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1997 Financial StatementS `~~~~~/~~ TIM PETRO • d1.o:~ AiTDITOR OF STATE • STATE OF OHIO CITY OF FAIRLA~'N AKRON/CANTON REGION, SUMMIT COUNTY REGULAR AUDIT JANUARY 1, 1997 -DECEMBER 31, 1997 ` f " CITY OF FAIRLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE ELECTED OFFICIALS AND ADMINISTRATIVE PERSONNEL INDEX OF FUNDS REPORT OF INDEPENDENT ACCOUNTANTS GENERAL PURPOSE FINANCIAL STATEMENTS Combined Balance Sheet -All Fund Types and Account Groups Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (Non-GAAP) and Actual -All Governmental Fund Types Notes to the General Purpose Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS ON COMPLIANCE AND ON INTERNAL CONTROL REQUIRED BY GOVERNMENTAL AUDITING STANDARDS PAGE (i) (ii) 1 2-5 6-7 8-] I I2-34 35-36 CITY OF FAIRLAWN SUMMIT COUNTY 3487 South Smith Road Fairlawn, Ohio 44333 ELECTED OFFICIALS AND ADMINISTRATIVE PERSONNEL As of December 31, 1497 ELECTED TITLE TERM OF OFFICE SURETY AMOUNT PERIOD OFFICIALS William J. Roth, Jr. Mayor 1/1/96-12131/99 (A) $10,000 (B) James Swartz Council President 111!96-12!31/97 (A) $10,000 (B) Jerome Apple Council-at-Large 111196-12/31/97 (A) $10,000 (B) 3ames Butler Council Member 1/1/96-12/31197 (A) $10,000 (B) Stanley Bielewicz Council Member 1/1/96-12/31/97 (A) $10,000 (B) Frances Miller Council Member 1/]196-12131/97 (A) $10,000 (B) Philip Brillhart Council Member 1/1!96-12/31/97 (A) $10,000 (B) Steve Yashnick Council Member 1/1/96-12131!97 (A) $10,000' (B) Lawrence Pelland Director of Finance ADMINISTRATIVE PERSONNEL Patricia Bertsch STATUTORY LEGA] David Eugene Waddell 707 Society Building Akron, Ohio 44308 Assistant Finance Director COUNSEL James Graves 34 Merz Blvd. Fairlawn, Ohio 44333 (A} Personal Service Insurance Company (B) Concurrent with term of office 1!1/96-12/31/99 (A) $50,000 NA (A) $50,000 (B) (B) (i) (r 1 ~. {. l~ ~~. 1 i 1 ,L . r~ ~j._.. ~- i, 1_ CITY OF FAIRLAWN SUMMIT COUNTY INDEX OF FUNDS GOVERNMENTAL FUND TYPES: General Funds: General Fund Income Tax Fund Sewer Self-Insurance Fund Furtherance of Justice Fund Special Revenue Funds: Street Construction, Maintenance and Repair Fund State Highway Improvement Fund Permissive Tax Fund Fire Equipment Capital Fund Police Training Fund Law Enforcement Trust Fund Drug Law Enforcement Fund ChildrenlAdolescent Fund Recreation and Special Events Fund Parks and Recreation Fund Enforcement and Education Fund Sewer Maintenance and Repair Fund Towing Franchise Fee Fund Debt Service Fund: Bond Retirement Fund Capital Projects Funds: Park Capital Improvement Fund Capital Improvement Fund Sewer Improvement Fund Capital Reserve Fund Water Maintenance and Repair Fund FIDUCIARY FUND TYPE: Agency Funds: Various Escrow Fund Street Opening Deposit Fund Performance/Landscape Deposit Fund Police Pension Fund Fire Pension Fund (ii) ~. . '~~111~~ • STATE OF OHIO • ~ OFFICE OF THE AUDITOR ._ ~~. ~ JIM PETRO, AUDITOR OF STATE Report of Independent Accountants i i- I i is The Honorable Mayor and City Council Members City of Fairlawn, Ohio 3487 South Smith Road Fairlawn, Ohio 44333 88 East Broad Street P.O. Box 1140 Columbus, Ohio 43216-1140 Telephone 614-466-4~ 14 800-282-0370 Facsimile 614-466-4490 We have audited the accompanying general purpose financial statements of the City of Fairlawn (the City), Summit County, as of and for the year ended December 31, 1497, as listed in the Table of Contents. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditin,g_Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 that our audit provides a reasonable basis for our opinion. In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Fairlawn, Ohio, as of December 31, ] 997, and the results of ` its operations for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing; Standards, we have also issued a report dated June 19, 1998, 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 grants. June 19, 1998 a ~. '`"'Auditor of State City of Fairlawn, Oleo Combined Balance Sheet All Fund Types and Account Groups December 31, 1997 Assets and Other Debits: Assets Equity in Pooled Cash and Cash Equivalents_ _ _ . .. Cash and Cash Equivalents in Segregated Accounts With Fiscal Agents Receivables: Taxes Accounts Special Assessments Intergovernmental Notes Due from Other Funds Materials and Supplies Inventory Funds on Deposit with Deferred Compensation Plans Fixed Assets Other Debits: Amount Available in Debt Service Fund Amount to be Provided for Retirement of General Long-Term Obligations Total Assets and Other Debits General $6,609,350 0 0 853,657 4,169 0 233,125 0 8,466 126,631 0 0 Governmental Fund Type Special Debt Revenue Service $1,324,490 0 0 149,635 6,069 0 20,318 90,000 4,292 3,151 $142,812 0 0 0 0 4,683,330 0 0 0 0 0 0 0 Capital Projects $2,926,365 0 650,506 174,480 191,709 0 48,970 0 0 0 0 0 0 0 0 0 0 0 0 $7,835,398 $1,597,955 $4,826,142 $3,992,030 2 ti- t '~ . 1 t E_ ~e. ~" t ~. - ~° 4_ ~~ i- ~: ~.. ~~ €° ~~ ~,. lv ,~ ~. _ ~' g. i .. f Fiduciary Fund Type Account Groups General General Totals Fixed Long-Term (Memorandum Agency Assets Obligations Only) $90,676 $0 $0 $11,093,693 18,089 0 0 18,089 0 0 0 650,506 4 0 0 1,177,772 0 0 0 201,447 0 0 0 4,683,330 0 0 0 302,413 0 0 0 90,000 0 0 0 12,758 0 0 0 129,782 1,625,577 0 0 1,625,577 0 8,118,851 0 8,118,851 0 0 142,812 142,812 0 0 6,320,839 6,320,839 $1,734,342 $8,118,851 $6,463,651 $34,568,369 (Continued) 3 if City of Fairlawn, Ohio Combined Balance Sheet All Fund Types and Account Groups (Continued) December 31, 1997 Liabilities, Fund Equ~ and Other Credits• Liabilities: Accounts Payable Contracts Payable Accrued Wages Compensated Absences Payable Due to Other Funds Intergovernmental Payable Deferred Revenue Undistributed Monies Deferred Compensation Payable Loans Payable Capital Lease Obligations Payable OPWC Loans Payable General Obligation Bonds Payable Special Assessment Bonds Payable with Governmental Commitment Total Liabilities Fund uity and Other Credits Investment in General Fixed Assets Fund Balances: Reserved for Encumbrances Reserved for Inventory Reserved for Notes Receivable Undesignated: Governmental Fund Types Special Debt Capital General Revenue Service Projects $28,700 25,592 33,554 17,534 0 27,136 500,502 0 0 0 0 0 0 $4,040 3,001 1,442 0 0 9,745 142,972 0 0 0 0 0 0 $0 0 0 0 0 0 4,683,330 0 0 0 0 0 0 $1,530 80,049 0 0 0 2,152 176,781 0 0 0 0 0 0 0 0 0 0 633,018 161,200 4,683,330 260,512 0 0 0 0 75,381 32,928 0 316,227 126,631 3,151 0 0 0 90,000 0 0 Designated for Sewer Line Repair 195,990 0 0 0 Undesignated 6,804,378 1,310,676 142,812 3,415,291 Total Fund Equity and Other Credits 7,202,380 1,436,755 142,812 3,731,518 Total Liabilities, Fund Equity and Other Credits $7,835,398 $1,597,955 $4,826,142 $3,992,030 See Accompanying Notes to the General Purpose Financial Statements 4 ~_ €- 1 i ~, i 1' ~~ t_ t_ f~ J {E ~_ E ~~ i t. Fiduciary Fund Type Account Groups General General Totals Fixed Long-Term (Memorandum Agency Assets Obligations Only) $0 $0 $0 $34,270 0 0 0 108,642 0 0 0 34,996 0 0 553,120 570,654 12,758 0 0 12,758 0 0 140,522 179,555 0 0 0 5,503,585 ~ 96,007 0 0 96,007 1,625,577 0 0 1,625,577 0 0 389,318 389,318 F ' 0 0 47,475 47 475 L 0 0 1,108,216 , 1,108,216 0 0 2,485,000 2,485,000 0 0 1,740,000 1,740,000 1,734,342 0 6,463,651 13,936,053 i i 0 8,118,851 0 8,118,851 0 0 ~ 0 424,536 0 0 0 129,782 0 0 0 90,000 0 0 0 195,990 0 0 0 11,673,157 {' 0 8,118,851 0 20,632,316 ~., $1,734,342 $8,118,851 $6,463,651 $34,568,369 t; !