, boards, commissions, and departments for which the City is financially accountable. Financial accountability, as defined by the GASB, exists if the City appoints a voting majority of an organization's governing board and is either able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific burdens on, the City. The City may also be financially t accountable for governmental organizations with a separately elected governing board, a governing board appointed by another government, or a jointly appointed board that is fiscally dependent on the City. The City also took into consideration other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's basic financial statements to be misleading or incomplete. Based on these criteria, the City has no component units. The City provides various services including police and fire protection, emergency medical, recreation r (including parks), planning, zoning, street maintenance and repair, and general administrative services. The operation of each of these activities is directly controlled by the Council through the budgetary process. None of these services are provided by a legally separate organization; therefore, these operations are included in the primary government. . The Copley/Fairlawn City School District and the Summit County Public Library have been excluded from the City's financial statements. Both are legally separate from the City. Neither imposes a , financial burden nor provides a financial benefit to the City. The City cannot significantly influence the operations of these entities. . The City participates in the Bath-Akron-FairIawn Joint Economic Development District (JEDD), which is a jointly governed organization. The JEDD was created to assure the continued economic , viability of Bath Township. A nine-member board of directors, three appointed from Bath Township, Akron, and Fairlawn, respectively, controls the operation of the JEDD. The board exercises total control over the operation of the JEDD including budgeting, appropriating, contracting and designating I management. Each participant's degree of control is limited to its representation on the board. All 2004 JEDD revenues were the result of the income tax levied by the JEDD effective January I, 1999. , . , 23 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) B. Basis of Presentation - Fund Accounting The City's BFS consist of government-wide statements, including a statement of net assets and a statement of activities, and fund financial statements which provide a more detailed level of financial information. Government-wide Financial Statements - The statement of net assets and the statement of activities display information about the City as a whole. These statements include the financial activities of the primary government, except for fiduciary funds. The statement of net assets presents the financial condition of the governmental activities of the City at year-end. The statement of activities presents a comparison between direct expenses and program revenues for each program or function of the City's governmental activities. Direct expenses are those that are specifically associated with a service, program or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program, grants and contributions that are restricted to meeting the operational or capital requirements of a particular program and interest earned on grants that is required to be used to support a particular program. Revenues which are not classified as program revenues are presented as general revenues of the City, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental functions are self-financing or draw from the general revenues of the City. Fund Financial Statements - During the year, the City segregates transactions related to certain City functions or activities in separate funds in order to aid financial management and to ,demonstrate legal compliance. Fund financial statements are designed to present financial information of the City at this more detailed level. The focus of governmental fund financial statements is on major funds. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Fiduciary funds are reported by type. C. Fund Accounting The City uses funds to maintain its financial records during the year. A fund is defined as a fiscal and accounting entity with a self balancing set of accounts. There are two categories of funds: governmental and fiduciary. Governmental Funds - Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they mayor must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the City's major governmental funds: General Fund - The general fund accounts for all financial resources except those required to be accounted for in another fund. Bond Retirement - The bond retirement fund accounts for the accumulation of resources for, and payment of, long-term debt principal, interest and related costs. Caoital Imorovement - This fund is used to account for the acquisition and construction of major capital facilities. 24 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Other governmental funds of the City are used to account for (a) the accumulation of resources for, and payment of, general long-term debt principal, interest and related costs; (b) financial resources to be used for the acquisition, construction, or improvement of capital facilities other than those financed by proprietary funds; and (c) for grants and other resources whose use is restricted to a particular purpose. Fiduciary Funds - Fiduciary fund reporting focuses on net assets and changes in net assets. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds and agency funds. Trust funds are used to account for assets held by the City under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the City's own programs. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The City's only fiduciary funds are agency funds. D. Measurement Focus and Basis of Accounting Government-wide Financial Statements - The government-wide financial statements are prepared using the economic resources measurement focus. All assets and all liabilities associated with the operation of the City are included on the statement of net assets. Fund Financial Statements - All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures and changes in fund balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the 0" financial statements for governmental funds. E. Basis of Accounting Basis of accounting determines when transactions are recorded in the financial records and reported on t the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Agency funds also use the accrual basis of accounting. Differences in the accrual and modified accrual basis of accounting arise in the recognition of revenue, the recording of deferred revenue and in the presentation of expenses versus expenditures. Revenues - Exchange and Non-exchange Transactions - Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the City, available means expected to be received within thirty-one days of year-end. 25 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Nonexchange transactions, in which