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2007 Financial Statement 1 -i CITY OF FAIRLAWN SUMMIT COUNTY 71 REGULAR AUDIT i FOR THE YEAR ENDED DECEMBER 31, 2007 t; L! i Mary Taylor, CPA Auditor of State 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 Governmental Funds 19 Reconciliation of the Statement of. Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 20 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual (Non-GAAP Budgetary Basis) General Fund ..............................................:...........:..::.,.............................................21 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 47 . j i i This. page intentionally left blank. E_ Mary Ta to CFA Auditor of State. INDEPENDENT ACCOUNTANTS' `REPORT City of Fairlawn Summit County 3487. South Smith Road Fairlawn, Ohio 44333 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, 2007, 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: We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable jo 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 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 audit provides a reasonable basis for our opinions. In our opinion, the.financial statements referred. to above present fairly,. in all material respects, the 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, 2007, and the respective. changes in .financial position. thereof and the respective budgetary comparison.for the General fund for the year then ended in conformity: with accounting principles generally accepted in the United States of America. In accordance with Government Auditing, Standards, we have also issued our report dated August 15, 2008, 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 am 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 Chase Tower / Canton, OH 44702-1509 r Telephone: (330) 438-0617 (800) 443-9272 Fax: (330) 471-0001 www.auditor.state.oh.us 1 i 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 accounting principles generally accepted in the United States of America requires.. We have applied certain limited procedures, consisting principally of inquiries of management regarding the methods of measuring and presenting the required supplementary information. However, we did not audit the information and express no opinion omit. Mary Taylor., CPA Auditor of State August 15, i.: L_ r. 2 L_ i_ r- 1 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2007 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, 2007. 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 financial highlights for 2007 are as follows: ? The total net assets of the City increased $291,078. Net assets of governmental activities increased $291,078 or - 0.39% from 2006, to a total of $75,567,981 in 2007. ? General revenues accounted for $12,794,197 of total governmental activities revenue. Program specific revenues accounted for $1,826,473 or 12.5% of total governmental activities revenue. The City had $14,329;592 in expenses related to governmental activities; $1,826,473 of these expenses was offset by program specific charges for services, grants or contributions. The remaining expenses of the governmental activities of $12,503,119 were offset by general revenues (primarily propertytaxes, income taxes and unrestricted grants and entitlements, including Joint Economic Development District (JEDD) revenue). ? 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 $10,863,305 in 2007. This represents an increase of $381,541 from 2006 revenues and other financing sources, largely due to the increase. in JEDD revenue. The expenditures and other financing uses of the general fund, which .totaled :$10,889,596 in 2007, increased $1,370,741 from 2006 primarily ,due to an increase in transfers out to other funds in 2007 as ` - compared to 2006 and the radio equipment upgrade for the safety departments. The net decrease in fund balance for the general fund was $26,29.1 or 0.39%. ? The bond retirement fund had revenues of $260,910 in 2007. The expenditures of the bond retirement fund totaled $299,476 in 2007.. The. net decrease in fund balance for the bond retirement fund was $38,566 or. 23.68%. ? The capital improvement.. fund' had revenues and other financing sources of •$3,162,988 in 2007. The expenditures of the. capital improvement fund totaled $3,843,883 in 2007. The net decrease in fund balance Tor the capital improvement fund. was $680,895 or 15.10%. The decrease is attributed to higher capital spending in 2007 as compared to 2006.. Using this Annual Financial Report <i 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 financial statements provide the `next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also-look 1 ' at the City's most significant funds with all other nonmajor funds presented in total in one column. i 3 f CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION.-AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31; 2007 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 2007?" 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. i 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 i 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 financial 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 ent-wide financial statements. BY ,doing so, the readers may governmental activities in the governor may better . understand the. long-term impact of the government's near-term financing 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,.2007 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.fimd, 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 17721 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 23-45 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 2007 compared to 2006: Net Assets Governmental Governmental Activities Activities 2007 2006 Assets - Current and other assets $ 19,1.01,939 $ 19,825,841 Capital assets . 69,919,077 69,206,066 Total assets 89,021,016,.. 89,031,907 Liabilities Current and other liabilities. 3,;194,835 .2,826,613 Long-term liabilities 10,258,200 10,928,391 Total liabilities 13,453,035. 13,755,004 Net'Assets Invested in capital assets, net of related debt 60,776,791 59,316,410. Restricted 8,385,255 9,283,952 Unrestricted 6,405,935 6,676,541 Total.net assets $ 75,567,981. $ 75,276,903 Over time, net assets can serve as a useful indicator of.a government's financial position. At December 31, 2007, the City's assets exceeded liabilities by $75,567,981. 5 dl CITY OF FAIRLAWN, OHIO r MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2007 UNAUDITED Capital assets reported on the government-wide statements represent the largest portion of the City's assets. At year-end, capital. assets represented 78.54% of total. assets. Capital assets include land, land improvements, buildings and improvements, machinery and equipment, licensed vehicles, infrastructure and, construction in. - progress: Capital assets, net of related debt to acquire the assets at. December 31,2007, were $60,776,791. 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. f" A portion. of the :City's net assets, $8,385,255, represents resources that are.subject to external restriction on how they maybe used.. In the governmental activities, the remaining balance of unrestricted net assets of $6,405,935 may be used to meet the government's ongoing obligations to citizens and creditors. r The table below shows the changes in net assets for fiscal years 2,007 and 2006: Change in Net Assets Governmental Governmental Activities . Activities 2007 20.06 Revenues, Program revenues:. Charges for services $ 1,471,772 $ 839,366 Operating grants and contributions 343,651 385,511 Capital grants and contributions 11,050. 137,003 r Total program revenues 1,826,473 1,361,880 General revenues: Propertyand other taxes 1,092;559 1,043,288 Income taxes 8,036,775 7,902,219 Unrestricted grants and entitlements. 860,079 1,081,378 JEDD revenue 1,912,115, .588,657 Investment earnings 770;649 740;744. Gain on sale of capital assets - 860,509 Miscellaneous 122,020 101,301 Total general revenues 12,794,197 12,31.8,096 r. Total revenues $ 14,620,670 $ 13,679,976 L_ l_ 6 L CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2007 UNAUDITED Change in Net Assets Governmental Governmental Activities Activities 2007 2006 Expenses General government $ 2;713;607. $ 2,422;823 Security of persons and property 6,456;013' 5,844,020 Public health services 1.12,448 112,680 Transportation 3.,d 74,519. 3,140,809 Community environment 38,696 247;683 Basic utility. services. 