Loading...
1998 Financial StatementCity of Fairlawn, Ohio General Purpose Financial Statements For the Year Ended December 3 i, 1993 Compiied By: City of Fairiawn Finance Department CITY OF FAIRLAWN AKRON/CANTON REGION, SUMMIT COUNTY REGULAR AUDIT YEAR ENDED DECEMBER 31, 1998 CITY OF FAIRLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE PAGE ELECTED OFFICIALS AND ADMINISTRATIVE PERSONNEL (i) REPORT OF INDEPENDENT ACCOUNTANTS I-2 GENERAL PURPOSE FINANCIAL STATEMENTS Combined Balance Sheet -All Fund Types and Account Groups 3-6 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types 7-8 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (Non-GAAP) and Actual - Al] Governmental Fund Types 9-12 Notes to the General Purpose Financial Statements 13-37 REPORT OF INDEPENDENT ACCOUNTANTS ON COMPLIANCE AND ON INTERNAL CONTROL REQUIRED BY GOVERNMENT AUDITING STANDARDS 38-39 SCHEDULE OF FINDINGS 40 CITY OF FAIRLAWN SUMMIT COUNTY 3487 South Smith Road Fairlawn, Ohio 44333 ELECTED OFFICIALS AND ADMINISTRATIVE PERSONNEL As of December 31, 1998 ELECTED OFFICIALS TITLE TERM OF OFFICE SURETY AMOUNT PERIOD William J. Roth, Jr. Mayor 1/1/96-12!31!99 (A) $10,000 (B) James Swartz Council President 1/1/98-12/31/99 (A) $10,000 (B) Jerome Apple Council-at-Large 1/1198-12/31/99 (A) $10,000 (B) James Butler Council Member 1/1/98-12/31/99 (A) $10,000 (B) Stanley Bielewicz Counci] Member 1/1/98-12!31/99 (A) $10,000 (B) FrancesMiller* Counci]Member 1/1/98-121/99 (A) $10,000 (B) Frank Marcucci Councillviember 111/98-12131/99 (A) $10,000 (B) Steve Yashnick Council Member 1/1/98-12/31/99 (A) $10,000 (B) LawrencePelland Director of 1/1/96-12/31!99 (A) $50,000 (B) Finance ADMINISTRATIVE PERSONNEL Patricia Bertsch Assistant Finance NA (A) $50,000 (B) Director STATUTORY LEGAL COUNSEL David Eugene Waddell 707 Society Building Akron, Ohio 44308 (A) Personal Service Insurance Company (B) Concurrent with term of office *Replaced by Marion Ruebel effective 02/01/99. (3) ~-a STATE OF OHIO OFFICE OF THE AvnrrOR JIM PETRO, AUDITOR OF STATE Report of Independent Accountants The Honorable Mayor and City Council Members City of Fairlawn 3487 South Smith Road Fairlawn, Ohio 44333 88 Eric Broad Screen P.O. Box 1140 Columbus, Obio 4321(x1140 Telephone 614d6E.4514 800.28::-0370 Facsimile 614i6E.~M90 We have audited the accompanying general purpose financial statements of the City of Fairlawn (the City) as of and for the year ended December 31, 1998, as listed in the Table of Contents. These general purpose fmancial 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 Auditing_Standards. issued by the Comptroller General of the United States. Those standazds 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 be:lieve 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 fmancial position of the City of Fairlawn, as of December 31, 1998, and the results of its operations for the yeaz then ended inconformity with generally accepted accounting principles. As discussed in Note 3 to the general purpose financial statements, the City changed its method of accounting and reporting for its deferred compensation plans as required by Governmental Accounting Standards Board Statement No.'32. The Honorable Mayor and City Council Members City of Fairlawn Report oflndependentAccountants Page -2- In accordance with Govenvnent Auditing Standards- we have also issued a report dated July 23, 1999 on our consideration of the City's internal control over financial reporting and ourtests of its compliance with certain provisions of laws, regulations, contracts and grants. PETRO kor of State July 23, 1999 2 This page intentionally left blank. Ciry of Fairlawn, Ohio Combined Balance Shee[ All Fund Types and Accotm[ Groups December 3l, 1998 Assets and Other Debits: Acc c• Equiryin Pooled Cash and Cash Equivalents Cash and Cash Equivalents In Segregazed Accounts With Fiscal Agents Receivables: Taxes Accaums Special Assessments Intergovernmental Notes Due from Other Funds Materials and Supplies Invenrory Fixed Assets Other Dehitc: Amount Available in Debt Service Fund Amount to be Provided for Retirement of General Low-Term Obligations To[a4 Assets and Other Debits Governmental Fund Tvpes Special Deb[ Capital General Revenue Service Projects $8,215,067 $1,523,276 $162,125 $9,449,766. 0 0 0 0 347,200 0 0 668,252 993,538 165,400 0 231,588 3,022 6,500 0 168,409 0 0 4,364,763 0 263,504 25,618 0 0 D 60,000 0 0 8.000 4,600 0 0 118.263 5,574 0 0 0 0 0 0 0 0 0 0 o a o o $9.948.594 $1.790.968 $4.526.888 _ $10 518 015 3 Fiduciary Fund Type Account Groups General General Torals Fixed Long-Term (Memorandum Agencv Assets ObIi¢ations Only) $87,426 $0 $0 .$19,437,660 17,708 0 D 17,708 0 0 0 1,015,452 0 0 0 1,390,526 0 0 0 177,931 0 0 0 4,364,763 0 D 0 289,122 0 0 0 60,000 0 0 0 12,600 0 0 0 123,837 0 8,884,663 0 8,884.663 0 0 162,125 162,125 0 0 10,064,693 .10,064,693 $105.134 $8.884.663 510.226 818_ $46.001.080 (Contiru~ed) 4 City of Fairlawn, Ohio Combincd Balance Shcet All Fund Types and Account Groups (Continued) December 31, 1998 Liahilitiec_ Fvnd B Ian es and O her ditc• Liabilidec: Accounts Payable Comracts Payable Accrued Wages Compensared Absences Payable Due to Other Funds Intergovernmental Payable Deferred Revenue Retainage Payable Undistributed Monies Accrued Interest Payable Notes Payable Loans Payable OPWC Loans Payable General Obligation Bonds Payable Special Assessment Bands Payable wirh Goveromental Commitnrem Total Liabilities Fund 8 Ianres nd O ham(' ite• Investment in General Fixed Assets Fund Balances: Reserved for Encumbrances Reserved for Inventory Reserved for Noes Receivable Designaced for Sewer Line Repair Undesignated Tonal Fund Balances and Other Credits Total Liabilities, Fund Balances and Other Crediu Govemmentai Fund Tvtxs Special Debt Capital General Revenue Service Protects $27,557 $4,532 $0 54,908 25,091 1,472 0 141,988 52,643 1,353 0 0 14,015 0 0 p 0 0 0 0 97,062 30,177 0 0 531,384 151,794 4,364,763. 