` t..: {)7E L: II ~__: i ~ lf( } 5 i ~gg ]~ $ i[ __ City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types For the Year Ended December 31, 1997 Governmental Special General Revenue Revenues: Municipal Income Taxes $3,800,448 $0 Property and Other Taxes 453,075 222,947 Charges for Services 76,167 203,500 Licenses, Permits and Fees 254,799 24,012 Fines and Forfeitures 119,706 52,127 Intergovernmental 921,302 230,906 Special Assessments 0 0 Interest 548,744 13,012 Rentals 0 34,978 Contributions/Donations 0 33,933 Other 29,954 111 Total Revenues 6,204,195 815,526 l~,penditures: Current: General Government 992,466 4,875 Security of Persons and Property 2,483,113 356,517 Public Health Services 82,799 0 Transportation 836,691 140,646 Community Environment 16,624 0 Basic Utility Services 252,247 85,371 Leisure Time Activities 26,051 165,882 Capital Outlay 0 ~ 0 Intergovernmental 115,448 0 Debt Service: Principal Retirement 0 7,774 Interest and Fiscal Charges 0 2,226 Total Expenditures 4,805,439 763,291 Excess of Revenues Over Expenditures 1,398,756 52,235 Other Financing Sources ~ sesl: Operating Transfers In 0 165,265 Operating Transfers Out (331,628) 0 Total Other Financing Sources (Uses) (331,628) 165,265 Excess of Revenues and Other Financing Sources Over Expenditures and Other Financing Uses 1,067,128 217,500 Fund Balances Beginning of Year 6,139,896 1,219,857 Decrease in Reserve for Inventory (4,644) (602) Fund Balances End of Year $7,202,380 $1,436,755 See Accompanying Notes to the General Purpose Financial Statements 6 F ' 1 I f ~, €' ~, 1 ~-, ~T i ~_ ~, e= t ~.1 t' Fund T ypes Totals Debt Capital (Memorandum Service Projects Only) $0 $2,096,625 $5,897,073 0 62,670 738,692 0 3,174 282,841 0 91,707 370,518 0 0 171,833 0 903,428 2,055,636 303,388 0 303,388 0 0 561,756 0 0 34,978 0 0 33,933 0 1,249 31,314 303,388 3,158,853 10,481,962 11,547 0 1,008,888 0 0 2,839,630 0 0 82,749 0 0 977,337 0 0 16,624 0 0 337,618 0 0 191,933 0 2,355,569 2,355,569 0 179,649 295,097 106,765 296,669 411,208 185,037 165,916 353,179 303,349 2,997,803 8,869,882 39 161,050 1,612,080 0 191,363 356,628 0 (25,000) (356,628) 0 166,363 0 39 327,413 1,612,080 142,773 3,404,105 10,906,631 0 0 (5,246) $142,812 $3,731,518 $12,513,465 7 1 s i City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Non-GAAP) and Actual All Governmental Fund Types For the Year Ended December 31, 1997 Revenues: Municipal Income Taxes Property and Other Taxes Charges for Services Licenses, Permits and Fees Fines and Forfeitures Intergovernmental Special Assessments Interest Rentals Contributions/Donations Other Total Revenues Expenditures: Current: General Government Security of Persons and Property Public Health Services Transportation Community Environment Basic Utility Services Leisure Time Activities Capital Outlay Intergovernmental Debt Service: Principal Retirement Interest and Fiscal Charges Total Expenditures Excess of Revenues Over (Under) Expenditures Other Financing Sources (Uses Advances In Advances Out Sale of Fixed Assets Operating Transfers In Operating Transfers Out Total Other Financing Sources (Uses) Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses Fund Balances Beginning of Year Unexpended Prior Year Encumbrances Fund Balances End of Year General Fund Variance Revised Favorable Budget Actual (Unfavorable) $3,602,689 413,695 15,383 192,027 112,282 730,937 0 491,190 0 0 14,564 5,572,767 $3,787,838 453,075 75,597 254,799 122,714 783,849 0 539,806 0 0 27,976 6,045,654 $185,149 39,380 60,214 62,772 10,432 52,912 0 48,616 0 0 13,412 472,887 1,196,770 2,694,443 84,000 915,861 17,450 269,344 27,736 0 128,750 1,057,444 2,629,972 82,799 861,245 16,624 262,433 26,176 0 115,448 139,326 64,471 1,201 54,616 826 6,911 1,560 0 13,302 0 0 0 0 0 0 5,334,354 5,052,141 282,213 238,413 993,513 755,100 4,000 0 0 0 (331,628) (327,628) 4,000 0 0 0 (331,628) (327,628) 0 0 0 0 0 (89,215) 665,885 755,100 5,680,823 5,680,823 0 101,222 101,222 0 $5,692,830 $6,447,930 $755,100 See Accompanying Notes to the General Purpose Financial Statements ~= ~_. t ~: €,. ~. -. 1° ~_ 5 7~ i i. ~~ ~= ~; ~, ~~ f I i Special Revenue Funds Variance Revised Favorable Revised Budget Actual (Unfavorable) Budget Actual $0 $0 $0 $0 $0 216,122 226,467 10,345 0 0 191,070 204,134 13,064 0 0 20,000 24,012 4,012 0 0 41,750 51,786 10,036 0 0 221,930 226,357 4,427 0 0 0 0 0 303,000 303,388 0 13,012 13,012 0 0 32,120 34,978 2,858 0 0 33,500 33,933 433 0 111 111 0 0 756,492 814,790 58,298 303,000 303,388 5,000 4,875 125 15,500 11,547 403,666 361,526 42,140 0 0 0 0 0 0 0 185,237 172,411 12,826 0 0 0 0 0 0 0 148,671 96,126 52,545 0 0 197,363 168,980 28,383 0 0 0 0 0 0 0 0 0 0 0 0 7,774 7,774 0 106,765 106,765 2,226 2,226 0 185,037 185,037 949,937 813,918 136,019 307,302 303,349 (193,445) 872 194,317 (4,302) 39 Variance Favorable (Unfavorable) $0 0 0 0 0 0 388 0 0 0 0 388 3,953 0 0 0 0 0 0 0 0 0 0 3,953 4,341 0 0 0 0 0 0 0 0 0 (4,000) (4,000) 0 30,000 30,000 0 0 0 0 165,265 165,265 0 0 0 0 0 0 0 0 0 0 195,265 195,265 0 (4,000) (4,000) 0 1,820 196,137 194,317 (8,302) (3,961) 4,341 1,059,599 1,059,599 0 146,773 146,773 0 28,787 28,787 0 0 0 0 $1,090,206 $1,284,523 $194,317 $138,471 $142,812 $4,341 (Continued) Debt Service Fund 9 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes i n Fund Balances Budget (Non-GAAP) and Actual (Continued) All Governmental Fund Types For the Year Ended December 31, 1997 _ i' Capital Projects Funds Variance Revised Favorable Budget Actual (Unfavorable) m Revenues• Municipal Income Taxes $2,020,700 $2,090,553 $69,853 ? l ~ Properly and Other Taxes 61,000 65,015 4,015 Charges for Services 0 3,174 3,174 ` , Licenses, Permits and Fees 89,000 89,156 156 Fines and Forfeitures 0 0 0 ~ , Intergovernmental 0 854,458 854,458 Special Assessments 0 0 0 Interest 0 0 0 ` Rentals Contributions/Donations 0 0 0 , Other 97,800 1,249 (96,551) Total Revenues 2,268,500 3,103,605 835,105 E~,penditures: ~ Current: l General Government 0 0 0 Security of Persons and Property 0 0 0 z Public Health Services 0 0 0 - - ~ " Transportation 0 0 0 Community Environment 0 0 0 E Basic Utility Services 0 0 0 ~ Leisure Time Activities 0 0 0 - i Capital0utlay 2,898,869 2,741,020 157,849 Intergovernmental 179,649 179,649 0 ~ Debt Service: 1 Principal Retirement 252,842 252,842 0 Interest and Fiscal Charges 158,316 158,316 0 l - Total Expenditures 3,489,676 3,331,827 157,849 E Excess of Revenues Over (Under) Expenditures (1,221,176) (228,222) 992,954 ~ ° Other Financing ource (Used: ,-. F Advances In 0 0 0 ~_ t. Advances Out 0 0 0 Sale of Fixed Assets 0 0 0 l~ Operating Transfers In 25,000 191,363 166,363 ~3 Operating Transfers Out (300,000) (25,000) 275,000 Total Other Financing Sources (Uses) (275,000) 166,363 441,363 , Excess of Revenues and Other Financing Sources Over °- (Under) Expenditures and Other Financing Uses (1,496,176) (61,859) 1,434,317 Fund Balances Beginning of Year 2,979,041 2,979,041 0 Unexpended Prior Year Encumbrances 264,529 264,529 0 ~ 3 Fund Balances End of Year $1,747,394 $3,181,711 $1,434,317 See Accompanying Notes to the General Purpose Financial Statements ~_ 10 € ,, ~_ i- Totals (Memorandum Only) Variance Revised Favorable Budget Actual (Unfavorable) 1 F j $5,623,389 $5,878,391 $255,002 i 690,817 744,557 53,740 206,453 282,905 76,452 ( 301,027 367,967 66,940 154,032 174,500 20,468 952,867 1,864,664 911,797 303,000 303,388 388 491,190 552,818 61,628 32,120 34,978 2,858 33,500 33,933 433 112,364 29,336 (83,028) 8,900,759 10,267,437 1,366,678 1 1,217,270 1,073,866 143,404 3,098,109 2,991,498 106,611 84,000 } 82,799 1,201 ~ 1,101,098 1,033,656 67,442 17,450 16,624 826 418,015 358,559 59,456 225,099 195,156 29,943 2,898,869 2,741,020 157,849 ~ 308,399 295,097 13,302 367,381 367,381 0 345,579 345,579 0 10,081,269 9,501,235 580,034 l (1,180,510) 766,202 1,946,712 f ~ 4,000 (. 