967,883 786,272. Leisure time activity 4063690 391,195, Interest and fiscal charges 459,736 493,207 Total expenses 14,329,592 13,438,689 Change in net assets 291,078 241,287 ! Net assets at beginning of year 75,276,903 75,035,616 Net assets at end of year $ 75,567,981 $ 75,276,903 Governmental Activities Governmental activities net assets increased $29,1,078 in 2007. This increase is a result of an increase in MIN) 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 $6,456,013 of the total experises.of the.City. These expenses were partially funded by $324,817 in direct charges to- users of the services and $16,527 in operating grant and contributions. Transportation expenses totaled $3,174,519: Transportation expenses were partially funded by $600 in direct charges to users of the services, and $327,124 in operating grants and contributions and $11,050 in capital grants and contributions. The county, atate and federal governments contributed to the City a total of $343,651 in operating grants and contributions and $11,050 in capital' grants and contributions. These revenues are restricted to a particular program or purpose. Of the total operating grants and contributions, $16,527 subsidized security of persons and property and $327,124 subsidized transportation programs. All of the total capital grants and contributions, $11,050 subsidized i transportation programs. General revenues totaled $12,794,197, and amounted to 87.5% of total governmental revenues. These revenues primarily consist of property and. income tax revenue of $9,129;334 and JEDD revenue of $1,91.2,115. The statement of activities shows the cost of program services and the charges for services and grants offsetting 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 grants and entitlements. CITY OF FAIRLAWN, OHIO. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR. ENDED DECEMBER 31, 2007 UNAUDITED The graph below illustrates the City's dependence upon general revenues as program revenues are not sufficient to cover total governmental expenses. Governmental Activities - Program Revenues vs. Total Expenses $15,000,000 r. §,+ir_ati!LLc'I' Jilt'=u $12,500,000 . $10,000,000 514,329,592 513,438,689 ? Program Revenues $7,500,000 10 Expenses $5,000,000 $2,500,000 $1,826,473 $1,361,880 Fiscal Year 2007 Fiscal Year 2006 Governmental Activities Total Cost of Net Cost of Total Cost of Net Cost of . Services Services Services Services 2007. 2007 2006 2006 Program Expenses: General government $ 2,713,607 $ 1,724,462 $ 2,422,823 $ 1,973,099 Security of persons and property 6,456,013 6,114,669 5,844,020 5,532,670, Public health services 112,448 112;448 112,680 112,680 Transportation 3,174;519 2,835,745 3,140,809 2,694,451 Community environment 38,696 33,696 247,683 242,749 Basic utility services. 967;883 836,664 786,272 655,421 Leisure time activity 40600_ 3'85,699 391,195 372,532 Interest and. fiscal charges 459,736 459,736 493,207 493,207 Total $ 14,329,592 $ 12,503,119 $ 13,438,689 $ 12,076,809 r . The dependence upon general revenues for governmental activities is apparent, with 87.25% of expenses supported through taxes and other general revenues. 8 _ l CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND. ANALYSIS FOR THE YEAR. ENDED DECEMBER 31, 2007 UNAUDITED The chart below illustrates the City's program revenues versus general revenues for 2007 and 2006: Governmental Activities - General and Program Revenues r $14;000,000 $12,000,000 .$10,000,000 X12,794197 $12,318;096 $8,000,000 ? Program Revenues ? General Revenues $6,000,000 $4,000,000 $2,000,000 $1,826,473 N $1,361,880 Fiscal Year 2007 Fiscal Year 2006 Financial Analysis of the Government's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal . requirements: Governmental Funds 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 $13,045,219 which is $697,735 less than last year's total of $13742,954. The schedule below indicates the fund balances and the total change in fund balances as of December 31, 2007 and 2006 for all.major and nonmajor governmental funds. i. Fund Balances Fund Balances Increase Percentage 12/31/07 12/31%06 (Decrease) Change Major funds: General $ 6,717,600 $ 6,8021004 $ (84,404) (1.24) % Bond retirement 124,330, 162,896 (38,566) (2168) % Capital improvement 3,827,671 4,508,566 (680,895) (15.10) % Other nonmajor governmental funds 2,375,618 2,269,488. .106,130 4.68 % . Total $ 13,045,219 137742,954 $ (697,735) (5.08) % 9 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2007 UNAUDITED General Fund The City's general fund balance decreased $84,4o4. The table that follows assists in illustrating the revenues of the J general fund. 2007 .2006 Percentage Amount 'Amount Change Revenues Taxes $ 6,386.2468 $ 6,465;892 (1.23) % Charges for services 49,082 25,886 89.61 % Licenses and permits 69,659 76,782 (9.28) % Fines and forfeitures 162,927 192,127 (15.20) % Investment income 681,060. 718,633 (5.23) % Intergovernmental 1,447,590 1,368,874 5.75 % JEDD revenue 1,912,115 588,657 224.83 % Other 148,678 138,880 7.06 % Total $ .10,857,579 9,575,731 13.39 % Tax revenue represents 58.82% of all general fund revenue. Tax revenue decreased by 1.23% over prior year. The increase in JEDD revenue is a result of the one-time payment from the JEDD to Bath Township made in 2006: All other revenue remained comparable to 2006. Revenues - Fiscal Year 2007 Revenues - Fiscal Year 2006 Investment Fines and income' forfeitures Investment - Intergovem- 2.01% 6.27% Income mental JEDD Revenue ° Intergovem ° Licenses and 7.50% 13.33 mental _ 17.62% Permits 14.30% . Fines and 0.8k forfeitures L50% JEDD Reven . Charges for „s m c - Services 6.15% Licenses and - 0.27% Permits Other Revenues ~ 0.64% 137% Other Revenues 1.45% Charges for Taxes ' Services 67.52% l _ 0.45% Taxes . 58.82% .10 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS f FOR THE YEAR ENDED DECEMBER 31, 2067 UNAUDITED F, The table that follows assists in illustrating the expenditures of the general fund. . 2007 2006 Percentage Amount Amount Change Expenditures ' General government 2,580,161 $ 2,372,280 8.76 Security of persons and.property 5,373,068 4,837,325. 11.08 % Public health services . 112,448 112,680 (0.21) % "Transportation 1,646,962 1,556,894 5.79 % Community environment 37,512. 67,057 (44.06) % ` Basic utility services 179A03 149,697 19,.64 % Leisure time activity. 30,156 42,422 (28.91) % r_ Total 5 9,959,410. $ 9,138,355 8.98 % All expenditures remained comparable to 2006. The largest expenditure line item, security of persons and property, increased due to the radio equipment. upgrade for the safety departments in 2007. Community environment I_ expenses were less in 2007 due.to delays in processing reimbursements approved by the Flood, Prevention Board. is Expenditures -Fiscal Year.2007 Expenditures - Fiscal Year 2006 . Basic utility I Community services Basic utility Community Leisure time environment 1.80% Leisure time services ° activity environment 1.64% activity 0.38% 0.30% 0.74% 0.46% ' Transport- ation General Transport- General i _ 18.54% government, ation government ° 25.96% 25.91'/° 17.04% a Public health 1t"~ t Br Public health services 1.13% services Security of 1.23% j " persons and Security'oF property. J,. 53.94%' persons and property 52.93% 1Bond Retirement Fund The bond retirement .fund had revenues of $260,910 in 2007. The expenditures of the bond retirement fund .totaled $299,476 in 2007. The net decrease in fund 'balance for the bond retirement fund was $38,566 or 23.68%. Capital Improvement Fund The capital improvement fund had revenues and other financing sources of $3,162,988 in 2007. The expenditures of the capital improvement fund totaled $3;843,883 in 2007. The net decrease in fund balance for the capital improvement fund was $680,895 or 15.10%. L: 11 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2007 UNAUDITED 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 O.RC: Therefore, the City's plans or desires cannot be totally reflected in the j 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 $501,225 from $10,209;258 to $9,708,033. Actual 'revenues of $10,365,637 exceeded final budgeted revenues. by $657,604. Budgeted revenue was decreased to reflect the decrease in income tax revenue, however amounts received for estate tax and JEDD revenues exceeded budget estimates. The other significant change was between the final budgeted expenditures and actual expenditures. Actual expenditures came in $2,407,397 lower -than the final budgeted amounts due to less than full staffing in the police, fire, building & zoning, finance and dispatch departments; less than anticipated utility expenses due to the City's aggregation programs; fewer income tax refunds than anticipated; and overall prudent management. Capital Assets and Debt Administration Capital Assets At the end of fiscal 2007, the City had $69,919,077 (net of accumulated depreciation) invested in land, land improvements, buildings and improvements, machinery and equipment, licensed vehicles, infrastructure and construction in progress. The following table shows fiscal 2007 balances compared to 2006: Capital Assets at December 31 (Net of Depreciation) Governmental Activities ' 2007 2006 Land $ 3,224,888 $ 3,194,219 Land improvements 600,027 :543,072 Buildings and improvements 11,483,378 11,614,121 Machinery and equipment 1,789,628 1,905,604 Licensed vehicles 1,410,616 1,463,818 Infrastructure 49,403,282 50,485,172 Construction in progress 2,007,258 - Totals $ 69,919,077 $ 69,206,066 12 1 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2007 UNAUDITED The following graphs show the breakdown of governmental capital assets by categoryfor 2007 and 2006. j Capital