151,437 0 0 0 51,193 0 0 0 p 0 0 0 56,333 0 0 0 4,000,000 0 0 0 0 0 0 0 p 0 0 0 0 0 0 747,752 189,328 0 p 4,364,763 4,405,859 0 0 709,995 37,171 0 3,737,072 118,263 5,574 0 0 0 60,000 0 0 195,990 0 0 0 8,176,594 I,498,895 162,125 2,375,084 9,200,842 1.601,640 162,125 6,112,156 9 8 594 $1,790,968 $4.526,888 l0 518.015 See Accomparrying Notes to the General Purpose Financial Statements Fiduciary Fund Tyne Account Grouas Geae~al General Touils Fused Long-Term (Memorandum Agency Assets Oblipafions Only) $0 $0 $0 $36.997 0 0 0 168,551 0 ` 0 0 53,996 0 0 654,564 668.579 12,600 0 0 12,600 0 0 143,461 270,700 0 0 0 5,199,378 0 0 ` 0 S1,l93 92,534 0 0 92,534 0 0 0 56,333 0 0 0 4,000,000 0 0 299,210 299,210 0 0 999,583 999,583 0 0 6,465,000 6,465,000 0 0 1.665.000 1,665.000 105.134 -. 0 10.226,818 20,039.654 0 5,884,663 0 8,884,663 0' 0 0 4,484.238 0 0 0 123,837 0 0 0 60,000 0 0 0 195,990 0 0 0 12,212,698 0 8,884,663 0 25.961,426 $105.134 $8.884.663 10.226.818 $46.001.080 6 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types For the Yeaz Ended December 31, 1998 BCYCmiGS: Municipal income Taxes Property and Other Taxes Chazges for Services Licenses, Permits and Fees Fines and Forfeitures Intergovernmental Special Assessments Interest Rentals Contribudons/Donarions Odher Total Revenues Fjt n i it r Current: General Goveromem Security of Persons and Property Public Health Services Traasponadon Community Environmem Basic Urility Services Leisure Time Activities Capital Outlay Inergovernmental Debt Service: Principal Retirement Interest and Fiscal Charges Total Expendinues Excess of Revenues Oved(Under) Expenditures Other Fnancin~ Co m c/ c c)• Proceeds from Bonds Operating Transfers Sa Operating Ttaacfets Out Total Other Financing Sources/(Uses) Excess of Revenues and Other Financing Sources Over Expetrdimres and Other Financing Uses Fund Balances Beginning of Year Decrease!(Increase) in Reserve for lm~etuary Fuad Balances End of Yeaz Governmental Special Generale Revenue $4,570,085 SO 478,734 225,056 151,879 196,163 267,578 19,953 109,088 49,804 1,201,808 252,691 0 0 682,730 18,531 0 30,965 0 23,249 11,947 0 7.473.849 816,412 1,079,756 4,893 2,659,267 430,842 87.207 0 909,633 125,534 19,335 0 237,132 74,183 23.936 179,638 0 0. 279.613 0 0 8,176 0 1,824 5,295.879 825,090 2,171,970 8,678 0 0 0 171,140 (171,140) 0 (171,140) 171,140 2,006,830 162,462 7,202,380 1,436,755 (8,368) 2,423 $9.200.842 1 1 See Accompmtying Notes to the Geneml Purpose Financial Statemenrs Fund Types To[ats Deb[ Capita( (Memorandum Service Projecct poly) $0 $1,932,582 $6,502,667 0 59,?54 763,044 0 163,722 511,764 0 100,394 387,825 0 0 158.892 0 3,926,427 5,380,926 318,567 0 318-,567 0 0 .701,261 0 0 30,965 0 0 23,249 0 5,525 17,472 318,567 6,187,804 14,796,632 12,177 0 1,096,826 0 0 3.090,109 0 0 87,207 -0 0 1,035,167 0 0 19,335 0 0 311,315 0 0 203,574 0 7,233,735 7 X33,735 0 123,248 402,861 .108,699 309,341 426,216 178.378 210,777 390,979 299,254 7,877,101 14,297,324 19,313 (1,689,291) 499,308 0 4,069,935 4,069,935 0 0 171,140 0 0 (171,140) 0 4,069,935 4,069,935 19,313 2,380.638 4,569,243 142,812 3,731,518 - 12,513,465 0 0 (5,945) $162.125. $6.112.156 $17.076.763 8 Ciry of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Non-GAAP) and Actual All Governmental Fuad Types For the Yeaz Ended December 31, 1998 General Fund Variance Revised Favorable Budget Actual (Jnfav~orable) Bt<7tENtSS: Municipal Income Taxes $3,952,857 $4,461,086 $508,229 Property and Other Taxes 447,000 478,734 31.734 Charges for Services 28,890 150,199 .121,309 Licenses, Permits and Fees 181,700 267,442 85,742 Fines and Forfeitures 115,000 109,554 (5,446) Intergovetnmetual 626,341 1,171,429 545,088 Special Assessmems 0 0 0 Interest 397,585 657,752 .260,167 Rentals 0 0 0 Contributions/Donations 0 0 0 ~~ 10,800 14,910 4,110 Total Revenues 5,760,173 7,311,106 1,550,933 F~nendi m c• Current: General Government 1,318,211 1,147,527 170,684 Security of Persons and Propety 3,363,344 3,259,205 104,139 Public Heatth Services 87,700 87,207 493 Transportation 1,293,957 908,792 385,165 Gotttmtmity Envimnmem 19.414 19,335 79 Basic Utility Services 267,676 238,432 29,244 Leisure Time Activities 27;831 24,250 3,581 CapitalOudaY 0 0 0 Imergoveromental 279,613 279,613 0 Debt Service: Principal Retiremen[ 0 0 0 Interest and Fist ca! Chazges 0 0 0 Tonal Expenditures 6,657,746 5.964,361 693,385 Excess of Revenues Over/(Under) Expenditures (897,573) 1,346,745 2,244,318 Other Finan inv .r cl Ic cl• Sale of Fixed Assea 0 0 0 Proceeds of Note 0 0 0 Proceeds from Bonds 0 0 0 Operating Transfers In 0 0 0 Operating Transfers Out (171,140) (171,140) 0 Tonal Other Financing Sources/(Uses) (171.140) (171.140) 0 Excess of Revenues and Other Financing Sotuces Over (Under)/Expenditures and Other Financing Uses (1,068,713) 1,175,605 2,244,318 Fund Balances Begiming of Yeaz 6,447,930 6,447,930 0 Unexpended Prior Year Encumbrances 109,561 109,861 0 Fund Balances End of Year 4 078 7733 3 52.244.318 See Accwnponying Notes to the Genera! Purpose Financial Statements Special Revenue Funds Variance Revised Favorable Budget Actual ~7nfavorable) Debi Service Fund _ Variance Revised Favorable Budget Actual (iJnfavorableZ $0 $0 $0 $0 $0 $0 209.652 218.113 8.461 0 0 D 190,939 198.491 7,552 0 0 0 12,300 19,953 7,653 0 0 0 52,700 49,501 (3,199) 0 0 0 209,400 247,386 37,986 0 0 0 0 0 0 300,000 318.567 18,567 0 18,531 18,531 0 0 0 28,500 30,965 2,465 0 0 0 20,000 23.249 3.249 0 0 0 -0 0 0 0 0 0 723,491 806,189 82,698 300.000 318.567 18.567 5,000 4,893 107 15,500 12,177 3,323 466,810 433,984 32,826 0 0 0 0 0 0 0 0 0 355,974 161,922. 