the City receives value without directly giving equal value in return, include income taxes, property taxes, grants, entitlements and donations. On an accrual basis, revenue from income taxes is recognized in the period in which the income is earned (See Note 6). Revenue from property taxes is recognized in the year for which the taxes are levied (See Note 5). Revenue from grants, entitlements and donations is recognized in the year in which aU eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from non exchange transactions must also be available before it can be recognized. Under the modified accrual basis, the foUowing revenue sources are considered to be both measurable and available at year-end: income tax, state-levied 10caUy shared taxes (including gasoline tax, local government funds and permissive tax), fines and forfeitures, fees and special assessments. Deferred Revenue - Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Property taxes for which there is an enforceable legal claim as of December 31, 2004, but which were levied to finance year 2005 operations, have been recorded as deferred revenue. Special assessments not received within the available period and grants and entitlements received before the eligibility requirements are met are also recorded as deferred revenue. On governmental fund financial statements, receivables that will not be collected within the available period have also been reported as deferred revenue. Expenses/Expenditures - On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. AUocations of cost, such as depreciation and amortization, are not recognized in governmental funds. F. Budgetary Data The budgetary process is prescribed by provisions of the Ohio Revised Code and entails the preparation of budgetary documents within an established timetable. The major documents prepared are the tax budget, the certificate of estimated resources and the appropriations resolution, all of which are prepared on the budgetary basis of accounting. The certificate of estimated resources and the appropriations ordinance are subject to amendment throughout the year with the legal restriction that appropriations cannot exceed estimated resources, as certified. For all funds, Council appropriations are made at the object level within each department. This is known as the legal level of budgetary control. Budgetary modifications may only be made by resolution of the City Council at the legal level of control. All funds, other than agency funds, are legally required to be budgeted and appropriated. 26 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Tax Budget - Alternative tax budget information of estimated revenue and expenditures for all funds is submitted to the Summit County Fiscal Officer, as Secretary of the County Budget Commission, by July 20 of each year, for the period January I to December 31 of the following year. All funds, except agency funds, are legally required to be budgeted; however, only governmental funds are legally required to be reported. Estimated Resources - The County Budget Commission determines if the budget substantiates a need to levy all or part of previously authorized taxes and reviews estimated revenue. The Commission certifies its actions to the City by September I. As part of this certification, the City receives the official certificate of estimated resources, which states the projected revenue of each fund. Prior to December 31, the City must revise its budget so that the total contemplated expenditures from any fund during the ensuing fiscal year will not exceed the amount available as stated in the certificate of estimated resources. The revised budget then serves as the basis for the annual appropriations measure. On or about January I, the certificate of estimated resources is amended to include encumbered cash balances at December 31 of the preceding year. The certificate may be further amended during the year if the City Finance Director determines, and the Budget Commission agrees, that an estimate needs to be either increased or decreased. The amounts reported on the budgetary statement reflect the amounts in the final amended official certificate of estimated resources issued during 2004. Appropriations - A temporary appropriation ordinance to control expenditures may be passed on or ., about January I of each year for the period January I to March 31. An annual appropriation ordinance must be passed by April I of each year for the period January I to December 31. The appropriation ordinance fixes spending authority at the fund, department and object level. The appropriation ordinance may be amended during the year as new information becomes available, provided that total fund appropriations do not exceed current estimated resources, as certified. The appropriations for a fund may only be modified during the year by an ordinance of Council. The amounts on the budgetary . statement reflect the final appropriation amounts, including all amendments and modifications legally enacted by Council. Lapsing of Appropriations - At the close of each year, the unencumbered balance of each appropriation reverts to the respective fund from which it was appropriated and becomes subject to future appropriations. Encumbrances are carried forward and are not reappropriated as part of the subsequent year appropriations. G. Cash and Cash Equivalents < Cash balances of the City's funds are pooled and invested in investments maturing within five years in order to provide improved cash management. Individual fund integrity is maintained through City ~ records. Each fund's interest in the pooled bank account is presented on the balance sheet as "Equity in Pooled Cash and Cash Equivalents" on the financial statements. I During fiscal year 2004, investments were limited to overnight repurchase agreements, certificates of deposit, money market funds and investments in a Federal Home Loan Bank Bond and the State Treasury Asset Reserve of Ohio (STAR Ohio). , Except for nonparticipating investment contracts, investments are reported at fair value which is based on quoted market prices. Nonparticipating investment contracts, such as nonnegotiable certificates of deposit, are reported at cost. , 27 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) The City had invested funds in STAR Ohio during fiscal 2004. STAR Ohio is an investment pool managed by the State Treasurer's Office which allows governments within the State to pool their funds for investment purposes. STAR Ohio is not registered with the SEC as an investment company, but does operate in a manner consistent with Rule 2a7 of the Investment Company Act of 1940. Investments in STAR Ohio are valued at STAR Ohio's share price which is the price the investment could be sold for on December 31, 2004. Under existing Ohio statutes all investment earnings are assigned to the general fund unless statutorily required to be credited to a specific fund. During fiscal 2004, interest revenue credited to the general fund amounted to $147,782 which includes $91,863 assigned from other City funds. The City has segregated