Assets - Governmental-Activities Capital Assets - Governmental Activities 2007 2006. Land imp. ° Buildings Land imp. Buildings Land 0.78/ 16.78% 0.86% 16.42% 4.62% Land 4.61 % Machinery and Machinery and equipment equipment 2.56% _ 2.75% CIP 2.87% Licensed Licensed vehicles vehicles 2.02% 2.12% Infrastructure Infrastructure l 70.66% 72.95% 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 approximately 70.66% of the City's total governmental capital assets at December 31, 2007. See Note 9 for more detail on the City's capital assets. Debt Administration The City had the following long-term obligations outstanding at December 31, 2007 and 2006: Governmental Activities ' 2007 2006 General obligation bonds $ 7,960,000 $ 8,510,000 Special assessment bonds 67000 810,000 OPWC loans 512,286 569,656 Compensated' absences 1;115;914 1,038,735 i Total long-term obligations $ 10,258,200 $ 10,928,391 See Note 10 for more detail on the City's long-term obligations. Economic Conditions and Next Year's General Fund Budget Outlook' The City of Fairlawn is a residential community with a strong diversified business base. The City is home to i 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, t 13 CITY OF FAIRLAWN, OHIO MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31; 2007 UNAUDITED The City's convenient location continues to attract and retain growing businesses and it has recently welcomed Stark & Knoll Company; LPA; Bober, Markey, Fedorovich & Company; and Veyance Technologies, Inc.. Summit Mall has completed Phase 1 of a $9 million renovation -and Phase 2 will begin shortly. r The City's Land Use Plan designated 200+.acres of former farmland. as an oce,park in the City's southwest corner. Fairlawn Corporate Park continues to develop and we expect a total of six new buildings by the end of the year.. The City has applied to the State for a .multimillion dollar Jobs Ready Site grant to assist with the cost of infrastructure in the Corporate Park to further boost activity in the area. 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 2008: The City is proud to offer outstanding city.gervices to its .residents: In addition to excellent police and fire -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. Fairlawn 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 free emergency medical care to Fairlawn residents. The 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 a joint recreational center. The City is projecting moderate growth in general fund revenue in 2008. Expenditures for 2008 are budgeted at 1.9% greater than the prior year due to projected full staffing, moderate wage increases and general inflation. Programs supported by the general fund are budgeted at the same level of service as last year. There are, no new hires planned for 2008. , Contacting the City's Financial:Management This financial report is designed to., provide our citizen's, taxpayers, 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 of Fairlawn, 3487 S. Smith Road, Fairlawn, Ohio 44333. i_ 14 CITY OF FAIRLAWN, OHIO STATEMENT OF NET ASSETS DECEMBER 31, 2007 Governmental. Activities Assets: Equity in pooled cash and cash equivalents... . $ 13,223,639 Cash and cash equivalents in segregated accounts 42,439 Receivables (net of allowances for uncollectibles): ii Income taxes . . 1,637,208 Real and other taxes . 945,971 Accounts . . . . 53,174 Accrued interest 154,658 Special assessments . 1,689,080 Due from other governments 1,021,038 Prepayments . . . 105,578 Materials and supplies inventory . 229,154 Capital assets: Land and construction in progress. 5,232,146 Depreciable capital,assets, net 64,686,931 Total capital assets............ 69,919,077 Total assets.... 89,021,016 Liabilities: Accounts payable 1,332,447 Contracts payable............ . 266,959 Accrued wages and benefits 239,943 Due to other governments . 472,673 Deferred revenue. . . . . 834,191 Accrued interest payable . 48,622 Long-term liabilities: Due within one year 1,169,878 Due in more than one year . . 9,088,322 Total liabilities 13,453,035 Net assets ' Invested in capital assets, net of related debt 60,776,791 t Restricted for: Capital projects 5,316,270 Debt service 1,285,249 Other purposes 1,783,736 j Unrestricted. 61405,935 Total net assets $ 75,567,981 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 15 I CITY OF FAIRLAWN; OHIO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2007 Net (Expense) Revenue and Changes in Program Revenues Net Assets Operating Capital . Charges for Grants and Grants and Governmental Expenses Services Contributions Contributions Activities i Governmental Activities: General government. $ 2,713,607 $ 989,145. $ - $ $ (1,724,462) Security of persons and property:......... 6,456,013 324,817 16,527 - (6,114,669) Public health services • • • • . 112,448 - - - (112,448) Transportation 3,174,519 .606 327,124 11,050 (2,835,745) Community environment ' 38,696 5,000 - (33,696) Basic utility services 967,883 131,219 - - (836,664) Leisure time activity 406,690 20,991 - - (385,699) Interest and fiscal charges 459,736 - - - (459,736) Total governmental activities... 14,329,592 1.471,772. 343;65] 11,050 (12,503,119) General Revenues: Property and other taxes levied for: General purposes . . 694,037 Police and fire pension . 194,988 Parks and recreation . . 203,534 Income taxes levied for: General purposes... 5,533,704 Capital projects . 2,503,071 JEDD revenue 1,912,115 Grants and entitlements not restricted to specific programs . 860,079 Investment earnings 770,649 Miscellaneous 122,020 Total general revenues 12794,197,. Change in net assets . 291,078 Net assets at beginning of year . 75,276,903 Net assets at end of year........... . $ 75,567,981 ~Y SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS l 16 CITY OF FAIRLAWN, OHIO BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2007 Other Total Bond Capital Governmental Governmental General Retirement Improvement Funds Funds Assets: Equity in pooled cash and cash equivalents........ . $ 6,870,953 $ 124,330 $ 3,766,657 $ 2,461,699 $ 13,223,639 Cash and bash equivalents in segregated accounts _ 42,439 - - 42,439.. Receivables (net of allowance for uncollectibles): Income taxes.. 1,105,115 - 532,093 - 1,637,208 Real and other taxes . , 716,040 - - 229,931 945,971 Accounts........ 12,773 - 40,401 53,174 Accrued interest 146,484 - - 8,174 154,658 Special assessments - 1,180,196 508,884 - 1,689,080 Due from other funds - - - 6,399 6,399 Due from other governments.... 844,797 - - 176,241 1,021,038 Prepayments . 105,578 - - 105,578 Materials and supplies inventory 200,585 - - 28,569 229,154 Total assets $ 10,044,764 $ 1,304,526 $ 4,807,634 $ 2,951,414 $ 19,108,338 Liabilities: Accounts payable . $ 1,279,731 $ - $ 25,704 $ 27,012 $ 1,332,447 Contracts payable 39,201 - 227,758 - 266,959 Accrued wages and benefits 232,500 7,443 239,943 Due to other funds 6,399 - - - 6,399 Due to other governments 296,295 - - 176,378. 472,673 r Deferred revenue.. 1,473,038 1,180,196. 726,501 364,963. 3,744,698 Total liabilities 3,327,164 1,180,196 979,963. 575,796 6,063,119 Fund Balances: Reserved for encumbrances 457,332 - 219,613 90,087, .767,032: Reserved for prepayments.......... 105,578 105;578 Reserved for materials and supplies inventory., 200,585 - 28,569 229,154 Reserved for unclaimed monies 25,547 - - - 25,547• Reserved for debt service - 124,330 - - 124,330 Unreserved: Undesignated, reported in: General fund 5,928,558 7 - - 5,928,558 ` Special revenue funds - - - 1,524,694 1,524,694 Capital. projects funds - 3,608,058 732,268 4,340,326 1 Total fund balances...... 6,717,600 124;330 3,827,671 2,375,618 13,045,219 . Total liabilities and fund balances $ 10,044;764 $ 1,304,526 $ 4,807,634 $ 2,951,414. $ 19,108,338 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, 2007 i. Total governmental fund balances $ '13,045,219. Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used m governmental activities are not financial resources C and therefore are not reported in the funds. 69,919,077 Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the funds. Income taxes $ 669,590 Investment income 109,709 Special assessments 1,689,080 Licenses.and permits 24,644 Other 609 Intergovernmental revenues 416,875 Total 2,910,507 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 (48,622) General obligation bonds . (7,960,000) Special assessment bonds (670,000) OPWC loans (512,286) Compensated absences (1,115,914) (10,306,822) Net assets of governmental activities $ 75,567,981 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS L 18 I CITY OF FAIRLAWN, OHIO. STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2007 Other Total Bond Capital Governmental Governmental General Retirement Improvement Funds Funds Revenues: Income taxes . $ 5,692,431. $ - $ 2,579,495 $ - $ 8,271,926 Property and other taxes 694,037 - - 397,975 1,092,012 Charges for services 49,082 - - 255,684 304,766 Licenses and permits 69,659 - - 97,834 167,493 Fines and forfeitures 162,927 - - 76,604 239,531 Intergovernmental . 