194,052 0 0 0 0 0 0 0 0 0 152,599 54,799 97,800 0 0 0 205,699 180,933 24,766 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8,176 ..8,176 0 108,699 108,699 0 1,824 1,824 0 278.378 178,378 0 1,196,082 846.531 349.551 302,577 299,254 3,323 (472,591) (40,342) 432.249 (2,577) 19.313 21,8!0 30,000 30,000 D 0 0 0 D 0 0 0 0 0 0 0 0 0 0 0 155,078 171,140 16,062 0 0 0 0 0 0 0 0 0 185.078 201,140 16,062 0 0 0 (287,513) 160,798 448,311 (2,577) 19,313 21,8'90 1,284,521 1,284,521 0 142,812 142,812 0 37,206 37,206_ 0 0 0 0 1 D 4 214 $1.482.525 $448.311 $140.235 5162.125 $21.8'90 (Continrced) 10 City of Fairlawn, Ohio Combined Statement of Reventie§, Expenditures and Changes in Fund Balances Budget (Non-GAAP) and Actual (Continued) All Governmental Fund Types For the Year Ended December 31, 1998 CaoitaI Proiects Funds Variance Revised Favorable Budget Actual (Unfaivorable Besenues: Municipal Income Taxes $1,880,102 $1,880,102 $0 Property and Other Taxes 41,000 54,626 13 626 Chazges for Services 40,000 163.722 , 123 722 Licenses, Permits and Fees 89,000 98,250 , 9 250 Fmes and Forfeitures 0 0 , 0 Intergovermmental 5,532,978 3,975,397 (1.,557,581) Special Assesstneacs 0 0 0 Imerest 0 0 0 Renrals 0 0 0 ConaibudonslDonadons 0 0 0 Other Tonal Revenues 1,082,517 5,525 .(1'076,942) . 1 m 8,665,597 6,177,622 (2.487,975) 5. n Carrem: General Governmeza 0 0 0 Security of Persons and Property 0 0 0 Public Health Services 0 0 0 Transportation 0 0 0 Community Environment 0 0 p Basic Utility Services 0 0 0 Leisure Time Activities 0 0 0 Capital Ouday Intergovernmental 7,794,390 11,054,774 (3,260,384) Debt Service: 0 123,248 (123,248) Prtnapal Retirement 261,866 261,866 0 Interest and Fiscai Charges 150.491 150,441 0 Total Expenditures Excess of Revenues Oved(Under) Expenditures 8,206.747 458 8 11,590,379. (3";g3,632) , 50 5,412,75 (S,i;71,607) Other Fi ancing Co ~m / iC c)• Sale of Fined Assets 0 0 Proceeds of Note 4.000,000 4.000 000 0 0 Proceeds from Bonds Operating Transfers Ia 0 , 4,069,935 4,(X9,935 Operating Transfers Out 0 0 0 0 0 Taal Ocher Financing Sources/(Uses) 4,000,000 8,069.935 0 4 069 935 Excess of Revenues and Other Financing Sources Over , , (Cinder)/Expenditures and Other Financigg Uses 4,458,850 2,657,178 (1 801 672) Fund Balances Beginning of Yeaz 3,151,712 3,181 712 , , 0 Unexpended Prior Yeaz Encumbrances 395,158 , 395,138 0 Fuai Balances End of Yeaz $8.035.720. 234 048 ($i.F;01,6721 See Accompanying Notes to the Genera! Purpose Financial Statements 11 Totals (Memorandum Only) Variance Revised Favorable Budget Actual (Liofavorable) $5,832,959 $6,341,188 $508,229 697.652 751,473 53,821 259,829 512,412 252,583 283,D00 385,645 102,645 167,700 159,055 (8,645) 6,368,719 5,394,212. (974507) 300,000 , 318,567 18.567 397,585 676,283 278,698 28.500 30.965. ... 2,465 20,000 23,249 3,249 1,043,317 20,435 (1,072,882) 15,449,261 14,613,484 (835,777) 1,338,711 1,164,547 174,114 3,830,154 3,693,189 136.965 ,87,700 87,207 493 1,649,931 1,070,714 579,217 19,414 19,335 79 420,275 293,231 127,044 233,530 205,183 28,347. 7,794,390 11,054,774 (3,260,384). 279,613 402,861 (123,248) 378,741 378,741 0 330,693 330,693 0 16,363,152 18,700,525 (2,337,373) (913,891 (4,087,041) (3,173,150) 30,000 30,000. p 4.000,000 4,000.000 0 0 4,069,935 4,069,935 155,078 171,140 16,062 (171,140) (171,140) 0 4,013,938 8,099,935 4,085.997 3,100,047 4,012,894 912,847 11,056,975 11,056,975 0 542,225 542,225 0 14 699 247 $15.612.094 $912.847 12 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 NOTE 1 -REPORTING ENTITY AND BASIS OF PRE ENTATION The Ciry of Fairlawn (the "City") is a chazter 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 :ire elected. A. Reoorting Entity In evaluating how to define the City for financiaireporting 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, inning, 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 ate provided by a legally sepazate organization; therefore, these operations are included in the primary government. Component units aze legally separate organizations for which the City is financially accountable. The Ciry 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 orprovided 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, oc 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 Librazy have been excluded from the City's financial statements. Both aze 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. The City participates in the Bath-Akron-Fairlawn Joint Economic Development District (7EDD) which is a jointly governed organization. The JEDD was created to assure the continued economic viability of Bath Township. The operation of the JEDD is controlled by anine-member board of directors, three appointed from Bath Township, 13 CITY OF FAIRI.AWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 Akron and Fairlawn, respectively. The board exercises total control over the operation of the JEDD including budgeting, appropriating, contracting and