bank accounts for monies held separate from the City's central bank account. These interest bearing depository accounts are presented in the financial statements as "cash and cash equivalents in segregated accounts" since they are not required to be deposited into the City treasury. For purpose of presentation on the financial statements, investments of the cash management pool and investments with original maturities of three months or less at the time they are purchased by the City are considered to be cash equivalents. Investments with an initial maturity of more than three months are reported as investments. An analysis of the City's investment account at year-end is provided in Note 3. H. Inventories of Materials and Supplies On government-wide and fund financial statements, inventories are presented at the lower of cost or market on a first-in, first-out basis and are expensed when used. Inventories are accounted for using the consumption method. On the fund financial statements, reported material and supplies inventory is equally offset by a fund balance reserve in the governmental funds which indicates that it does not constitute available spendable resources even though it is a component of net current assets. Inventory consists of expendable supplies held for consumption. I. Capital Assets These assets generally result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the government-wide statement of net assets but are not reported in the fund financial statements. All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated capital assets are recorded at their fair market values as of the date received. The City maintains a capitalization threshold of $5,000. The City's infrastructure consists of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems and lighting systems. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not. 28 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) All reported capital assets are depreciated except for land and construction in progress. Improvements are depreciated over the remaining useful lives of the related capital assets. Useful lives for infrastructure were estimated based on the City's historical records of necessary improvements and replacement. Depreciation is computed using the straight-line method over the following useful lives: Governmental Activities Descriotion Estimated Lives Land improvements 25 - 75 years Buildings and improvements 15 - 50 years Machinery and Equipment 5 - 30 years Licensed Vehicles 3 - 25 years Infrastructure 10 - 60 years J. Compensated Absences Vacation benefits are accrued as a liability as the benefits are earned if the employees' rights to receive compensation are attributable to services already rendered and it is probable that the City will compensate the employees for the benefits through paid time off or some other means. The City records a liability for accumulated unused vacation time when earned for all employees with more than one year of service. Sick leave benefits are accrued as a liability using the vesting method. The liability includes "~I employees currently eligible to receive termination benefits and those the City has identified as t.,.-: probable of receiving benefits in the future. The amount is based on accumulated sick leave and the employees' wage rates at fiscal year end, taking into consideration any limits specified in the City's . termination policy. The City records a liability for accumulated unused sick leave for all employees hired before December 31, 1991. The entire compensated absence liability is reported on the government-wide financial statements. , On governmental fund financial statements, compensated absences are recognized as liabilities and expenditures to the extent payments come due each period upon the occurrence of employee resignations and retirements. These amounts are recorded in the account "compensated absences payable" in the fund from which the employees who have accumulated leave are paid. The noncurrent portion of the liability is not reported. K. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. , In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims and judgments, compensated absences, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. 29 CITY OF FAIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) L. Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans or goods and services are classified as "Due to/from other funds." On fund financial statements, long- term interfund loans are classified as "advances to/from other funds" on the balance sheet and are equally offset by a fund balance reserve account which indicates that they do not constitute available expendable resources. These amounts are eliminated in the governmental columns of the statement of net assets. M. Interfund Activity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the BFS. N. Fund Balance Reserves and Designations Reserved or designated fund balances indicate that portion of fund equity which is not available for current appropriation or use. The unreserved and undesignated portions of fund equity reflected in the governmental funds are available for use within the specific purposes of the funds. The City reports a reservation of fund balance for amounts representing encumbrances outstanding, prepayments, unclaimed monies, debt service and materials and supplies inventory, m the governmental fund financial statements. O. Estimates The preparation of the BFS in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the BFS and accompanying notes. Actual results may differ from those estimates. P. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The City applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. 30 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 3 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS Monies held by the City are classified by State statute into three categories: Active deposits are public deposits necessary to meet current demands on the treasury. Such monies must be maintained either as cash in the City Treasury, in commercial accounts payable or withdrawable on demand, including negotiable order of withdrawal (NOW) accounts, or in money market deposit accounts. Inactive deposits are public deposits that Council has identified as not required for use within the current five year period of designation of depositories. Inactive deposits must be evidenced by certificates of deposit maturing not later than the end of the current period of designation of depositories, or by savings or deposit accounts including, but not limited to, passbook accounts. Interim deposits are deposits of interim monies. Interim monies are those monies which are not needed for immediate use but which will be needed before the end of the current period of designation of depositories. Interim monies may be deposited or invested in the following: I. United States Treasury Notes, Bills, Bonds, or any other obligation or security issued by the United States Treasury or any other obligation guaranteed as to principal or interest by the United States; 2. Bonds, notes, debentures, or