1,447,590 - 11,050 340,692 1,799,332 Special assessments..... - 260,910 59;168 - 320,078 Investment income 681,060 - - 34,687 715;747 Rentals 61,088 - 12,919 74,007 Contributions and donations........... 3,000 - - 2,800 5,800 JEDD revenue 1,912,115 - - - 1,912,115 Other. . . . . . . . . . . . . . . . . . 84,590 - 26,780 5,248 116,618 Total revenues . . 10,857,579 260,910 2,676,493 1,224,443 15,019,425 Expenditures: Current: General government... 2,580,161 12,074. - 172 2,592,407 Security of persons and property . . 5,373,068 - - 707,043 6,080,111 Public health services 112,448 - - - 112,448 Transportation... 1,646,962 - - 309,457 1,956,4.1.9 Community environment 37,512 - - 37,512 Basic utility services 179,103 - 179,050 358,153 Leisure time activities 30,156 - - 288,243 .318,399 Capital outlay . - - 2,919,813 90,969 3,010,782 Debt service: Principal retirement.. - 197,370. 550,000 - 747,370 Interest and fiscal charges - 90,032 374,070 - 464,102 Total expenditures 9,959,41.0 299,476 3,843,883 1,574,934 15,677,703 Excess (deficiency) of revenues over. (under) expenditures 898,169 (38,566) (1,167,390) (350,491) (658;278) Other financing sources (uses): Proceeds from sale of.capital assets . 5,726 - - 5,726 Transfers, in - - 486,495 443,691 930,186 Transfers out (930,186) - - - (930,186) Total other financing sources (uses) (924,460) - 486,495 443,691 5,726 Net change in fund balances (26,291) (38,566) (680,895) 93,200 (652,552) Fund balances. at beginning of year 6,802,004 162,896. 4,508,566 2,269,488 13,742,954 Increase (decrease) in reserve for inventory (58,113) - - 12,930 . (45,183) Fund balances at end of year $ 6,717,600 $ . 124,330 $ 3,827,671 $ 2,375,618 $ 13,045,219 . SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 19 CITY OF FAIRLAWN, OH10 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, 2007 Net change in fund balances - total governmental funds $ (652,552) Amounts reported for governmental activities in ahe statement of activities are different because: 1 i Government funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays ($3,052,791) exceeded depreciation expense ($2,035,119) in the current period. 1,017,672 " 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. " (304,661) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. (398,755) Governmental funds report expenditures for inventory when purchased. However, in the statement of activities, they are reported as an expense when consumed. (45,183) Repayment of bond and loan principal is an expenditure in the governmental funds, but the repayment reduces long-teem liabilities in the statement of net assets. 747,370 In the statement of activities, interest is accrued on outstanding bonds and loans whereas in governmental funds, an interest expenditure is reported when due. 4,366 Some expenses reported in the statement of activities, such as compensated absences and pension obligations, do not require the use of current financial resources and therefore are not reported as. expenditures in governmental funds. (77,179) Change in net assets of governmental activities $ 291,078 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 20 L CITY OF FAIRLAWN, OHIO STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND. BALANCE - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) GENERALFUND FOR THE YEAR ENDED DECEMBER 31, 2007 Variance with Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Revenues: Income taxes.... $ 51938,592 $ 51433,684 $ 5,692,431 $ 258,747 Property and other taxes 656,106 659,789 670,901 11,112 Charges for services 19,232 19,232 43,749 24,517 Licenses and permits. 76,782 76,782 69,659 (7,123) Fines and forfeitures.... 186,764 186,764 165,407 (21,357) JEDD revenue.. 1,821,611 1,821,611 1,912,115 90,504 Intergovernmental.... 741;922 741,922 969,086 227,164 Investment income 651,089 651,089 693,515 42,426 Rentals . 50,006 50,000 61,088 11,088 Contributions and donations - 3,000 3,000 Other 67,160 67,160 84,686 17,526 Total revenues 10,209,258 9,708,033 10,365,637 657,604 Expenditures: Current: General government 4,328,623. 4,360,320 2,804,175 1,556,145 Security of persons and property 5,570,880 6,128,218 5,474,167 654,051 Public health services 112,660 112,660. 112,448 212 Transportation 1,801,I_ 1 1,833,868 1,715,722 118,146 Community environment 101,367 104,067 48,528 55,539 Basic utility services 156,337 176,054 154,298 21,756 Leisure time activities 43,379. 43,379 41,83.1 1,548 Total expenditures...... 12,114,357. 12,758,566 10,351,169 2,407,397 Excess (deficiency) of revenues over (under) expenditures (1,905,099) (3,050,533) 14,468 3,065,001 Other financing sources (uses): Proceeds from sale of capital assets........ - 25,000 5,726. (193274) Transfers out . ; (965,432) (965,432) (930,186) 35,246 Total other financing sources (uses) (965;432) (940,432) (924,460) 15,972 Net change in fund balance . . (2,870,53.1) (3,990,965) (909,992) 3,080,973. Fund balance at beginning of year......... 6,839,506. 6,839,506 6,839,506 - Prior year encumbrances appropriated 439,699 439,699 439,699 - Fund balance at end of year $ 4,408;674. $ 3,288.240 $ 6,369,213 $ 3,080,973 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS 21 CITY OF FAIRLAWN, OHIO STATEMENT OF FIDUCIARY NET ASSETS. FIDUCIARY FUNDS DECEMBER 31, 2007 Agency Assets: Equity in pooled cash and cash equivalents $ 62,382 Total assetsi . . 62,382 Liabilities: . Undistributed monies'.:....... . 62,382 Total .liabilities $ 62 382 SEE ACCOMPANYING NOTES TO THE BASIC FINANCIAL STATEMENTS. r i 22 1 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 1 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,, i` Council and Finance Director are elected. i. 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 j 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. 1 A. Reporting Entity For.fmancial 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 r.- specific financial benefits to, or impose specific burdens on, the City.. The City may also be financially 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 11 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 - (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 i, from the. City's financial statements. Both are. legally separate from the City: Neither imposes a financial burden not provides a financial benefit to the City. The City cannot significantly influence the.operations of these entities: The City participates in the Bath-Akron-Fairlawn 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 j management: Each participant's degree of control is limited to its representation on the board. All 2007 JEDD revenues were the result of the income tax levied by the JEDD effective January 1,1999. i 23 i._ CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 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 foreach 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 may or 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 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. Capital .Improvement The capital improvement fund accounts for the acquisition and construction of major capital facilities. 24 CITY OF FAIRLAWN, OHIO "-T NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 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 j 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; and (c) for grants and other i 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 fiind 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. The agency funds are used to account for deposits that will be _ l returned after the proper performance of certain landscape or street repair projects. 1 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 j the manner in which .the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include reconciliations with brief explanations to better identify the relationship between the government-wide statements and the financial statements for governmental funds. E. Basis of Accounting f Basis of accounting determines when transactions are recorded in the financial records and reported on 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 Ndn-exchange Transactions - Revenue resulting from exchange J 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 1 i CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 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 all 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 nonexchange transactions must also be available. before it can be recognized, i Under the modified accrual basis, the following revenue sources are considered to be both measurable and available at year-end: income tax, state-levied locally 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. i Property taxes for which there is an enforceable legal claim as of December. 