designating management. Each pazticipant's degree of control is limited to its representation on the board. During 1998, the JEDD did not have any financial activity. B. Basis of Presentation - Fnnd Accounting The Ciry 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 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 aze segregated for 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 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 (:iry are financed. The acquisition, use and balances of the Ciry'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 aze established to account for the proceeds of specific revenue sources (other than amounts relating to major capital projects) that aze legally restricted to expenditure for specified purposes. • 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 ito be used for the acquisition or construction of major capital facilities. 14 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 Fiduciary Fund Types Fiduciary funds aze 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 aze two types of fiduciazy 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. 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 foltowing account groups are used: • General Filed 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 aze accounted for using a flow of current Financial resources measurement focus. With this measurement focus, only current assets and current liabilities aze 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 accounu and reported in the financial statements. Basis of accounting relates to the timing of the measurement made. 15 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 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 yeaz. The available period for the City is thirty-one days after yearend. In applying the susceptible to accrual concept under the modified accrual basis, tha: following revenue sources are deemed both measurable and available: • Interest • State levied locally shared taxes (including gasoline tax) • Fines and forfeitures • Income tax withheld by employers 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 aecognition in the current period. In the subsequent period, when both revenue: recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and. revenue is recognized. Current and delinquent property taxes measurable as of December 31, 1998, whose availability is indeterminate anal which are not intended to finance current period obligations, have been recorded as a 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 ofgovernmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses.. Expenditures. are recogniz~yd in the accounting period in-which the fund liability is incurred, if measurable. Alioca.tions of cost, such as depreciation and amortization, are not recognized in the governmental funds. B. ~Budgetarv 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, anal the Appropriation Ordinance, all of which aze prepazed on the budgetazy basis of accounting. The Certificate of Estimated Resources and the Appropriation Ordinance are subject to amendment throughout the yeaz 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 budgetazy control is at the object level within eachi 16 CITY OF FAIRLAI~VN Notes to the General Putpose Financial Statements. For the Year Ended December 31, 1998 department. Any budgetary modifications at this level may only be made by resolution of the City Council. 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 following year. 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, whichh 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 foY 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 chat 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 duritig 1998, Appropriations A temporary ordinance to control expenditures may be passed on or about January ]. 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. T'he 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. T'he budget figures which appear in the statement of budgetary t7 CITY OF FAlRL:AWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 comparisons represent the final appropriation amounts, including all amendments ,and modifications. Encumbrances As pazt of formal budgetazy 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, depaztment and objecrlevel. On the GAAP basis, encumbrances 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 forwazd to the succeeding yeaz and is not reappropriated. C. Cask and Cash Equivalents To improve cash management, cash received by the City is pooled. Monies for all funds are maintained in this pool. Individual fund integrity is maintained through the City's records. Each fund's interest in the pool is presented as "equity in pooled Gish and cash equivalents" on the combined balance sheet. During 1998, investments were limited to overnight repurchase agreements and interest in STAR Ohio, the State Treasurer's Investment Pool Except for nonparticipating investment contracts, investments are reported at fair value which is based on quoted market prices.. Nonparticipating investment contracts such as repurchase agreements are reported at cost. The City has invested funds in the State Treasury Asset Reserve of Ohio (STAR OYiio) during 1998. 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 investments could be sold for on December 31, 1998. 