any other obligations or securities issued by any federal government agency or instrumentality, including but not limited to, the Federal National Mortgage Association, , " Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and Student Loan Marketing Association. All federal . . agency securities shall be direct issuances of federal government agencies or instrumentalities; 3. Written repurchase agreements in the securities listed above provided that the market value of the securities subject to the repurchase agreement must exceed the principal value of the agreement by at r least two percent and be marked to market daily, and that the term of the agreement must not exceed thirty days; 4. Bonds and other obligations of the State of Ohio; 5. No-load money market mutual funds consisting exclusively of obligations described in division (I) or (2) and repurchase agreements secured by such obligations, provided that investments in securities described in this division are made only through eligible institutions; 6. The State Treasury Asset Reserve of Ohio investment pool (STAR Ohio); 7. High grade commercial paper for a period not to exceed 180 days in an amount not to exceed twenty- five percent of the City's interim monies available for investment; and 8. Bankers acceptances for a period not to exceed 180 days and in an amount not to exceed twenty-five percent of the City's interim monies available for investment. The City may also invest any monies not required to be used for a period of six months or more in the following: I. Bonds of the State of Ohio; 2. 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; 3. Obligations of the City. 31 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 3 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) Protection of the City's deposits is provided by the Federal Deposit Insurance Corporation (FDIC), by eligible securities pledged by the financial institution as security for repayment, by surety company bonds deposited with the treasurer by the financial institution or by a single collateral pool established by the financial institution to secure the repayment of all public moneys deposited with the institution. Investments in stripped principal or interest obligations, reverse repurchase agreements and derivatives are prohibited. The issuance of taxable notes for the purpose of arbitrage, the use of leverage and short selling are also prohibited. An investment must mature within five years from the date of purchase unless matched to a specific obligation or debt of the City, and must be purchased with the expectation that it will be held to maturity. Investments may only be made through specified dealers and institutions. Payment for investments may be made only upon delivery of the securities representing the investments to the treasurer or qualified trustee or, if the securities are not represented by a certificate, upon receipt of confirmation of transfer from the custodian. Cash on Hand: At year-end, the City had $1,400 in un-deposited cash on hand which is included on the financial statements of the City as part of "Equity in Pooled Cash and Cash Equivalents". The following information classifies deposits and investments by categories of risk as defined in GASB Statement No.3, "Deposits With Financial Institutions. Investments (includinl! Repurchase Al!reements). and Reverse Repurchase Al!reements". Deposits: At year-end, the carrying amount of the City's deposits was $5,789,444 and the bank balance was $5,876,427. These amounts include $5,298,053 in nonnegotiable certificates of deposits and money market accounts which the City considers "deposits" due to their nature and the fact that they may be redeemed without penalty. Of the bank balance: I. $521,666 was covered by federal depository insurance; and 2. $5,354,761 was uninsured and uncollateralized as defined by GASB even though it was covered by collateral held by third party trustees pursuant to Section 135.81, Ohio Revised Code, in single institution collateral pools securing all public funds on deposit with specific depository institutions. Although all state statutory requirements for the deposit of money had been followed, non-compliance with federal requirements could potentially subject the City to a successful claim by the FDIC. investments: The City's investments are required to be categorized to give an indication of the level of risk assumed by the City at year-end. Category I includes investments that are insured or registered or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty' s trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty, or by its trust department or agent, but not in the City's name. Investment in STAR Ohio is an unclassified investment since it is not evidenced by securities that exist in physical or book form. Category Reported Fair 3 Amount Value Repurchase agreement $1,604,563 $ 1,604,563 $1,604,563 Federal Home Loan Bank Bond 1,505,625 1,505,625 1,505,625 Investment in STAR Ohio - - 3,725,689 Total investments $3,110,188 $ 3,110,188 $6,835,877 32 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 3 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) The classification of cash and cash equivalents on the financial statements is based on criteria set forth in GASB Statement No.9, "ReDortinl! Cash Flows of ProDrietarv and NonexDendable Trust Funds and Governmental Entities That Use ProDrietarv Fund Accountinl!". A reconciliation between the classifications of cash and cash equivalents on the financial statements (per GASB Statement No.9) and the classifications of deposits and investments presented above per GASB Statement No.3 is as follows: Cash and Cash Equivalents/ DeDosits Investments GASB Statement No.9 $ 12,626,721 $ - Investments of the cash management pool: Repurchase agreement (1,604,563) 1,604,563 Federal Home Loan Bank Bond (1,505,625) 1,505,625 Investment in STAR Ohio (3,725,689) 3,725,689 Cash on hand (1,400) - GASB Statement No.3 $ 5,789,444 $ 6,835,877 , NOTE 4 - INTERFUND TRANSFERS lnterfund transfers for the year ended December 31, 2004, consisted of the following, as reported in the fund financial statements: Transfers from Transfers to General Capital Improvement $ 93,433 Nonmajor Special Revenue 455,671 , $ 549,104 <- Transfers are used to (I) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use L unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. NOTE 5 - PROPERTY TAXES Property taxes include amounts levied against all real, public utility, and tangible personal property located in the City. Real property taxes and public utility taxes are levied after October I on the assessed value as , of the prior January I, the tax lien date. Assessed values are established by state law at 35 percent of appraised market value, as established by the County Fiscal Officer. All real property is required to be revalued every six years. The last revaluation was completed in 2000. Real property taxes are payable annually or semiannually. The first payment for 2004 was due January I, with the remainder payable June L 20. 