4,000 0 (4,000) (4,000) 0 30,000 30,000 0 190,265 356,628 166,363 (631,628) (356,628} 275,000 (411,363) 30,000 441,363 ~= (1,591,873) 796,202 2,388,075 9,866,236 4,866,236 0 1394,538 394,538 0 ~ $8,668,901 $11,056,97b $2,388,075 11 !r- CITY OF FAIRLAWN = Notes to the General Purpose Financial Statements (_ For the Year Ended December 31, 1997 NOTE 1 -REPORTING ENTITY AND BA5IS OF PRESENTATION The City of Fairlawn (the "City") is a charter municipal corporation established and operated under the laws of the State of Ohio. The City is organized as a Mayor/Council form of government. The Mayor, Council, and Finance Director are elected. A. Reporting Entity In evaluating how to define the City for financial reporting purposes, management has considered all agencies, departments, and organizations making up the City (the primary government) and its potential component units consistent with Governmental Accounting Standards Board (GASB) Statement No. 14 "The Financial Reporting Entity. " 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. Component units are legally separate organizations for which the City is financially accountable. The City is financially accountable for an organization if the City . appoints a voting majority of the organization's governing board and, (1) the City is able to significantly influence the programs of services performed or provided by the organization or (2) the City is legally entitled to or can otherwise access the organization's resources; the City is legally obligated or has otherwise assumed the responsibility to finance the deficits of, or provide financial support to, the organization; or the City is obligated for the debt of the organization. Component units may also include organizations for which the City issues debt, levies taxes or determines the budget. Based on this criteria, the City has no component units. ~ ~ The Copley/Fairlawn City School District and the Summit County Public Library have been excluded from the City's financial statements. Both are legally separate from the City. Neither impose a financial burden nor provide a financial benefit to the City. The City cannot significantly influence the operations of these entities. B. Basis of Presentation -Fund Accounting ~ ~ The City uses funds and account groups to report its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid s ~.: 12 if - 1 3 t CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 financial management by segregating transactions related to certain City functions or - activities. A fund is defined as a fiscal and accounting entity with aself-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated far the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. An account group is a financial f reporting device designed to provide accountability for certain assets and liabilities that ~ are not recorded in the funds because they do not directly affect the net expendable available financial resources. ` Governmental Fund Types Governmental funds are those through which most governmental functions of the City ~ are financed. The acquisition, use and balances of the City's expendable financial resources and the related current liabilities are accounted for through governmental funds. The following are the City's governmental fund types: • General Fund -this fund is the operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. The general fund balance is available to the City for any purpose provided it is expended or transferred according to the general laws of Ohio. • Special Revenue Funds -these funds are established to account for the proceeds of specific revenue sources (other than amounts relating to major capital projects) that are legally restricted to expenditure for specified purposes. j Debt Service Fund -this fund is used to account for the accumulation of resources ~ ~ for, and the payment of, general and special assessment long-term debt principal, interest, and related costs. Capital Projects Funds -these funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. Fiduciary Fund Types Fiduciary funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units and/or other funds. There are two types of fiduciary funds, trust and agency. The City has no trust funds. The City's agency funds are purely custodial (assets equal liabilities) and thus do not involve measurement of results of operations. 13 1 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 Account Groups To make a clear distinction between fixed assets related to specific funds and those of general government, and between long-term liabilities related to specific funds and those of a general nature, the following account groups are used: General Fixed Asset Account Group -this account group accounts for all general fixed assets of the City. • General Long-Term Obligations Account Group -this account group accounts for all unmatured long-term indebtedness of the City, including special assessment debt for which the City is obligated in some manner. NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed in the preparation of these financial statements are summarized below. These policies conform to generally accepted accounting principles (GAAP) for local governmental units as prescribed in the statements issued by the GASB and other recognized authoritative sources. A. Measurement Focus and Basis of Accounting The accounting and reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a. flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the combined balance sheet. Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made. All governmental fund types and the agency funds are accounted for using the modified accrual basis of accounting. Under this basis, revenues are recognized in the accounting period when they become measurable and available. Measurable means the amount of the transaction can be determined and available means collectable within the current year or soon enough thereafter to be used to pay liabilities of the current year. The available period for the City is thirty-one days after year end. In applying the susceptible to accrual concept under the modified accrual basis, the following revenue sources are deemed both measurable and available: 14 f CITY OF FAIRLAWN ~ - Notes to the General Purpose Financial Statements ( For the Year Ended December 31, 1997 • Interest • State levied locally shared taxes (including gasoline tax) • Fines and forfeitures • Income tax withheld by employers i - The City reports deferred revenues on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the measurable and available criteria for recognition in the cur-rent period. In the subsequent period, when both revenue recognition criteria are met, the liability for deferred revenue is removed from the 1 combined balance sheet and revenue is recognized. Current and delinquent property taxes measurable as of December 31, 1997, whose availability is indeterminate and ~ which are not intended to finance current period obligations, have been recorded as a l receivable and deferred revenue. Levied special assessments are measurable, and have been recorded as a receivable. Since all assessments are due outside of the available period, the entire amount has been deferred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. - B. Budgetary Process The budgetary process is prescribed by provisions of the Ohio Revised Code and entails the preparation of budgetary documents within an established timetable. The major documents prepared are the Tax Budget, the Certificate of Estimated Resources, and the Appropriation Ordinance, all of which are prepared on the budgetary basis of accounting. The Certificate of Estimated Resources and the Appropriation Ordinance - are subject to amendment throughout the year with the legal restriction that appropriations cannot exceed estimated resources, as certified. All funds, other than agency funds and any activity or balance, are legally required to be budgeted and appropriated. The legal level of budgetary control is at the object level within each department. Any budgetary modifications at this level may only be made by resolution ~ of the City Council. i - Tax Budget At the first City council meeting in July, the Mayor presents the annual operating budget for the following fiscal year to City council for consideration and passage. The adopted budget is submitted to the County Auditor, as Secretary of the County Budget Commission, by July 20 of each year, for the period January 1 to December 31 of the i = following year. ~. 