18 CITY OF FAIRL.AWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 Investment procedures are restricted by the provisions of the Ohio Revised Code. Interest revenue credited to the general fund during 1998 amounted to $682,730, vvhich includes $411,412 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 combined balance sheer as "cash and cash equivalents in segregated accounts" since they aze not required to be deposited into the City treasury.. For presentation on the combined balance sheet, investments of the cash maragemg;nt pool and investments with original maturities of three months or less at the time they are purchased by the City are considered to be cash equivalents. Investments with an initia] maturity of more than three months are reported as investments. The City has monies on deposit with Ohio Department of Transportation (ODOT) to be used for road improvement projects. This amount is presented as °cash and cash equivalents with fiscal agents" on the combined balance sheet. D. Irzventorv 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 types when purchased. Reported materials and supplies inventory is equally offset by a fund balance reserve in the governmental fund which indicates thaf it does not constitute available expendable resources even though it is a component of net current assets. E. Fixed Assets and Depreciation General fixed asseu are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction costs are reflected as expenditures in governmental funds, and the related assets aze reported in the general fixed asset account group. All purchased fixed assets are valued at cost when historical records aze available and at an estimated historical cost when no historical records exist. Donated fixed assets are valued at their estimated fair mazket 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. Improvetnents are capitalized. 19 CITY OF FA,IRI.AWN Notes to the General Purpose Financial Statements For the Yeaz Ended December 37, 1998 Public domain (infrasuucture) general fixed assets consisting of roads, bridges, curbs and gutters, sueets and sidewalks, drainage systems, and Iighting systems aze not capitalized, as these assets are immovable and of value only to the City. Assets in the general fixed assets account group aze not depreciated.. F. Co~ensated Absences Vacation benefits are accrued as a liability as the benefits are earned if the employees' rights to receive compensation aze 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 ail employees with more than one year of service. Sick leave benefits are accrued as a liability using the vesting method. The liability includes the employees who are currently eligible to receive. termination benefits anal those the City has identified as probable of receiving benefits in the future. The amount isbased on accumulated sick leave and the employees' wage rates at fiscal ;yeaz end, taking into consideration any limits specified iti the City's termination policy. The City records a liability for accumulated. unused sick leave for all employees hired before December 31, 1988. 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.. G. Irate and Assets/Liabil' ' During the course of operations, numerous transactions occur between individual fLmds for goods provided or services rendered. These receivables and payables are: classil5ed as "due from other funds" nr "doe in other fnnrle A. Fund Eouity Reserves represent those portions of fund equity not available for appropriation or expenditure and aze legally segregated for a specific future use. Fund balances are reserved for encumbrances, inventory, and notes receivable. A designated fund balance has been established for sewer line repairs. zo CITY OF FA11tLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 I.Irzte und_Transactions Quasi-external transactions aze 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 reimbursing fund and as reductions of expenditures in the fund that is reimbursed. Nonrecurring. or non-routine permanent transfers of equity aze reported as residual equity transfers. All other interfund transfers aze reported as operating transfers. J. Accrued and Long-Term Liabilities In general, governmental fund payables and accrued liabilities are reported as obligations of the funds regardless of whether they will be liquidated with current 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 more than thirty-one days after yeaz end aze generally considered noe 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. 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. Acaual results may differ from those estimates. L. Total Columns on General Purnnse Financial Statements Tota] 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 or results of operations, in conformity with GAAP. Neither is such data compazable to a consolidation, Interfund eliminations have not been made in the aggregation of this data. NOTE 3 - CHANGE IN AC OUNTING PRINCIPLE For 1998 the City has implemented GASB Statement No. 31, "Accounting and Financial Reporting for Certain Investments and for External Investment Pools". This statement established accounting and reporting guidelines for government investments 21 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 and investment pools. Certain investments which were reported at cost in previous yeazs are now reported at fair value. The implementation of GASB 31 had no effect on fund balance as it was previously reported as of December 31, 1997. The City has also implemented GASB Statement No. 32, "Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans" for