33 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 5 - PROPERTY TAXES (Continued) Public utility real and tangible personal property taxes collected in one calendar year are levied on assessed values as ofthe prior January I, the lien date. Public utility tangible personal property currently is assessed at varying percentages of true value for taxable transmission and distribution property and 25% of true value for all other taxable property. Public utility property taxes are payable on the same dates as real property taxes described previously. Taxes collected on tangible personal property (other than public utility) in one calendar year are levied on the assessed values and at the close of the most recent fiscal year of the taxpayer (for businesses in operation more than one year) or December 31. Tangible personal property used in business (except for public utilities) is currently assessed for ad valorem taxation purposes at 23 percent of true value for inventory and 25 percent of true value for capital assets. Amounts paid by multi-county taxpayers are due September 20. Single county taxpayers may pay annually or semiannually. If paid annually, payment is due April 30, and ifpaid semiannually, the first payment is due April 30, with the remainder payable by September 20. The first $10,000 of taxable value is exempt from taxation for each business by state law. Public utility property taxes are assessed on tangible personal property, as well as land and improvements. The County Fiscal Officer collects property taxes on behalf of all taxing districts in the County, including the City. The County Fiscal Officer periodically remits to the City its portion of the taxes collected. The full rate for all City operations for the year ended December 31, 2004, was $2.70 per $1,000 of assessed value. The assessed values of real and tangible personal property, upon which taxes for 2004 were collected, are as follows: Category Assessed Value Residential $ 161,730,860 Commercial 131,297,120 Total real estate 293,027,980 Public utility property 4,569,910 Tangible personal property 22,776,275 Grand total $ 320,374,165 34 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 5 - PROPERTY TAXES (Continued) Accrued taxes receivable represent delinquent taxes outstanding and real, tangible personal, and public utility taxes which were measurable and unpaid as of December 31, 2004. Although total property tax collections for the next fiscal year are measurable, amounts to be received during the available period are not subject to reasonable estimation at December 31 and are not intended to finance 2004 operations. Accordingly, the receivable is offset by a credit to "Deferred Revenue." NOTE 6 - LOCAL INCOME TAX The City levies a municipal income tax of 2 percent on gross salaries, wages, and other personal service compensation earned by residents of the City and on the earnings of nonresidents working within the City. This tax also applies to the net income of business operations within the City. Residents of the City are granted a credit of up to 2 percent for taxes paid to other municipalities. Employers within the City are required to withhold income tax on employee compensation and remit the tax to the City either monthly or quarterly, as required. Corporations and other individual taxpayers are required to pay their estimated tax quarterly and file a declaration annually. By City ordinance, income tax proceeds are credited as follows: the general fund receives 90 percent and the capital improvement fund receives 10 percent of the first 1.5 percent of the 2 percent income tax. The capital improvement fund receives the remaining .5 percent of the income tax. NOTE 7 - RECEIVABLES , Receivables at December 31, 2004, consisted of taxes, accounts (billings for user charged services), accrued interest, special assessments, and intergovernmental receivables arising from grants, entitlements, I'... and shared revenue. All intergovernmental receivables have been classified as "Due From Other I: '. l.~' Governments" on the BFS. Receivables have been recorded to the extent that they are measurable at December 31, 2004, as well as intended to finance fiscal 2004 operations. A summary of the principal items of receivables reported on the statement of net assets follows: , Income taxes $ 1,689,065 Real and other taxes 804,850 . Accounts 40,563 Accrued interest 37,716 Special assessments 2,326,073 ,. Due from other governments 693,778 Total $ 5,592,045 Receivables have been disaggregated on the face of the BFS. The only receivable not expected to be collected within the subsequent year are the special assessments which are collected over the life of the assessment. Delinquent special assessments due to the City were $20,464 as of December 31,2004. . 35 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 8 - CAPITAL ASSETS Capital asset activity for the year ended December 31, 2004, was as follows: Balance Balance Governmental Activities: 12/31103 Additions Disposals 12/31104 Capital assets, not being depreciated: Land $ 3,234,757 $ - $ - $ 3,234,757 Construction in progress 1,148,865 65,083 (1,148,865) 65,083 Total capital assets, not being depreciated 4,383,622 65,083 (1,148,865) 3,299,840 Capital assets, being depreciated: Buildings 13,123,488 854,398 - 13,977,886 Land Improvements 1,186,764 58,644 - 1,245,408 Machinery and Equipment 2,672,497 52,689 (23,100) 2,702,086 Licensed Vehic1es 2,622,785 114,397 (78,639) 2,658,543 Infrastructure 68,458,452 2,748,067 (187,011) 71,019,508 Total capital assets, being depreciated 88,063,986 3,828,195 (288,750) 91,603,431 Less: accumulated depreciation: Buildings (1,551,202) (279,437) - (1,830,639) Land Improvements (641,840) (39,237) - (681,077) Machinery and Equipment ( 692,865) (150,279) 12,944 (830,200) Licensed Vehicles (820,752) (172,378) 67,020 (926, II 0) Infrastructure (18,338, Ill) (1,295,575) 127,839 (19,505,847) Total accumulated depreciation (22,044,770) (1,936,906) 207,803 (23,773,873) Total capital assets, being depreciated, net 66,019,216 1,891,289 (80,947) 67,829,558 Governmental activities capital assets, net $ 70,402,838 $ 1,956,372 $ (1,229,812) $ 71,129,398 36 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 8 - CAPITAL ASSETS - (Continued) Depreciation expense was charged to functions/programs of the City as follows: Governmental activities: General government $ 45,519 Basic Utilities 521,501 Security of persons and property 284,035 Transportation 1,023,169 Community environment 4,710 Leisure time activity 57,972 Total depreciation expense - governmental activities $ 1,936,906 NOTE 9 - LONG-TERM OBLIGATIONS A. During the fiscal year 2004, the following changes occurred in governmental activities long-term obligations: Interest Balance Balance at Due in Governmental Activities: Rate 12/31103 Additions Reductions 12/31/04 One Year General obligation bonds 2.80-5.75% $ 10,065,000 $ - $(500,000) $ 9,565,000 $ 515,000 Special assessment bonds 4.80-7.00% 1,180,000 (\ 15,000) 1,065,000 125,000 ~ OPWC loans 6.00% 722,753 (48,047) 674,706 50,973 ~ Compensated absences 1,016,900 77,699 (82,044 ) 1,012,555 