15 ~- 1 fr i CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 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 official Certificate of Estimated Resources, which states the projected revenue of each fund. Prior to December 31, the City must revise its budget so that the total contemplated expenditures from any fund during the ensuing fiscal year will not exceed the amount available as stated in the Certificate of Estimated Resources. The revised budget then serves as the basis for the annual Appropriation Ordinance. On or about January 1, the Certificate of Estimated Resources is amended to include unencumbered fund balances at December 31 of the preceding year. The certificate may be further amended during the year if the Finance Director determines, and the Budget Commission agrees that an estimate needs to be either increased or decreased. The amounts reported on the budgetary statements reflect the amounts in the final amended official Certificate of Estimated Resources issued during 1997. Appropriations A temporary ordinance to control expenditures may be passed on or about January 1 of each year for the period January 1 to March 31. 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 fund appropriations do not exceed current estimated resources, as certified. The allocation of appropriations among the departments and objects within a fund may be modified during the year by an ordinance of Council. During the year, several supplemental appropriation measures were passed. None of these supplemental appropriations had any significant affect on the original appropriations. The budget figures which appear in the statement of budgetary comparisons represent the final appropriation amounts, including all amendments and modifications. Encumbrances As part of formal budgetary control, purchase orders, contracts, and other commitments for the expenditure of moneys are recorded as the equivalent of expenditures on the non-GAAP budgetary basis in order to reserve that portion of the applicable appropriation and to determine and maintain legal compliance. The Ohio Revised Code prohibits expenditures plus encumbrances from exceeding appropriations at the fund, department and object level. On the GAAP basis, encumbrances 16 f CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 outstanding at year end are reported as reservations of fund balances for subsequent year expenditures. 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. The encumbered appropriation balance is carried forward to the succeeding year and is not reappropriated. C. Cash and Cash Equivalents Cash received by the City is pooled. Moneys for all funds are maintained in this pool. Individual fund integrity is maintained through City records. Each funds' interest in the pool is presented as "equity in pooled cash and cash equivalents" on the combined balance sheet. During 1997, investments were limited to overnight repurchase agreements and interest in STAR Ohio, the State Treasurer's Investment Pool. These investments are stated at cost which approximates market, except for investments in deferred compensation, which are reported at market value. Investment procedures are restricted by the provisions of the Ohio Revised Code. The City has segregated bank accounts for moneys held separate from the City's central f bank account. These interest bearing depository accounts are presented in the combined balance sheet as "cash and cash equivalents in segregated accounts" since they are not required to be deposited into the City treasury. Refer to Note 5, Deposits and Investments. The City has moneys on deposit with Ohio Department of Transportation (ODOT) to be used for a road improvement project. This amount is presented as "cash and cash equivalents with fiscal agents" on the combined balance sheet. ~; For presentation on the combined balance sheet, investments with an original maturity of three months or less and investments from the cash management pool are considered to be cash equivalents. Investments with an original maturity of more than three months are reported as investments. D, Inventory Inventories of governmental funds are stated at cost. For all funds, cost is determined ~ ` on a first-in, first-out basis. The costs of inventory items are recorded as expenditures -= in the governmental fund type when purchased. Reported materials and supplies inventory is equally offset by a fund balance reserve in the governmental fund which 17 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 indicates that it does not constitute available expendable resources even though it is a component of net current assets. E. Fixed Assets and Depreciation General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in governmental funds, and the related assets are reported in the general fixed asset account group. All purchased fixed assets are valued at cost when historical records are available and at an estimated historical cost when no historical records exist. Donated fixed assets are ` valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized. Public domain (infrastructure) general fixed assets consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems are not capitalized, as these assets are immovable and of value only to the government. Assets in the general fixed assets account group are not depreciated. y F. 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 termination method. An accrual for earned sick leave is made to the extent it is probable that benefits will result in termination payments. The liability is an estimate based on the City's past experience of making termination payments. For governmental funds, the current portion of unpaid compensated absences is the amount expected to be paid using expendable available resources. These amounts are recorded in the account "compensated absences payable" in the fund from which the employees who have accumulated unpaid leave are paid. The remainder is reported in the general long-term obligations account group. i ~$ ,-_r. ~~, CITY OF FAIRLAWN r Notes to the General Purpose Financial Statements -. For the Year Ended December 31, 1997 :.,, r G. Interfund Assets/Liabilities During the course of operations, numerous transactions occur between individual funds ~; for goods provided or services rendered. These receivables and payables are classified as "due from other funds" or "due to other funds." ~~,, ~`% H. Fund Equity ~ Reserves represent those portions of fund equity not available for appropriation or '' expenditure and are legally segregated for a specific future use. Designated fund balances are reserved for encumbrances, inventory, and notes receivable. A designated l fund balance has been established for sewer line repairs. ,, I. Interfund Transactions Quasi-external transactions are accounted for as revenue and expenditures. Transactions that constitute reimbursements to a fund for expenditures initially made ~ from it that are properly applicable to another fund are recorded as expenditures in the _a; reimbursing fund and as reductions of expenditures in the fund that is reimbursed. ~r!1 i ;~ Nonrecurring or non-routine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. '~l