its deferred compensation plans through the Ohio Public Employees Deferred Compensation Board and Aetna Insurance Company. On September 1, 1998, The Ohio Public Employees Deferred Compensation Board created a trust for the assets of the plan for which the City has no 6duciazy responsibility. On, December 31, 1998, a new plan document was adopted for the City's deferred Compensation plan through Aetna Insurance Company. Since this plan is an annuity contract, changes in the plan document were all that were needed to bring the plan into compliance with the new I]ZS regµlations. Therefore, the balance of deferred compensation plans is no longer presented as part of the City's financial statements. In 1997; the City calculated the liability for sick leave benefits using the termination method. In 1998, the City began using the vesting method of estimating the Liability for sick leave.. As a result, the January 1, 1998 beginning balance. of the general lon;~- term obligations account group has been restated from $6,463,651 to $6,503,861.. 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 bud;;et basis and the GAAP basis aze as follows: i. Revenues aze 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). z2 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 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 necessazy to reconcile the GAAP bbasis statements to the budgetary basis statements on a fund type basis: Excess ofltevatues andOtha Financing Soaces o~ Eupenditures andOtherFiuancing i7ses ~~ Capital General Rescue Debt Sen+ice .acts GAAP13asis $2,006,830 $162,462. $19,313 _ $2,380,63'8 Re:~mueAaruats (137,764) (10,223) 0 . (10,1$2) Uotepated Cash (24,978) 0 p ~) ExpendiaaeAcatnls 83,852 19,310 0 170,642. Note Repayment ' 0 30,000' 0 0 Faaum6tances (752,335), (40,751) 0 (3,883,970) Proceeds 0 0 0 4000,000 1~etl3asis $1,175,605 $160,798 $19313 _ $2,6571x3 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 aze public deposits that Council has identified as not required for use within the current period of designation of depositories. Inactive deposits must either 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 aze deposits of interim monies. Interim monies aze 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 b;y 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. 23 CITY OF FAIIZLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 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. Interim monies may be deposited or invested in the following securities: i. United States treasury notes, bills, bonds, or any other obligation or security issued,by the United States treasury or any other obligation guaranteed as to principal 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 ito, .the Federal National Mortgage Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and. Student Loan Marketing Association. All federal agency securities shall be direct issuances of federal government agencies or instrumentalities; 3. Written repurchase agreements in the securities listed above, provided that the mazket value of the securities subject to the repurchase. agreement most 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 mazket 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 aze made only through eligible institutions; and 6. The State Treasurer's investment pool (STAR Ohio). 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 aze also prohibited. An investment roust mature within five years from the date of purchase unless matched to a specific obligation or debt of the City, and must be purchased with the expectation that it will be held to maturity. 24 CITY OF FAIRI.AWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 Investments may only be made through specified dealers and institutions. Paymemt for investments may be made only upon delivery of the securities representing the investments to the treasurer or qualified trustee or, if the securities aze not represented by a certificate, upon receipt of confirmation of transfer from the custodian. Cash with Fiscal Agents The City has $1,015,452 on deposit with the Ohio Depazment 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 Anmial Financial Report for the fiscal year ended June 30, 1998. City Deposits At year end, the carrying amount of the Ciry's deposits was ($209,339) and the barilc balance was $209,958. Of the bank balance, $100,000 was covered by federal depository insurance and $109,958 was uninsured and uncollateralized. City Investments The City's investments are required to be categorized to give an indication of the level of risk assumed by the City at yeaz end. Category 1 includes investments that aze insured or registered or are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments which are held by the counterpazty's trust deposit or agent in the City's name. Category 3 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 is an unclassified investment since it is not evidenced by securities that exist in physical or book form. 3 Carrying Value Fair Value Repurd~ase Agreements $2,258,688 $2,258,688 $2,258.688 STAR Rio 17,406,019 17,406,019 Totallnvestm®ts $19,664,707. $19,664,707 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, "Reporting Cash Flows of Proprietary and Non-Expendable Trust Funds and Government Entities That Use Proprietary Fund .Accounting". A reconciliation between the classifications of cash and cash equivalents and investments on the combined financial statements and the classification