345,502 Total $ ] 2,984,653 $ 77,699 $(745,091) $ 12,317,26] $ 1,036,475 The general obligation bonds will be paid from income taxes receipted into the capital improvement fund. The special assessment bond and OPWC loans will be paid from the proceeds of special assessments levied against the benefited property owners. In the event that a property owner fails to pay the assessment, payment will be made by the City. Compensated absences reported in the "Iong- term liabilities" account will be paid from the fund from which the employees' salaries are paid. , 37 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 9 - LONG-TERM OBLIGATIONS - (Continued) Principal and interest requirements to retire long-term obligations outstanding at December 31, 2004 are follows: General Obligation Bonds Special Assessment Bond Year Principal Interest Total Principal Interest Total 2005 $ 515,000 $ 412,995 $ 927,995 $ 125,000 $ 74,550 $ 199,550 2006 540,000 394,898 934,898 130,000 65,800 195,800 2007 550,000 374,070 924,070 140,000 56,700 196,700 2008 575,000 352,140 927,140 150,000 46,900 196,900 2009 600,000 328,220 928,220 160,000 36,400 196,400 2010 - 2014 3,175,000 1,220,520 4,395,520 360,000 38,150 398,150 2015-2019 2,575,000 564,973 3,139,973 - - 2020 - 2022 1,035,000 98,040 1,133,040 - - Total $ 9,565,000 $3,745,856 $13,310,856 $1,065,000 $318,500 $ 1,383,500 OPWC Loans Year Principal Interest Total 2005 $ 50,972 $ 39,729 $ 90,701 2006 54,077 36,625 90,702 2007 57,370 33,332 90,702 2008 60,864 29,838 90,702 2009 64,571 26,131 90,702 2010 - 2014 386,852 66,657 453,509 Total $ 674,706 $ 232,312 $ 907,018 NOTE 10 - OTHER EMPLOYEE BENEFITS A. Compensated Absence The criteria for determining vested vacation and sick leave components are derived from negotiated agreements and state laws. Employees earn ten to thirty days of vacation per year, depending upon length of service. Vacation accumulation is typically limited to one year. Employees may carry over vacation earned for three years prior to the employee's retirement date. All accumulated unused vacation time is paid upon termination of employment. 38 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 10 - OTHER EMPLOYEE BENEFITS - (Continued) Employees earn sick leave at the rate of 1.25 days per month of service. Sick leave accumulation is limited to 220 days. Upon retirement, employees hired before 1991 are eligible to receive payment for accumulated unused sick days. The exact terms vary in accordance with the negotiated collective bargaining agreement in effect. In most cases, the sick leave termination payment is limited to 90 days. Employees with a hire date subsequent to 1991 are generally not eligible to receive termination payments for sick leave. As of December 31, 2004, the total liability for unpaid compensated absences was $1,012,555. B. Health Care Benefits The City provides life insurance and accidental death and dismemberment insurance to most employees. The City has elected to provide employees' medical/surgical benefits through Medical Mutual of Northern Ohio. The employees share the cost of the monthly premium. Dental insurance is provided by the City through Guardian Dental. NOTE 11 - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During 2004, the City contracted with Wichert Insurance Service, Inc. for property and general liability insurance, including boiler and machinery. Police and professional liability policies are provided by CNA Insurance Companies with a $1,000,000 limit and a $10,000 deductible. A commercial umbrella policy through RLI Insurance Company provides additional general liability and auto liability insurance up to an $11,000,000 limit. f'",--:', t''-2 Vehicles are covered by Westfield Insurance Company and hold a $1,000 deductible for collision. l'le< Automobile liability coverage has no limit for collision, a $500,000 limit for uninsured/underinsured motorist and a $1,000,000 limit for bodily injury. Settled claims have not exceeded this commercial coverage in any of the past three years. " There has not been a significant reduction in coverage from the prior year. Volunteer Fireman's Insurance Services covers Firemen and EMT professional liability with a limit of . $1,000,000 and no deductible. The City participates in the Ohio Municipal League (OML) public entity insurance purchasing pool for workers' compensation. The Group Rating Plan is administered by Gates McDonald Company. The OML Group Rating Plan is intended to achieve lower workers' compensation premium rates for the participants, . and result in the establishment of a safer working environment. There are no additional contributions required by a participant other than their armual fee. The City pays the State Workers' Compensation i. system a premium based on a rate per $100 of salaries. This rate is calculated based on accident history and administrative costs. . 39 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 12 - DEFINED BENEFIT PENSION PLANS A. Ohio Public Employees Retirement System The City participates in the Ohio Public Employees Retirement System (OPERS). OPERS administers three separate pension plans. The traditional plan is a cost-sharing, multiple-employer defined benefit pension plan. The member-directed plan is a defined contribution plan in which the member invests both member and employer contributions (employer contributions vest over five years at 20 percent per year). Under the member directed plan, members accumulate retirement assets equal to the value of the member and vested employer contributions plus any investment earnings. The combined plan is a cost-sharing, multiple-employer defined benefit pension plan that has elements of both a defined benefit and a defined contribution plan. Under the combined plan, employer contributions are invested by the retirement system to provide a formula retirement benefit similar to the traditional plan benefit. Member contributions, whose investment is self-directed by the member, accumulate retirement assets in a manner similar to the member directed plan. OPERS provides retirement, disability, survivor and death benefits and annual cost of living adjustments to members of the traditional and combined plans. Members of the member directed plan do not qualify for ancillary benefits. Authority to established and amend benefits is provided by Chapter 145 of the Ohio Revised Code. OPERS issues a stand-alone financial report that may be obtained by writing to OPERS, 277 E. Town St., Columbus, OH 43215-4642 or by calling (614) 222- 6705. For the year ended December 31, 2004, the members of all three plans, except those in law enforcement or public safety participating in the traditional plan, were required to contribute 8.5 percent of their annual covered salaries. Members participating in the traditional plan who were in law enforcement contributed 10.1 percent of their annual covered salary; members in public safety contributed 9 percent. The City's contribution rate for pension benefits for 2004 was 9.55 percent. The Ohio Revised Code provides statutory authority for member and employer contributions. The City's required contributions for pension obligations to the traditional and combined plans for the years ended December 31, 2004, 2003, and 2002 were $237,521, $204,257, and $186,605, respectively; 100 percent has been contributed for 2004, 2003 and 2002. B. Ohio Police and Fire Pension Fund The City contributes to the Ohio Police and Fire Pension Fund (OP&F), a cost-sharing multiple- employer defined benefit pension plan. OP&F provides retirement and disability benefits, annual cost- of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by the Ohio State Legislature and are codified in Chapter 742 of the Ohio Revised Code. OP&F issues a publicly available financial report that includes financial statements and required supplementary information for the plan. That report may be obtained by writing to the Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164. 