J. Accrued and Long-term Liabilities ( In general, governmental fund payables and accrued liabilities are reported as A" obligations of the funds regardless of whether they will be liquidated with current r~ resources. However, claims and judgments, compensated absences, and special termination benefits and contractually required pension contributions are reported as a liability in the general long-term obligations account group to the extent that they will not be paid with current expendable available financial resources. Payments made '. rt~3 more than 31 days after year end are generally considered not to have been paid with current available financial resources. Bonds, long-term loans and capital leases are recognized as a liability of the general long-term obligations account group until due. I at K. Estimates ~~ ~> The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that ~~ affect the amounts reported in the financial statements and accompanying notes. Actual - - results could differ from those estimates. ~', ~~ j' 19 i ~.. CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 L. Total Columns on General Purpose Financial Statements Total columns on General Purpose Financial Statements are captioned memorandum ~ only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or cash flows in € ' conformity with GAAP. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. NOTE 3 - CIiANGE IN ACCOUNTING PRINCIPLE r , In 1996, the City understated fixed assets by $449,585. As a result, the January 1, ~ 1997, beginning balance for fixed assets has been restated from $7,651,527 to ' $8,101,112. ' NOTE 4 -BUDGETARY BASIS OF ACCOUNTING While reporting financial position, results of operations, and changes in funds balance on the GAAP basis, the budgetary basis as provided by law is based upon accounting for transactions on a basis of cash receipts, disbursements, and encumbrances. The Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (Non-GAAP) and Actual -All Governmental Fund Types is presented on the budgetary basis to provide a relevant comparison of actual results with the budget and to demonstrate compliance with state statute. The major difference between the budget basis and the GAAP basis are as follows: 1. Revenues are recorded when received in cash (budget) as opposed to when susceptible to accrual (GAAP). 2. Expenditures are recorded when paid in cash (budget) as opposed to when the liability is incurred (GAAP). 3. Outstanding year end encumbrances are treated as expenditures (budget) rather than as a reservation of fund balance for governmental fund types ' (GAAP). 4. Proceeds from and principal payments on short-term note obligations are reported on the operating statement (budget) rather than on the combined balance sheet (GAAP). The following table summarizes the adjustments necessary to reconcile the GAAP basis statements to the budgetary basis statements on a fund type basis: 20 i ~: CITY OF FAIlZLAWN Notes to the General Purpose Financial Statements 1 For the Year Ended December 31, 1997 Special Capital General Revenue Debt Service Pt~ojects GAAPBasis $1,067,128 $"Z17,500 $39 $327,413 Re~ueAaxiials (158,541) 29,264 0 (55,248) Advances In 4,000 0 0 0 Ex}~aiditureAaxuals (136,841) (13,421) 0 61,134 Advances O~rt 0 0 (4,000) 0 F~annbrances 109,861 37,206 0 395;158) Budget Basis $665,885 $196,137 $(3,961) $(61,859) NOTE 5 -DEPOSITS AND INVESTMENTS 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 (NOVA accounts, or in money market deposit accounts. ( Inactive deposits are public deposits that Council has identified as not required for use within the current period of designation of depositories. Inactive deposits must either t ' 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 will be needed before the end of the ~ current period of designation of depositories. Interim deposits must be evidenced by i ~~ - time certificates of deposit maturing not more than one year from the date of deposit or by savings or deposit accounts including pass book accounts. ~, Inactive monies can be deposited or invested in the following securities: 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 and interest by the United States; 2. Bonds, notes, debentures, or any other obligations or securities issued by any federal government agency or instrumentality, including but not limited to, the Federal National Mortgage Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and Student Loan Marketing 21 i CITY OF FAIltLAWN { ' Notes to the General Purpose Financial Statements ~ For the Year Ended December 31, 1997 Association. All federal agency securities shall be direct issuances of federal government agencies or instrumentalities; 3. Written repurchase agreements in the securities listed above, provided that the market value of the securities subject to the repurchase agreement must exceed the principal value of the agreement by at 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; S. No-load money market mutual funds consisting exclusively of obligations '' ~ described in division (1) or (2) of this section and repurchase agreements secured by such obligations, provided that investments in securities described _ . in this division are made only through eligible institutions; and ~ • 6. The State Treasurer's investment pool (STAR Ohio). i Investments in stripped principal or interest obligations, reverse repurchase agreements and derivatives are prohibited. The issuance of taxable notes for the purpose of arbitrage, the use of leverage and short selling are also prohibited. An investment must mature within five years from the date of purchase unless matched to a specific 1~ obligation or debt of the City, and must be purchased with the expectation that it will i be held to maturity. Protection of the City's deposits is provided by the Federal Deposit Insurance Corporation, by eligible securities pledged by the financial institution as security for repayment, by surety company bonds deposited with the treasurer by the financial institution or by a single collateral pool established by the financial institution to secure the repayment of all public monies deposited with the institution. Investments may only be made through specified dealers and institutions. Payment for investments may be made only upon delivery of the securities representing the investments to the treasurer or qualified trustee or, if the securities are not represented . by a certificate, upon receipt of confirmation of transfer from the custodian. ' The City has $650,506 on deposit with the Ohio Department of Transportation (ODOT). Information regarding the classification of ODOT's deposits and investments per GASB Statement No. 3 may be found in the State's Comprehensive Annual Financial Report for the fiscal year ended June 30, 1997. t~ .,, 22 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Yeax Ended December 31, 1997 i City Deposits At year end, the carrying amount of the City's deposits was ($29,079) and the bank (. balance was $240,711. Of the bank balance, $100,000 was covered by federal depository insurance and $140,711 was uninsured and uncollateralized. City Investments j GASB Statement No. 3 "Deposits with Financial Institutions, Investments (including I Repurchase Agreements}, and Reverse Repurchase Agreements" requires the City to categorize investments to give an indication of the level of custodial credit risk assumed by the City at year end. Category One includes investments that are insured or ' registered or are held by the City or its agent in the City's name. Category Two includes uninsured and unregistered investments which are held by the counterparty's '~ trust deposit or agent in the City's name. Category Three