31, 2007, but which were levied to finance year 200.8 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. Allocations of cost, such as depreciation and amortization, are not recognized in governmental funds. F. Budgetary Data The budgetary process is prescribed . by provisions of .thee 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 i CITY OF FAIRLAWN, OHIO 1 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 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 i agency funds, are legally required to be budgeted; however, only governmental funds are legally required to be reported. i 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 1. As part of this certification, the City receives the l 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 1 estimated resources. The revised budget then serves as the basis for the annual appropriations• measure. On or about January 1, the certificate. of estimated resources is amended to include unencumbered 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 original and final amended official certificate of estimated resources issued during 2007. , 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 3. 1. An annual appropriation ordinance must be passed by April 1 of each year for the period January 1 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 finid 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 i statement reflect the original and final appropriation amounts, including 411 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. During fiscal year 2007, investments were limited to overnight repurchase agreements, certificates of deposit, 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 and repurchase agreements, are reported at cost. 27 r- l. CITY OF FAIRLAWN, OHIO r- NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The City invested funds in STAR Ohio during fiscal 2007. 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, 2007.. 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 2007, interest revenue credited to the general fund amounted to"$681,06.0 which includes $443,586 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 r treasury. Equivalents in, Segregated Accounts" since they:are not required to. be deposited into the City 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 f 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. . is 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. r. 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: r 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 governinent-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 i CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 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 I replacement: Depreciation is computed using the straight-line method over the following useful lives: Governmental Activities Description 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 employees currently eligible to receive termination benefits and those the City has identified as 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 r 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 amoiints 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 and compensated absences 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 t CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -"(Continued) L. lnterfund Balances On fund financial statements, receivables and payables resulting from goods and services provided. between funds are classified as "Due to/from other funds." These amounts are eliminated in the I 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, in the governmental fund financial. statements. 0. 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 irriprovement of those assets. Net assets are reported as .restricted when there 'are limitations imposed on their use either through the enabling "legislation or through external restrictions imposed by creditors, grantors or laws or regulations of other governments.: Net assets restricted for .other purposes consist of unclaimed monies and amounts restricted for the security of persons and property, transportation projects and leisure time activities. .The City "applies restricted resources first when an expense. is incurred for purposes for which both restricted and unrestricted net assets are available. 30 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 3 EQUITY IN POOLED CASH AND. CASH EQUIVALENTS State statutes classify monies held by the City 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 deposits must be evidenced by time certificates of deposit maturing not more than one year from the date of deposit or by savings or deposit accounts including, but not limited to, passbook accounts. Interim monies may be deposited or invested in the following: 1. 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; r 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; r 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 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 items (1) or (2) above 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: 31 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 3 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) 1. 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; and 3. Obligations of the City. 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 finance director'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 $ve.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 finance director or. qualified trustee or, if.. the securities are not represented by a certificate, upon receipt of confirmation of transfer from the custodian. A. Cash on Hand At year-end, the City had $1,550 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". B. Cash in Segregated Accounts r At December 31,. 2007, the City had $42,439 in bank accounts, outside of the City Treasury related to Mayor's Court operations and income tax refunds. These amounts are included on the financial statements`as "Cash and Cash Equivalents in Segregated Accounts" and are included in deposits with financial institutions below. C. Deposits with Financial Institutions At December 31, 2007' the carry ing amount of the City's deposits was $9,952,906, exclusive of the $1,377,747 repurchase agreement included in investments below. As of December. 31,.2007; $9,700;000 of the City's bank balance of $10,142,736 was exposed to custodial risk 'as discussed below, while $442,736 was covered by Federal.Deposit Insurance Corporation. Custodial credit risk is the risk that, in the event of bank failure, the City will not be able to recover deposits or collateral securities that are in the possession of an outside party.. As permitted by Ohio Revised Code, the City's deposits are collateralized by a pool of eligible securities deposited with Federal Reserve Banks, or at member banks of the Federal Reserve System, in the name of the depository bank and pledged as a pool of collateral against all public deposits held by the.depository. The City has no, deposit policy. for custodial credit risk beyond the requirements of the State statute. Although the securities were held by the pledging .institutions' trust department and all statutory requirements for the deposit of money had been followed, noncompliance with federal requirements could potentially subject the City to a successful claim by the FDIC. 32 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 3 - EQUITY IN POOLED CASH AND. CASH EQUIVALENTS - (Continued) D. Investments As of December 31, 2007, the City had the following investments and maturities: Investment Maturity Balance at 6 months or Investment We Fair Value less Repurchase Agreement $ 1,377,747 $ 1,377,747 STAR Ohio 1,996,257 1,996,257 $ 3,374,004 $ 3,374,004 Interest Rate Risk. The Ohio Revised Code generally limits security purchases to those that mature within fiw years of the settlement date. Interest rate risk arises because potential purchasers of debt securities will not agree to pay face value for those securities if interest rates subsequently increase. The City's investment policy addresses interest rate risk by requiring the consideration of.market conditions and cash flow requirements in determining the term of the investment. Custodial Credit Risk: For an investment, custodial risk is the risk that, in the event of the failure of the couriterparty, the City will not be able to recover the value of its investment or collateral. securities that are in the possession . of an outside party. The City has no investment policy dealing with investment custodial risk beyond the requirement in Ohio law that prohibits payments for investments prior to the delivery..ofthe securities representing such investments to.the finance director or qualified trustee. The City's investment in repurchase agreements is collateralized by underlying securities pledged by the investment's counterparty, not in the name of the City. Ohio law requires that market r value of the securities subject to a repurchase agreement must exceed the principal value of the securities subject to a repurchase agreement by 2 percent. Credit Risk. STAR Ohio carries a rating of AAA by Standard & Poor's. Ohio law requires that STAR Ohio maintain the highest rating provided by at least one nationally recognized standard service ` rating. The federal agency securities that underlie the City's repurchase agreement were rated AAA and An by Standard & Poor's and Moody's Investor Services, respectively.. Concentration of Credit Risk. The City's investment policy addresses concentration of credit risk by requiring investments to be diversified to reduce. the risk of loss resulting from over concentration of assets in a specific issue or specific class of securities. The following table includes the percentage of each investment type held by the City at December 31, 2007: ' . Investment type Fair Value % of Total Repurchase Agreement $ 1;377,747 40.83 STAR Ohio 1,996,257 59.17 $ 3,374,004 100.00 33 i CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 3 - EQUITY IN POOLED CASH AND CASH EQUIVALENTS - (Continued) E. Reconciliation of Cash and investment to the Statement of Net Assets The following is a.reconciliation of cash and investments as reported in the footnote above to cash and investments as reported on the statement of net assets as of December 31, 2007: Cash and Investments per footnote Carrying amount of deposits $ 9,952,906 Investments 3,374,004 Cash on hand 1,550 Total' $ 13,328,460. Cash and investments per Statement of Net Assets Governmental activities $ 13,266,078 Agency funds. 