40 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 12 - DEFINED BENEFIT PENSION PLANS - (Continued) Plan members are required to contribute 10 percent of their annual covered salary to fund pension obligations while the City is required to contribute 11.75 percent for police officers and 16.25 percent for firefighters. Contributions are authorized by State statute. The City's contributions to OP&F for the police and firefighters were $147,186 and $138,222 for the year ended December 31, 2004, $146,130 and $126,157 for the year ended December 31, 2003 and $141,067 and $111,917 for the year ended December 31, 2002. The full amount has been contributed for 2003 and 2002. 77 percent for police and 77 percent for firefighters has been contributed for 2004 with the remainder being reported as a liability. C. Social Security System Effective August 3, 1992, all volunteer firefighters, not otherwise covered by another retirement system, are covered by social security. The City's liability is 6.20 percent of wages paid. NOTE 13 - POSTRETIREMENT BENEFIT PLANS A. Ohio Public Employees Retirement System The Ohio Public Employees Retirement System (OPERS) provides postretirement health care coverage to age and service retirees with ten or more years of qualifying Ohio service credit with either the traditional or combined plans. Health care coverage for disability recipients and primary survivor ,;. recipients is available. Members of the member-directed plan do not qualify for postretirement health care coverage. The health care coverage provided by the retirement system is considered an Other < Postemployment Benefit as described in GASB Statement No. 12, "Disclosure of Information on : ~ Postemolovment Benefits other than Pension Benefits bv State and Local Government Emolovers". A !~ : portion of each employer's contribution to the traditional or combined plans is set aside for the funding of postretirement health care based on authority granted by State statute. The 2004 local government ~ employer contribution rate was 13.55 percent of covered payroll (16.70 percent for public safety and law enforcement); 4.00 percent of covered payroll was the portion that was used to fund health care. Benefits are advance-funded using the entry age normal actuarial cost method. Significant actuarial assumptions, based on OPERS's latest actuarial review performed as of December 31, 2003, include a " rate of return on investments of 8.00 percent, an annual increase in active employee total payroll of 4.00 percent compounded annually (assuming no change in the number of active employees) and an additional increase in total payroll of between .50 percent and 6.3 percent based on additional annual pay increases. Health care premiums were assumed to increase 1.00 and 6.00 percent annually for the next eight years and 4.00 percent annually after eight years. All investments are carried at market. For actuarial valuation purposes, a smoothed market approach is . used. Assets are adjusted to reflect 25 percent of unrealized market appreciation or depreciation on investment assets annually. The number of active contributing participants in the traditional and combined plans was 369,885. Actual employer contributions for 2004 which were used to fund postemployment benefits were $99,485. The actual contribution and the actuarially required contribution amounts are the same. OPERS's net assets available for payment of benefits at December 31,2003 (the latest information . available) were $10.5 billion. The actuarially accrued liability and the unfunded actuarial accrued liability were $26.9 billion and $16.4 billion, respectively. . 41 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 13 - POSTRETIREMENT BENEFIT PLANS - (Continued) On September 9, 2004 the OPERS Retirement Board adopted a Health Care Preservation Plan (HCPP) with an effective date of January I, 2007. The HCPP restructures OPERS' health care coverage to improve the financial solvency of the fund in response to skyrocketing health care costs. Under the HCPP, retirees eligible for health care coverage will receive a graded monthly allocation based on their years of service at retirement. The Plan incorporates a cafeteria approach, offering a broad range of health care options that allow benefit recipients to use their monthly allocation to purchase health care coverage customized to meet their individual needs. If the monthly allocation exceeds the cost of the options selected, the excess is deposited into a Retiree Medical Account that can be used to fund future health care expenses. B. Ohio Police and Fire Pension Fund The Ohio Police and Fire Pension Fund (OP&F) provides postretirement health care coverage to any person who receives or is eligible to receive a monthly service, disability or survivor benefit check or is a spouse or eligible dependent child of such person. An eligible dependent child is any child under the age of 18 whether or not the child is attending school, or under the age of 22 if attending school full-time or on a 2/3 basis. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit (OPEB) as described in GASB Statement No. 12, "Disclosure of Information on Postemolovment Benefits other than Pension Benefits bv State and Local Government Emolovers". The Ohio Revised Code provides the authority allowing the Ohio Police and Fire Pension Fund's board of trustees to provide health care coverage and states that health care costs paid from the funds of OP&F shall be included in the employer's contribution rate. Health care funding and accounting is on a pay-as-you-go basis. The total police employer contribution rate is 19.5 percent of covered payroll and the total firefighter employer contribution rate is 24 percent of covered payroll, of which 7.75 percent of covered payroll was applied to the postemployment health care program during 2004. In addition, since July I, 1992, most retirees have been required to contribute a portion of the cost of their health care coverage through a deduction from their monthly benefit payment. Beginning in 200 I, all retirees and survivors have monthly health care contributions. The City's actual contributions for 2004 that were used to fund postemployment