includes uninsured and ~- unregistered investments which are held by the counterparty's trust department or agent but not in the City's name. STAR Ohio and Deferred Compensation are unclassified j investments since they are not evidenced by securities that exist in physical or book form. Cateao 1 _2 3 Carrying Value Market Value Repurchase Agreements $0 $0 $2,335,488 $2,335,488 $2,382,380 {nvestment in State Treasurer's Investment Pool (STAR Ohio) 8,805,373 8,805,373 Deferred Compensation 1,625,577 1,625,577 Totallnvestments $12,766,438 $12,813,330 The classification of cash and cash equivalents, and investments on the combined financial statements are based on criteria set forth in GASB Statement No. 9., Cash and cash equivalents are defined to include investments with original maturities of three months or less and cash and investments of the cash management pool. A reconciliation between the classifications of cash and investments on the combined financial statements and the classification per GASB Statement No. 3 is as follows: 23 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements _ For the Year Ended December 31, 1997 Cash and Cash Equivalents/Deposits Investments GASB Statement No. 9 Investments which are part of the cash management pool: 511,762,288 51,625,577 Repurchase Agreement (2,335,488) 2,335,488 STAR Ohio (8,805,373) 8,805,373 ODOT (650, 506) 0 GASB Statement No. 3 5(29,079) 512,766,438 NOTE 6 -PROPERTY TAXES ~ Property tax includes amounts levied against all real and public utility property, and tangible personal (used in business) property located within the City. Real property taxes were levied after October 1, 1996, on the assessed value as of January 1, 1996, ~ - the lien date, and were collected in 1997. Assessed values are established by State law at 35 percent of appraised market value. All property is required to be revalued every six years. Public utility property taxes received in 1997 attached as a lien on December 31, 1996, were levied after October 1, 1996, and are collected with real property taxes. Public utility property taxes were assessed on tangible personal property at 88 percent ~ ~ of true value and on real property at 35 percent of assess valuation. 1997 tangible personal property taxes were levied after October 1, 1996, on the value listed as of December 31, 1996, and were collected in 1997. Tangible personal property assessments are 25 percent of true value. The assessed value upon which the 1997 I taxes were collected was $255,217,566. Real estate represented 87 percent ($221,919,150) of this total, public utility tangible personal property represented 2 percent ($4,787,220) of this total and general tangible personal property represented 11 percent ($28,511,196) of this total. The full tax rate for all City operations applied to taxable property for the year ended December 31, 1997, was $2.70 per $1,000 of assessed valuation. Real and public utility property taxes are payable annually or semi-annually. If paid annually, payment is due December 31. If paid semi-annually, the first payment is due December 31 with the remainder payable by June 20. Under certain circumstances, y state statute permits later payment dates to be established. Tangible personal property taxes paid by multi-county taxpayers are due September 20. Single county taxpayers may pay annually or semi-annually. If paid annually, payment ~_ is due April 30. If paid semi-annually, the first payment is due April 30 with the remainder payable by September 20. ~'~= The County Treasurer collects property tax on behalf of all taxing districts within the County. The County Auditor periodically remits to the taxing districts their portions of ~ the taxes collected. ~i 24 ~~,. CITY OF FAIRLAWN ~' Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 Accrued property taxes receivable represents delinquent taxes outstanding and real property, public utility, and tangible personal property taxes which become measurable as of December 31, 1997. However, since these tax collections were not received during the available period nor were they intended to finance 1997 operations, the receivable is offset by a credit to deferred revenue. NOTE 7 -RECEIVABLES Receivables at December 31, 1997, consisted of taxes, accounts (billings for user charged service), special assessments, interest, notes (sale of land to developer) and intergovernmental receivables arising from grants, entitlements, and shared revenues. Accounts, taxes, special assessments, interest, and governmental receivables are ' deemed collectable in full. A summary of the principal items of intergovernmental receivables is as follows: - Intergovernmental Receivable Amount General Fund: Local Government Tax $33,0.54 Liquor Permits 5,939 Estate Tax 185,812 Akron Court Fines 2,071 7, Federal COPS Fast Grant 6,249 ~'' Total General Fund 233,125 Special Revenue Funds: _ 1 Gasoline Tax 2,270 '-' Motor Vehicle 9,562 Motor Vehicle Permissive 954 Akron Court Fines 40 _.l DARE Grant 7,492 Total Special Revenue Funds 20,318 ~. Capital Projects Funds: OPWC Grant 48,970 ~ ~ Total ~ $30.2,413 __ NOTE 8 -INCOME TAX , ' The Cit levies a munici al income tax of 2 percent on gross salaries, wages and other ~" Y P __, personal service compensation earned by residents of the City and on the earnings of nonresidents working within the City. This tax also applies to the net income of ~~ business operations within the City. Residents of the City are granted a credit up to 2 7 percent for taxes paid to other municipalities. (I j ~ 25 i-_ CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 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 capital improvements fund receives 10 percent of the first 1.5 percent of the 2 percent income tax. The capital improvements fund receives the remaining .5 percent of the income tax. NOTE 9 -FIXED ASSETS A summary of changes in the general fixed assets group is as follows: Balance Balance January 1, 1997* Additions Deletions December 31, 1997 Land 51,029,126 525,000 50 51,054,126 Land improvements 1,188,988 0 0 1,188,988 Buildings 2,628,085 0 0 2,628,085 Machinery and Equipment 1,630,657 83,163 14,642 1,699,178 Vehicles 1,624,256 5,068 80,850 1,548,474 Total $8,101,112 5113,231 595,492 58,118,851 * as restated NOTE 10 -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 1997, the City contracted with Wichert Insurance Service, Inc. for property and general liability insurance, including boiler and machinery. Police and professional liability are protected by the National Casualty Company with a $1,000,0001imit and a $10,000 deductible. A commercial umbrella policy through International Insurance Company provides additional general liability and auto liability insurance up to a $6,000,000 limit. Vehicles are covered by Personal Service Insurance Company and hold a $500 deductible for collision. Automobile liability coverage has no limit for collision, a $1,000,000 limit for bodily injury and a $1,000,000 limit for uninsured motorist. Settled claims have not exceeded this commercial coverage in any of the past four 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. 