per GASB Statement No. 3 is as follows: 25 CITY OF FA)JtLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 Cash and Cash Equivalents/Deposits Investments GASB Statemant No. 9 $20,470,820 $0 Investments which are part of the cash management pool: Repurchase Agreement (2,258,688) 2,258,688 STAR Ohio (17,406,019) 17,406,019 ODOT (1,015,452) 0 GASB Statement No. 3 $(209,339) $19,664,707 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, 1997, on the assessed value as of January 1, 1997, the lien date,.and were collected in 1998. Assessed values aze established by State. law at 35 percent of appraised mazket value. All property is required to be revalued every six years. Public utility property taxes received in 1998 attached as a lien on December 31, 1997, were levied after October 1, 1997, and are collected with real property notes. Public utility property taxes were assessed on tangible personal property at 88 perca;nt of true value and on real property ar,35 percent of assessed valuation. 1998 tangible personal property taxes were levied after October 1, 1997, on the value listed as of December 31, 1997, and were collected in 1998.. Tangible personal property assessments are 25 percent of true value. The assessed value upon which the 1998 taxes were collected was $267,711,026. Real estate represented 87 percent ($231,194,390) of this total, public utility tangible personal property represented 2 percent ($6,170,030) of this total and general tangible personal property represented 11 percent ($30,346,606) of this total. The full tax rate for all City operations applied to taxable property for the year ended December 31, 1998, was $2.70 per $1,000 of assessed valuation. Real and public utility property taxes aze 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, 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, payrnent is due April 30. If paid semi-annually, the first payment is due April 30 with the remainder payable by September 20. 26 CITY OF FAIItI.AWN Notes to the General Purpose Financial Statements For Ute Year Ended December 31, 1998 The County Treasurer collects property tax on behalf of all taxing districts within tkie County. The County Auditor. periodically remits to the taxing districts their portions of the taxes collected. 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, 1998. However, since these tax collections were not received during the available period nor were they intended to finance 1998 operations, the receivable is offset by a credit to deferred revenue. NOTE 7 -RECEIVABLES Receivables at December 31, 1998, consisted of taxes, accounts (billings for user charged service), special assessments, interest, notes (sale of land to developer) and intergovernmental receivables azising from grants, entitlements, and shared revenues. Accounts, taxes, special. assessments, interest, and governmental receivables are deemed collectable in full. A summazy of the: principal items of intergovernmental receivables is as follows: Intergovernmental Receivable. Amount General Fund: Local Government Tax $33,967 Liquor Permits 2,503 Estate Tax 218,405 Akron Court Fines 2,380 Federal COPS Fast Grant 6,249 Total General Fund 263,504 Special Revenue Funds: Gasoline Tax 2,ggq Motor Vehicle 10,156 Motor Vehicle Permissive 1,170 Akton Court Fines 35 DARE Grant 9,873 Ohio EMS Grant 1,500 Total Special Revenue Funds 25,618 Total $289,122 27 CITY OF FAIRLAWN Notes to the General Rtrpose Financial Statements For the Year Ended December 31, 1998 NOTE S -INCOME TAX The City. levies a municipal. income tax of 2 percent on gross salaries, wages and other personal service compensation eazned 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 aze granted a credit up u~ 2 percent for taxes paid to other municipalities. Employers within the City are required to withhold income tax on employee compensation. and remit the tax to the City either monthly or quarterly; as required. Corporations and other individual taxpayers are required to pay their estimated tax quarterly and file a declaration annually. By City ordinance, income tax proceeds .are credited as follows: the general fund receives 90 percent and 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, 1998 Additions Deletions December 31, :1998 Land $1,054,126 $6,000 $0 $1,060,126 LandImprovements 1,188,988 0 0 1,188,988 Buildings 2,628,085 -0 0 2,628,085 Machinery and Equipment 1,699,178. 82,637. 26,501 1,755,314 Vehicles 1,548,474 140,670. 76,901 1,612,243 Constriction in Process 0 639,907 0 639,907 Total $8,118,851 $869,214 $103,402 $8,884,663 NOTE 10 -RISK MANA The City is exposed to various risks of loss related to tore; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During 1998, the City contracted with WicherrInsurance Service, Inc. for property and general liability insurance, including boiler and machinery. Police and professional liability policies aze provided by the National Casualty Company with a $1,000,003 limit and a $10,000 deductible. A commercial umbrella policy through lnternation~al Insurance Company provides additional general liability and auto liability insurance; up to a $6,000,000 limit. 