benefits was $97,080 for police and $65,921 for firefighters. The OP&F's total health care expense for the year ended December 31,2003 (the latest information available) was $150,853,148, which was net of member contributions of $17,207,506. The number of OP&F participants eligible to receive health care benefits as of December 31,2003 (the latest information available), was 13,662 for police and 10,474 for firefighters. NOTE 14 - BUDGETARY BASIS OF ACCOUNTING While the City is reporting financial position, results of operations and changes in fund balance on the basis of generally accepted accounting principles (GAAP), the budgetary basis as provided by law is based upon accounting for certain transactions on a basis of cash receipts, disbursements and encumbrances. The Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual (Non-GAAP Budgetary Basis) presented for the general fund is presented on the budgetary basis to provide a meaningful comparison of actual results with the budget. The major differences between the budget basis and GAAP basis are as follows: 42 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 14 - BUDGETARY BASIS OF ACCOUNTING (Continued) I. Revenues are recorded when received in cash (budget) as opposed to when susceptible to accrual (GAAP). 2. Expenditures/expenses are recorded when paid in cash (budget) as opposed to when the liability is incurred (GAAP). 3. Encumbrances are treated as expenditures (budget) rather than as a reservation of fund balance (GAAP). 4. Unreported cash represents amounts received but not included as revenue on the budget basis operating statements. These amounts are included as revenue on the GAAP basis operating statement. The following table summarizes the adjustments necessary to reconcile the GAAP basis statements (as reported in the fund financial statements) to the budgetary basis statements for all governmental funds for which a budgetary basis statement is presented. Net Change in Fund Balance General Budget basis $ (617,627) Net adjustment for revenue accruals (27,728) t ~ ',' Net adjustment for expenditure accruals (28,972) . Adjustment for encumbrances 467,691 GAAP basis $ (206,636) NOTE 15 - CONTINGENCIES A. Grants The City receives significant financial assistance from numerous federal and state agencies in the form . of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and is subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material effect on any of the financial statements of the individual fund types included herein or on the overall financial position of the City at December 31, 2004. B. Litigation The City is party to legal proceedings. The City management is of the opinion that the ultimate disposition of these legal claims and legal proceedings will not have a material effect, if any, on the financial condition of the City. 43 CITY OF F AIRLA WN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 NOTE 16 - CONTRACTUAL COMMITMENTS As of December 31, 2004, the City had various contractual commitments; for road maintenance and improvements of $391,829; sewer cleaning and improvements of $109,746; sidewalks $4,939; purchases of various capital equipment of $44,728; and park equipment and improvements of $29,744. NOTE 17 -IMPLEMENTATION OF GASB TECHNICAL BULLETIN NO. 2004-2 For 2004, the City has implemented GASB Technical Bulletin No. 2004-2, "Recognition of Pension and Other Postemployment Benefit Expenditures/Expense and Liabilities by Cost-Sharing Employers." This bulletin addresses the amount that should be recognized as an expenditure/expense and as a liability each period by employers participating in a cost-sharing multiple-employer pension and other postemployment plans. The implementation of GASB Technical Bulletin No. 2004-2 did not materially affect the financial statements of the City. 44 Auditor of State . Betty Montgomery INDEPENDENT ACCOUNTANTS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS REQUIRED BY GOVERNMENT AUDITING STANDARDS City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333-3007 To the Honorable Mayor and Members of City Council: We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of City of Fairlawn, Summit County, Ohio, (the City) as of and for the year ended December 31, 2004, which collectively comprise the City's basic financial statements and have issued our report thereon dated September 6, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in the Comptroller General of the United States' Govemment Auditing Standards. < Internal Control Over Financial Reporting ~. , t, In planning and performing our audit, we considered the City's internal control over financial reporting to determine our auditing procedures in order to express our opinion on the financial statements and not to '"'- opine on the internal control over financial reporting. Our consideration of the internal control would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts material to the financial statements we audited may , occur and not be timely detected by employees when performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider material weaknesses. In a separate letter to the City's management dated September 6, 2005, we reported other matters involving internal control over financial reporting we did not deem reportable conditions. Compliance and Other Matters As part of reasonably assuring whether the City's financial statements are free of material misstatement, we tested its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could directly and materially affect the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express an opinion. The results of our tests disclosed no instances of noncompliance or other matters we must report under Government Auditing Standards. In a separate letter to the City's management dated September 6, 2005, we reported an other matter related to noncompliance we deemed immaterial. . 101 Central Plaza South 1700 Bank One Tower 1 Canton, OH 44702 Telephone: (330)438-0617 (800) 443-9272 Fax: (330) 471-0001 www.auditor.state.oh.us , 45 City of Fairlawn Summit County Independent Accountants' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Required by Government Auditing Standards Page 2 We intend this report solely for the information and use of the management and City Council. It is not intended for anyone other than these specified parties. 1J~ MMht~ Betty Montgomery Auditor of State September 6, 2005 46 88 ro..t Bro.d 5,,..,, . Auditor of S_ r.o; Dn:s1140 Col"mbu.. Ohio 43216,1140 'fctr.pho,re 6H.-4Mi..4514 Betty Montgomery 8OO~28Z,037() Fa"'llifn~k 614.4<>6,449Q CITY OF FAIRLAWN SUMMIT COUNTY , CLERK'S CERTIFICATION 't!".., This is a true and correct copy of the report which is required to b~ filed in the Office of the Auditor of State pursuant to Section 117.26, Revised Code, and which is filed in Columbus, Ohio. ,.. , ~~ CLERK OF THE BUREAU .10::; CERTIFIED NOVEMBER 10, 2005 . (" Auditor of State . Betty Montgomery Office of the Auditor of State of Ohio Betty Montgomery, Auditor of State 88 E. Broad Street Columbus, Ohio 43216-1140 (800) 282-0370 www.auditor.state.oh.us