26 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 The City pays the State Worker's Compensation system a premium based on a rate per $100 of salaries. This rate is calculated based on accident history and administrative costs. NOTE 11 -DEFINED BENEFIT PENSION PLANS A. Public Employees Retirement System The City employees, other than full-time firemen and policemen, participate in the Public Employees Retirement System of Ohio (PERS), acost-sharing multiple- employer public employee retirement system administered by the Public Employees Retirement Board. PERS provides basic retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. Benefits are established by Chapter 145 of the Ohio Revised Code. PERS issues astand-alone financial report which may be obtained by writing to the Public Employees Retirement System, 277 East Town Street, Columbus, Ohio 43215-4642. Plan members, are required to contribute S.5 percent of their annual covered salary to fund pension obligations and the City is required to contribute 8.44 percent. Contributions are authorized by state statute. The contribution rates are determined actuarially. The City's required contributions to PERS for the years ended December 31, 1997, 1996, and 1995 were $123,569, $116,550, and $110,191, respectively. The full amount has been contributed for 1996 and 1995. Of the requirement, 73 percent has been contributed for 1997 with the remainder being reported as a liability within the general long-term obligations account group. B. Police and Firemen's Disability and Pension Fund The City contributes to the Police and Firemen's Disability and Pension Fund of Ohio (the "Fund"), acost-sharing multiple employer public employee retirement system administered by the Fund's Board of Trustees. The Fund 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 f by Chapter 742 of the Ohio Revised Code. The Fund issues a publicly available ~; financial report that includes financial statements and required supplementary information for the Fund. That report may be obtained by writing to the Police and Firemen's Disability and Pension Fund of Ohio, 140 East Town Street, Columbus, ?- Ohio 43215. ~ Police and firefighters are required to contribute 10 percent of their annual covered ~ salary to fund pension obligations and the City is required to contribute 13 percent for police and 17.5 percent for firefighters. Contributions are authorized by state statute. 27 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 The City's contributions to the Fund for police and firefighters were $117,830 and $76,160 for the year ended December 31, 1997, $113, 866 and $68,170 for the year ended December 31, 1996 and $111,225 and $67,873 for 1995. The full amount has been contributed for 1996 and 1995. Of the requirement, 71 percent has been contributed for 1997 with the remainder being reported as a fund liability within the general long-term obligations account group. C. Social Security System Effective July 1, 1991, all employees not otherwise covered by a State Retirement System have an option to choose social security or the appropriate state system. As of December 31, 1997, the part-time firefighters have elected social security. The City's liability is 6.2 percent of wages paid. NOTE 12 -POST EMPLOYMENT BENEFITS A. Public Employees Retirement Svstem The Public Employees Retirement System of Ohio (PERS) provides postretirement health care coverage to age and service retirees with ten or more years of qualifying Ohio service credit and to primary survivor recipients of such retirees. Health care coverage for disability recipients is available. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit (OPEB) as described in GASB Statement No. 12. A portion of each employer's contribution to the PERS is set aside for the funding of postretirement health care based on authority granted by State statute. The 1997 employer contribution rate was 13.55 percent of covered payroll for employees not engaged in law enforcement; 5.11 percent was the portion that was used to fund health care for 1997. The law enforcement employer rate for 1997 was 16.7 percent of which 5.48 percent was used to fund health care. Effective January 1, 1998, 4.2 percent of each employer contribution will be used to fund health care. For 1997, benefits were funded on apay-as-you-go basis. Prior to 1997, benefits were ', advanced funded using the entry age normal cost method. OPEB are financed through employer contributions and investment earnings. The contributions allocated to retiree health care, along with investment income on allocated assets and periodic adjustments in health care provisions, are expected to be sufficient to sustain the program indefinitely. During 1997, OPEB expenditures made by PERS were $393,559,827. __ As of December 31, 1997, the unaudited estimated net assets available for the future 1 OPEB payments were $8,292,570,002. At December 31, 1997, the total number of benefit recipients eligible for OPEB through PERS was 113,906. The City's actual contributions for 1997 which were used to fund OPEB through PERS were $74,815. i~ 1_ 2s 4 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 B. Police and Firemen's Disability and Pension Fund The Police and Firemen's Disability and Pension Fund (the "Fund") provides postretirement health care coverage to any person who receives or is eligible to receive a monthly benefit check or is a spouse or eligible dependent child of such person. An eligible dependent child is any child under the age of 18 whether or not the child is attending school or under the age of 22 if attending school full-time or on a 2/3 basis. The health care coverage provided by the retirement system is considered an Other Postemployment Benefit as described in GASB Statement No. 12. The Ohio Revised Code provides the authority allowing the Police and Firemen's Disability and Pension Fund's board of trustees to provide health care coverage and states that health care costs paid from the Police and Firemen's Disability and Pension Fund 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 6.5 percent of the covered payroll is applied to the postemployment health care program. 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. The number of participants eligible to receive health care benefits as of December 31, ' 1996, was 17,493 for police and 14,120 for firefighters. The City's actual contributions for 1997 that were used to fund postemployment benefits were $58,915 for police and $28,288 for firefighters. The Fund's total health care expenses for the year ended December 31, 1996, (the latest information available) were $71,674,335. NOTE 13 -OTHER EMPLOYEE BENEFITS A. Deferred Compensation Plans City employees and elected officials may participate in deferred compensation plans created in accordance with Internal Revenue Code 457. Participation is on a voluntary payroll deduction basis. The plans permit deferral of compensation until future years. According to the plans, deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. ~ ~ All amounts of compensation deferred under the plans, all property and rights purchases with those amounts, and all income attributable to those amounts, property, ` ' or rights are (until paid or made available to the employee or other beneficiary) solely ~--= the property and rights of the City (without being restricted to the provisions of benefits under the plans), subject only to the claims of the City's general creditors. ~. , 29 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Dear Ended December 31, 1997 Participants' rights under the plans are equal to those of general creditors of the City in an amount equal to the fair market value of the deferred account for each participant. The plan agreements state that the City, Ohio Public Employees Deferred Compensation Board, and Aetna Life Insurance and Annuity have no liability for losses urider the plan with the exception of fraud or wrongful taking. As of December 31, 1997, the amount on deposit with the Ohio Public Employees Deferred Compensation Board and Aetna Life Insurance and Annuity were $335,314 and $1,290,263, respectively. B. Compensated Absences 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 limited to one year. 