62,382 Total $ 13;328,460 NOTE 4 - INTERFUND TRANSACTIONS A. Interfund transfers for the year ended December 31, 2007 consisted of the following, as reported in the fund financial statements: Transfers from Transfers to General Capital Improvement $ 486,495 Nonmaj or Special Revenue 443,691 $ 930,186 Transfers are used to (1) 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 unrestricted revenues collected in the general fund to finance, various programs accounted for in other funds in accordance with budgetary authorizations. Transfers between governmental funds are eliminated for reporting on the government-wide statement of activities. B. Due from/to other funds consisted of the following at December 31, 2007, as reported in the fund financial statements: Receivable Fund . Payable.Fund Amount Nonmajor governmental funds General fund $ 6,399 Amounts due from/to other funds represent Mayor's Court costs and fines collected by the court and due to the Children/Adolescent and the DUI Enforcement and Education funds. i 34 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2,007 NOTE 4 - INTERFUND TRANSACTIONS - (Continued) Amounts due from/to other funds between governmental funds are eliriminated on the government-wide financial statements. . 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 1 on the assessed value as of the. prior January 1, the tax lien date. Assessed. value s_ 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 2002. Real property taxes are payable annually or semiannually.-The first payment for 2007 was due January 1, with the remainder payable June 20. Public utility real and tangible personal property taxes collected in one.calendar year are levied'on assessed values as of the prior January 1, 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 tax is.:being phased out -the assessment percentage for property, including inventory., is 12.5% for 2007. This . percentage will be. reduced to 6.25% for 2008 and'zero for 2009. Amounts paid by multi-county taxpayers are due September 20.. Single county taxpayers may pay annually or semiannually. If paid annually, the first payment is due April 30; if paid.semiannually, the first payment is due April 30, with the remainder payable by September 20. House Bill No. 66 was signed into law on June 30, 2005. House Bill No. 66 phases out the tax on tangible personal property of general businesses,.telephone'and telecommunications companies,. and railroads. The. tax on general business and railroad property will be, eliminated by calendar year 2009, and the, tax on telephone.and telecommunications property. will be eliminated.by calendar year 2011. The tax is phased out by reducing the assessment rate on the property each year. The bill replaces the revenue lost by the City due to the phasing out of the tax. In calendar years..2006-2010, the City will be fully reimbursed for the lost revenue. In calendar years 2011-2017, the reimbursements will be phased out. 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, 2007 was $2.70 per $1,000 of assessed value. The assessed values of real and tangible personal property, upon which taxes for 2007 were collected, are as follows: 35 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 5 - PROPERTY TAXES - (Continued) Category Assessed Value Residential $ 173,504,620 Commercial 139,567,530 Total real estate 313,072,150 Public utility property 3,318,951 Tangible personal property 6,033,454 Grand total $ 322,424,555: Accrued taxes receivable represent delinquent taxes outstanding and .real, tangible personal, and public utility taxes which were ,measurable and unpaid as. of December 31, 2007. 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 2007 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 residerits.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 ,Z 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 - ESTIMATED INCOME TAX REFUNDS PAYABLE In 2005, the City erroneously received estimated income tax. payments for public utility companies partially. located in the City. The allocation of.income taxable to the City was incorrectly calculated. The City Will issue refunds to the public utility companies for the overpayment upon receiving verification from the State of Ohio Department of Taxation that proper corrected tax returns have been filed. The estimated overpayment is $1,112,868: A liability has been recorded in the general fund for the estimated refund due. This liability is 'a component of "accounts payable" reported on the financial statements. NOTE 8 - RECEIVABLES Receivables at December 31, 2007, consisted. of taxes, accounts (billings for user charged services), accrued interest, special assessments, and intergovernmental receivables arising from grants, entitlements, and shared revenue. All intergovernmental receivables have been classified as "Due from Other Governments" on the financial statements. Receivables have been recorded to the extent that they are measurable at December 31, 2007. 36 i. CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 8 - RECEIVABLES - (Continued) A summary of the principal items of receivables reported on the.statement of net assets follows: Income taxes $ 1,637,208 Real and other taxes 945,971 Accounts 53,174 Accrued interest 154,658 Special assessments 1,689,080 Due. from other governments 1,021,038 _ Total $ 5,501.,129 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 $23,763 as of December 31, 2007. i 37 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 . NOTE 9 -CAPITAL ASSETS Capital asset activity for the year ended December 31, 2007 was as follows: Balance Balance Governmental Activities: 12/31/06 Additions Disposals 12/31/07 Capital assets, not being depreciated: Land. $ 3,194,2191 $ 30,669 $ - $ 3,224,888 Construction in progress - 2,007,258 - 2,007;258 Total capital assets, not being depreciated 3,194,219 2,037,927 - 5,232,146 Capital assets, being depreciated: Buildings and Improvements 13,972,836 136,387 - 14,109,223 Land Improvements 1,220,657 90,868 (66,000) 1,245,525. Machinery and Equipment 3,037,390 75,127 - 3,112,517 Licensed Vehicles 2,684,920 143,522 (66,463) 2,761,9.79 Infrastructure .72,472,747 568,960 (412,062) 72,629,645. Total capital assets, being depreciated 93,388,550 1,014,864 (544,525) 93,858,889 i.. Less: accunulated depreciation: Buildings and Improvements (2,358,715) (267,130) - (2,625,845) Land Improvements (677;585) (32,913). 65,000 (645,498) Machinery and Equipment (1,131,786) (191,103) - (1,322,889) Licensed Vehicles (1,221,042) (189;284) 58,963 (1,351,363) Infrastructure (21;987,575) (1,354,689) 115.,901 (23,226,363) i Total accumulated depreciation (27,376,703) (2,035,119) 239,864 (29,171,958) Total capital assets, being depreciated, net 66,011,847 (.1,020,255) (304,661) 64,686,931 Governmental activities capital assets, net $69,206,066 $ 1,017,672 $ (304,661) $69,919,077 i is 38 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 9 - CAPITAL ASSETS - (Continued) Depreciation expense was charged to functions/programs of the City as follows: Governmental activities: General government $ 40,213 Basic utilities. 547,630 Security.ofpersons and property 331,367 Transportation 1,061,573 Community environment 3;018 Leisure time activity 515318 Total depreciation expense - governmental activities $ 2,035,119 NOTE 10 - LONG-TERM OBLIGATIONS A. During the fiscal year 2007, the following changes occurred in governmental activities long-term obligations: Interest Balance Balance Due in Governmental Activities: Rate 12/31/06 Additions Reductions 12/31/07 One Year General obligation bonds 2.80-5.75% $ 8,510,000 $ - $(550,000) $ 7,960,000 $ 575,000 Special assessment bonds 4.80-7.00% 810,000 (140,000) 670,000 150,000 OPWC loans 6.00% 569,656 - (57,370) 512,286 60,864 Compensated absences 1,038,735 79,012 (1,833 1,115,914. 384,014 Total $10,928,391 $ 19,012 $(749,203 $ 10,258,200 $1,169,878 i ,t 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 absence's reported in the "long- term liabilities" account will be paid from the fund from which the employees' salaries are .paid; the General Fund, Children/Adolescent Fund and the Parks and Recreation Fund. i i L_. 39 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 10 - LONG-TERM OBLIGATIONS - (Continued) i. Principal and interest requirements to retire long-term obligations outstanding at December 31, 2007 are follows: General Obligation Bonds Special Assessment Bond Year Principal Interest Total Principal Interest Total 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 625,000 302,530. 927;530 175,000 25,200 200,200 2011 655,000 275,030 930;030 185,000 12,950 197;950 2012 680,000 245,845 925,845 - - - 2013 - 2017 2,870,000 810,978 3,680,978 - - - 2018 - 2022 1,955,00.0 249,150 2,204,150 Total $ 7,960;000 $2,563,893 $10,523,893. $ 670,000. $ 121,450 $ 791,450 OPWC Loans Year Principal Interest Total 2008 $ . 60,864 $ 29,838 90,702 2009 64,569 26,131 90,700 2010 68,503 22,199 90,702 2011 72,675 18,027: 90,702 2012 .77,101 13,601 90,702 2013 -2014 168,574 12,830 181,404 Total $ 512,286 $ 122,626. $ 634,912 NOTE 11 - 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 Icarry over vacation earned for three years prior to their retirement date. All accumulated unused vacation time is paid upon termination of employment: Employees earn sick leave at the rate of 1.25 days per month of service except for firefighters. Firefighters earn.4.6 hours of sick leave for every two weeks of service. 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 40 CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 11 -OTHER EMPLOYEE BENEFITS -(Continued) are generally not eligible to receive termination payments for sick leave. As of December 31, 2007 the total liability for unpaid compensated absences was $1,115,914. 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 United Healthcare. The employees share the cost of the monthly premium.. Dental insurance is provided by the City through Genworth Financial. NOTE 12 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 2007, 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 Scottsdale Indemnity Company with a $1,000,000 limit and a $10,000 deductible. A commercial umbrella policy through Westfield Insurance Company provides additional general liability and auto liability insurance up to an $11,000,000 limit. Vehicles are covered by Westfield Insurance Company and hold a $1,000 deductible for.collision. 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.annual fee. The City pays the State Workers' Compensation system a premium based on a rate per. $100 of salaries.. This rate is calculated based on accident history and administrative costs. NOTE 13- 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 Pension 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 (employercontributions 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 41 i CITY OF FAIRLAWN, OHIO r i NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 13.- DEFINED BENEFIT PENSION PLANS - (Continued) similar to the Traditional Pension Plan benefit. Member contributions, whose investment is self- directed by the member, accumulate retirement assets in a manner similar to the Member, Directed. i Plan. OPERS provides retirement, disability, survivor and death benefits and annual cost of living adjustments to members of the Traditional Pension and the 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, Attention: Finance Director, 277 E. Town St., Columbus, OH 43215-4642 or by calling (614) 222-5601 or (800) 222-7377. . For the year ended December 31, 2007, the members of all three plans, except those in law enforcement under the Traditional Pension Plan, were required to contribute 9.5 percent of their annual covered salaries. Members participating in the Traditional Pension Plan that were in law enforcement contributed 10.1 percent of their annual covered salary. The City's contribution rate' for pension benefits for 2007 was 8.85 percent for the period January 1, 2007 through June 30, 2007 and 7.85 percent for the period July 1, 2007 through December 31, 2007. The Ohio Revised Code provides statutory authority for member and employer contributions. The City's required contributions for pension obligations to the Traditional Pension and Combined Plans for the years ended. December. 31, 2007, 2006, and 2005 were $221,691, $243,867; and $253,088, respectively; 88.6 percent has been contributed for 2007 and 100 percent for 2006 and 2005. $42;221, representing the unpaid pension contribution for 2007, is recorded as a liability. Contributions to, the Member-Directed plan for 2007 were $2,687 made by the City and $1,843 made by plan members. 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. Plan members are required to contribute .10 percent of their annual covered.salary while the City is required to contribute 19.50 and 24.00 percent for police officers and firefighters, respectively. The portion of the City's. contributions to fund pension obligations was 12.75 percent for police officers and 17.25 percent for firefighters. The City's contributions for pension obligations to OP&F for the years ended. December 31; 2007, 2006, and 2005 were $329,177, $313,948, and $300,078, respectively; 71.9 percent has been contributed for 2007 and 100 percent. for 2006 and 2005. The unpaid contribution to fund pension obligations for 2007, in the amount of $135,583, is recorded. 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. i 42 i CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 14 - POST RETIREMENT 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 Pension 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 OPERS is considered an Other Post-employment Benefit as described in GASB Statement. No. 12; "Disclosure of Information on Post-employment Benefits other, than Pension Benefits by State and Local Government' Enloyers A portion of each employer's contribution to the Traditional Pension or Combined Plans is set aside for the funding of post-retirement health care based on authority granted by State statute. The, 2007 local government employer. contribution rate was 13. 85. percent of covered payroll. (17.17 percent for public safety and law enforcement); 5.00 percent of covered payroll was the portion that was used to fund health care for the period January 1, 2007 through June 30, 2007 and 6.00, of covered payroll was the portion to fund health care for-the period July; 1, 2007 through December 31, 2007. 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, 2006; include a rate of return on. investments of 6.50 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 6.30 percent based on additional annual pay increases. Health care premiums were assumed to increase at the projected wage inflation rate (4.00 percent) plus and an additional factor ranging from .50 percent to 5.00 percent for the next eight years. In subsequent years, (nine and beyond) health care costs were assumed to increase at 4.00 percent. l All investments are carried at market value: For actuarial valuation purposes, a smoothed market approach is used. Under this approach, assets are adjusted to reflect 25 percent of unrealized market appreciation or depreciation on investment assets annually, not to exceed a 12 percent corridor. The number of active contributing .participants in the Traditional Pension and Combined Plans was 374,979 as of December 31, 2007.. The City's actual employer contributions for 2007 which were used to fund post-employment benefits ere $147,845.. The actual, contribution and the actuarially required contribution amounts are the same. OPERS's net assets available for payment of benefits at December 31, 2006 (the' latest.. information, available) were $12 billion. At. December 31, 2006 (the latest information available), the, actuarially accrued liability and the unfunded actuarial-accrued liability were $30.7 billion and $18.7 billion, respectively. The Health Care Preservation Plan (HCPP) adopted by the OPERS Retirement Board on September 9, 2004; was effective January 1, 2007. Member and employer contribution rates increased, as. of January 1, 2006, January 1, 2007 and January 1, 2008, which will allow additional funds, to be allocated to the health care plan. B. Ohio Police & Fire Pension Fund The Ohio Police and Fire Pension Fund (OP&F) provides post-retirement health •care coverage to any j 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 persona 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. 43 l CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 14.- POST RETIREMENT BENEFIT PLANS - (Continued) The healthcare coverage provided by OP&F is considered an Other Post-employment Benefit (OPEB) as described in GASB Statement No. 12, "Disclosure of Information on Post-employment Benefits other than Pension Benefits by State and Local Government Employers'. 