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. Sick leave accumulation is limited to ninety days, provided that any person who was a City employee on July 6, 1984, who has accumulated any number of sick days between 90 and 120, may accumulate in a time bank up to a total of 1 SO days, upon retirement such employees will be paid for the total number of days accumulated up to, but not exceed the amount of time accumulated on July 6, 1984. Generally, employees with a hire date subsequent to 1991 are not eligible to receive termination payments for sick leave. As of December 31, 1997, the total liability for unpaid compensated absences was $570,654. C. Health Care Benefits The City provides life insurance and accidental death and dismemberment insurance to most employees. The City has elected to provide employees medical/surgical benefits through Medical Mutual of Northern Ohio. The employees share the cost of the monthly premium. The premium varies with employees depending on the terms of the union contract or employee type. Dental insurance is provided by the City through Delta Dental. NOTE 14 -CAPITALIZED LEASES -LESSEE DISCLOSURE In prior years the City entered into capitalized leases for the acquisition of radio equipment. Each lease meets criteria of a capital lease as defined by FASB Statement - No. 13 "Accounting for Leases," which defines capital leases as one which generally transfers benefits and risks of ownership to the lessee. Capital lease payments have ~': ~. ; 30 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 been reclassified and are reflected as debt service in the general purpose financial statements for the governmental funds. These expenditures are reflected as program/function expenditures on a budgetary basis. General fixed assets acquired by lease have been capitalized in the general fixed assets account group in an amount equal to the present value of the future minimum lease payments at the time of acquisition. A corresponding liability was recorded in the general long-term obligations account group. The following is a schedule of the future long-term minimum lease payments required under the capital leases and the present values of the minimum lease payments as of December 31, 1997. Year Ending Amount 1998 $51,428 Less Amount Representing Interest (3,953) Present Value of Minimum Lease Payments $47,475 NOTE 15 -LONG-TERM OBLIGATIONS Lang-term obligations of the City as of December 31, 1997, were as follows: General Obligation Bonds Special Assessment Various Purpose Band OPWC Loans Capital Leases Capital Loan Intergovernmental Payable Compensated Absences Total General Long-Term Debt Balance Balance December 31, 1996 Additions Deletions December 31, 1997 $2,585,000 $0 $100,000 $2,485,000 1,815,000 0 75,000 1,740,000 1,214,915 0 106,699 1,108,216 91,302 0 43,827 47,475 475,000 0 85,682 389,318 124,257 140,522 124,257 140,522 494,596 71,472 12,948 553,120 $6,800,070 $211,994 $548,413 $6,463,651 The general obligation bonds will be paid from income taxes receipted into the capital improvement fund. The special assessment bond will be paid from the proceeds of special assessments levied against the benefited property owners. OPWC loans will be paid in part from proceeds of special assessments levied against the benefited property owners and in part from income taxes receipted into the capital improvement fund. In the event that a property owner would fail to pay the assessment, payment would be made by the City. Compensated absences reported in the "compensated absences payable" account will be paid from the fund from which the employees' salaries are paid. Intergovernmental payable represents unfunded pension contribution not paid with current available financial resources and will be paid from the general fund and special revenue funds. The capital loan will be paid from the revenues derived from 31 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1997 emergency medical transports in the fire equipment fund and the revenues of the capital improvement fund. Capital leases are paid from revenues of the capital improvement fund. Principal and interest requirements to retire long-term obligations outstanding at December 31, 1997 are as follows: Year Ending Special Assessment Bond General Obligation Bond OPWC Loans Capital Loan Total 1998 $196,375 $237,208 $165,636 $110,216 $709,435 1999 200,000 238,008 165,636 110,216 713,860 2000 197,775 238,388 90,702 110,216 637,081 2001 197,150 238,328 90,702 110,216 636,396 2002 201,118 237,808 90,702 0 529,628 2003 - 2007 988,535 1,193,813 453,510 0 2,635,858 2008 - 1012 791,450 1,190,750 453,510 0 2,435,710 2013 - 2017 0 237,938 181,404 0 419,342 Total $2.772.403 X3.812241 ~1 C~91 802 X440 SFid ~8 717 ~1n NOTE 16 - INTERFUND TRANSACTIONS Interfund balances at December 31, 1997, consist of the following: General Fund Children Adolescent SAEF - Special Revenue Fund Enforcement/Education - Special Revenue Fund Mayor's Court -Agency Fund Total NOTE 17 -CONTINGENCIES A. Grants Due From Due To $8,466 $0 4,242 0 50 0 0 12,758 $12,758 $12,758 ~ The City received financial assistance from federal and state agencies in the form of grants. The disbursements of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits r 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 ~_ ( the overall financial position of the City as of December 31, 1997. I, 32 L... CITY OF FAIRLAWN Notes to the General Purpose Financial Statements Fox the Year Ended December 31, 1997 B. Litigation The City is party to legal proceedings. The City management is of the opinion that ultimate disposition of these claims and legal proceedings will not have a material effect, if any, on the financial condition of the City. 33 (this page intentionatiy left blank) 34 STATE OF C1HI0 88 East Broad Street 1 P.O. Box l ! 40 GFFICE OF THE AUDITOR Columbus, Ohio 4321b-1140 ~~11-'. ~ JIM PETRO, AUDITOR OF STATE Telephone 614-466-4514 800-282-0370 Facsimile 614-466-4440 Report of Independent Accountants on Compliance and on Internal Control Required by Government AuditingStandards The Honorable Mayor and City Council Members City of Fairlawn, Ohio 3487 South Smith Road Fairlawn, Ohio 44333 We have audited the general purpose financial statements of the City of Fairlawn (the City), Summit County, as of and for the year ended December 31, 1997, and have issued our report thereon dated June 19, 1998. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditin>? Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect an the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. However, we noted an immaterial instance of noncompliance that we have reported to management of the City in a separate letter dated June 19, ]998. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. 35 City of Fairlawn Report of Independent Accountants on Compliance and on Internal Control Required by Government Auditing_Standards Page 2 - We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that do not require inclusion in this report, that we have reported to management of the City in a separate letter dated June 19, 1998. This report is intended for the information of management and City Council. However, this report is a matter of public record and its distribution is not limited. June 19, 1998 36 Auditor of State `~~I . ~~~ T STATE OF OHIO OFFICE OF THE AUDITOR JIM PETRO, AUDITOR OF STATE CITY OF FAIRLAWN 88 East Broad Street P.O. Box 1140 Columbus, Ohio 43216-1140 Telephone 614-466-4514 800-282-0370 Facsimile 614-466-4490 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 Buxeau Date: JUL ~ ~ 1998 ~\\111///~ JIM PETRO ' 'AUDITOR OF STATE _ ~;. ~ ~ STATE OF OHIO 88 East Broad Street PO. Boz 1140 Columbus, Ohio 43216-1140 Telephone (614) 466-4514 (800)282-0370 Facsimile (614) 466-4490 E-mail Petro@auditor.ohio.gov ® Pri~ited on recycled paper ®~