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 6.75 percent of covered payroll was applied to the post-employment health care program during 2007, In addition, since July 1, 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 2001, all retirees and survivors have monthly health care contributions. i The City's actual contributions for. 2007 that were used to fund post-employment benefits were $93,226 for police officers and $59,902 for firefighters. The OP&F's total healthcare expense for the year ended December 31, 2006 (the latest information available) was $120.374 million, which was net of member contributions of $58.533 million. The number of OP&F participants eligible to receive health care benefits as of December 31, 2006 (the latest information available), was 14,120 for police and 10,563 for firefighters. f- NOTE 15 - 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 areas follows: 1. Revenues are recorded when received in. cash (budget) as opposed to when susceptible to accrual (GAAP). i 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. l: i. 44 t. CITY OF FAIRLAWN, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 NOTE 15- BUDGETARY BASIS OF ACCOUNTING - (Continued) Net Change in Fund Balance General Budget basis $ (909,992) Net adjustment for revenue accruals 491,942 Net adjustment for expenditure accruals (115,740) Adjustment for encumbrances 507,499 GAAP basis $ (26,291) NOTE 16 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 the 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, 2007. 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. NOTE 17 - CONTRACTUAL COMMITMENTS As of December 31, 2007, the City had various contractual commitments; for road maintenance and improvements of $242,176; sewer cleaning and improvements of $134,735; traffic signals $54,931, consulting services of $57,397; purchases of various capital equipment of $211,456; and park equipment and improvements' of $2,800. i NOTE 18 - ACCOUNTABILITY For 2007, the City has implemented GASB Statement No. 48 "Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues'?. GASB Statement No. 48 established criteria to ascertain whether certain transactions should be regarded as sales or as collateralized borrowings, as well as disclosure requirements for future revenues that are pledged and sold. The implementation of GASB Statement No. 48 has no effect on the financial statements of the City. L 4S i i I r r.. f i t r- 1 l This page intentionally left blank. i i' t_ 46 L A ~ Mary Tavlor.,CPA. Auditor of State 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 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 the. City of Fairlawn, Summit County, Ohio, (the City) as of and for the year ended December 31, 2007, which collectively.comprise the City's basic financial statements and have issued our report thereon. dated August 15;. 2008. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our audit procedures for expressing our opinions on the financial statements, but not to opine on the effectiveness of the City's internal control over financial, reporting. Accordingly, we have not opined on the effectiveness of the City's internal control over financial reporting. A control deficiency exists when the design or operation of a control does.,not allow management or employees, in performing their.assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of. control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process, or report financial data reliably in accordance with its applicable accounting basis, such.that there is more than a remote likelihood that, the City's internal control will not prevent or detect a more-than-inconsequential financial statement misstatement. A material weakness is a significant deficiency, or combination of significant deficiencies resulting in more than a remote likelihood, that the City's internal control. will not prevent or detect a material financial statement misstatement. i Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all internal control deficiencies that might be significant deficiencies or material weaknesses. We did.not identify any deficiencies in internal control over financial reporting that we consider material weaknesses, as defined above. We noted certain matters that we reported to the City's .management in a separate letter dated-August 15, 2008: 101 Central Plaza South / 700 Chase Tower / Canton, OH 44702-1509 Telephone: (330) 438-0617 (800) 443-9272 Fax: (330) 471-0001 www.auditor.state.oh.us 47 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 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 riot express an opinion.. The, results of our tests disclosed no instances of noncompliance or other matters we must report under Government Auditing Standards. We did note a certain noncompliance or other matter that we reported to the City's. management in a separate letter dated August 15, 2008. We intend .this report solely for the information and. use of management and City Council. We intend it for no one other than these specified parties. 01 Mary Taylor; CPA Auditor of State August 15, 2008 i_ j i- 48 i l.: Mar TavlOrj CPA. Auditor of -State. CITY OF FAIRLAWN . SUMMIT COUNTY CLERK'S CERTIFICATION This is a true and correct copy of the report which is required to be 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 CERTIFIED SEPTEMBER 11, 2008 i r i. 88 E. Broad St. / Fourth Floor / Columbus, OH 43215-3506 Telephone: (614) 466-4514 (800) 28270370 Fax: (614) 466-4490, www.auditorstate.oh.us r L T i ? a. • 1 L Auditor of. State Mary Taylor, CPA Office of the Auditor of State of Ohio 88, E. Broad Street Columbus, Ohio 43215 800 282=0370 www.auditor.state.oh.us L S FAIRLAWN Marv Tay or, CPA F P I Q PM 2~ 4 4 Auditor of State MANAGEMENT LETTER City of Fairlawn Summit County 3487 South Smith Road, Fairlawn, Ohio 44333 To the Honorable Mayor and Members of City Council: We have audited the .financial statements of the City of Fairlawn, Summit County, Ohio, (the City) in accordance with Government Auditing Standards, as of and for the year ended December 31,; 2007, and have issued our report thereon dated August.15, 2008.. Government Auditing Standards require us. to. report, significant internal control deficiencies,. fraud, and illegal acts (including noncompliance with laws and regulations), and also abuse and noncompliance with contracts and grant agreements that could directly and materially affect the determination of financial statement amounts. We have issued the required report dated August 15, 2008; for the year ended December 31, 2007. We are also submitting the following comments for your consideration regarding the City's compliance with applicable laws, regulations, grant agreements, contract provisions, and internal control. These _ comments reflect matters that do not require inclusion in the report Government Auditing. Standards requires. Nevertheless, these comments represent matters for which we believe improvements in compliance or internal controls or operational efficiencies might be achieved. Due to the limited nature of our audit; we have not fully assessed the cost-benefit relationship of implementing these recommendations. However, these comments reflect our continuing desire to assist your City. If you have questions or concerns regarding these comments please contact your regional Auditor of State office. Noncompliance Citation Ohio . Rev. Code Section 5705.41(D) states that Fiscal officers may prepare so-called "blanket" certificates for a sum not exceeding an amount established by resolution or ordinance adopted by the members of the legislative authority against any specific line item account over a period not running beyond the end of the current fiscal year. Although blanket certificates are used by the City for various expenditures, City Council has not established a maximum amount for :blanket certificates by resolution or ordinance. City Council should pass the appropriate legislation to establish an amount for blanket. certificates. A similar matter.was included in the City's Management Letter for the period ended December 31, 2006. 101 Central P1aza.South / 700 Chase TowerCanton, 013 44702-1509 . Te1ephone: (330) 438-0617 (800) 443-9272 Fax: (330) 471-0001 www.auditor.state.oh.us City of Fairlawn Summit County Management Letter Page 3 Recommendations. (continued) 3. Service Organization - EMS Billing (continued) In order to reasonably ensure the completeness and accuracy of EMS billing and collections processed by North Coast Physicians Billing, a Statement of Auditing Standards No. 70 (SAS70) Tier 11 report which prescribes testing . and reporting standards for audits .of. claims processing controls in place at the service organization should be provided. Thus, the City, should obtain a "Report on Policies and Procedures Placed in Operation and Tests of Operating Effectiveness" from North Coast Physicians Billing. Such a report, if unqualified, would provide evidence to the City's management that EMS billing and collections are being processed in conformance with the City's policies. A similar matter was included in the City's Management Letter for the period ended December 31, 2006. We intend this report for the information and use of City Council and management.. Mary Taylor, CPA Auditor of State. August 15, 2008