28 CT1'Y OF FAIRLAWN Notes to the General Ptitpbse Financial Statements For the Year Ended December 31, 1998 Vehicles aze 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 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 ]imit of $1,000,000 and no deductible. The City pays the State Worker's Compensation system a premium based on a rate per $lOD of salaries. This rate is calculated based on accidenrhistory and administrative costs. NOTE 11 DEFINED BENEFTT PENSION PLANS A. Public Employees Retirement Svstem (PERSI All City full-time employees, other than non-administrative full-time uniformed police officers and firemen, 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 beneficiazies. 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, aze required to contribute 8.5 percent of their annual covered salazy to fund pension obligations and the City is required to contribute 9.35 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, 1998, 1997, and 1996 were $142,028,.$123,569, and $116,550, respectively. The full amount has been contributed for 1997 and 1996. Of the requirement, 74 pert:ent has been contributed for 1998 with the remainder being reported as a liability. witlhin 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 (PFDPF), acost-sharing multiple employer public employee retirement system 29 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 administered by PFDPF's Board of Trustees. PFDPF provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members and beneficiazies. Benefit provisions are established by the Ohio State Legislature and by Chapter 742 of the Ohio Revised Code. PFDPF issues a publicly available financial report that includes financial statements and required supplementary information. 'That report may be obtained by writing to the Police and Firemen's Disability and Pensiion Fund of Ohio, 140 East Town Saeet, Columbus, Ohio 43215. Police and firefighters aze required to conaibute 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 aze authorized by State statute. The City's conaibutions to PFDPF for police and firefighters were $121,337 and $81,264 for the year ended December 31;1998, $117,830 and $76,160 for the year ended December 31, 1997, and $113,866 and $68,170 for the year ended December 31, 1996. The full amount has been contributed for 1997 and 1996. Of the requirement, 73 percent has been contributed for 1998 with the remainder being reported as a fund liability within the general long-term obligations account group. C. Social Security S sv tem 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 BENEFIT A. Public Emplovees Retremenr 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 1998 employer contribution rate was 13.55 percent of covered payroll; 4.2 percent was the portion that was used to fund health care. For 1997, the percentage used to fund health care was 5.11 percent. Benefits are funded on spay-as-you-go basis. OPEB are financed through employer conaibutions and- investment eaznings. The contributions allocated to retiree health 30 CITY OF FAIRLAWN Notes to the General Purpose Fuumcial Statements For the Year Ended December 31, 1998 care and Medicaze, along with investment income on allocated assets and periodic adjustments in health care provisions,. aze expected to be sufficient to sustain the program indefinitely. During 1998, OPEB expenditures made by PER& were $440,596,663. As of December 31, 1998, the unaudited estimated net assets available for the future OPEB payments were $9,447,325,318. At December 31, 1998, the total number of benefit recipients eligible fo>• OPEB through PERS was 115,579. The City's actual contributiots for 1998 which were used to fund OPEB through PERS were $63,798. During 1997, PERS adopted a new calculation method for determining employer contributions applied to OPEB, Under the new method, effective Januazy 1, 1998., employer contributions, equaled 4.2 percent of member,covered payroll, aze used I:O fund health care expenses. Under the prior method, accrued liabilities and normal cost rates were determined for retiree health coverage.. B. Police and Firemen's Disability and Pension Fand The Police and Firemen's Disability and Pension Fund (PFDPF) provides postretirement health care coverage to any person who receives or is eligible: to rer~eive. 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.chiid 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 Gaze coverage and states that health caze; 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 postemployme;nt 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 City's actual contributions for 1998 that were used to fund postemployment benefits were $60,669 for police and $30,184 for firefighters. PFDPF's total health care expenses for the year ended December 31, 1997, (the latest information availalble) were $76,459,832. The number of PFDPF participants eligible to receive health care benefits as of December 31, 1997, was 11,239 for police and 9,025 for firefighters. 31 CITY ~F FAIItLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 NOTE 13 -OTHER EMPLOYEE BENEFITS, A. Compensated Absences The criteria for determining vested vacation and sick leave components are derived'. from negotiated agreementsand state laws. Employees eazn ten to thirty days of vacation per yeaz, depending upon length of service. Vacation accumulation is limited to one yeaz. 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 180 days, upon retirement such employees will. be paid for the total number of days accumulated up to, but. not exceeding the amount of time accumulated on July 6, 1984. Generally, employees with a hire date subsequent to 1991 aze not eligible to receive termination payments for sick leave. As of December 31,' 1998, the total liability for unpaid compensated absences. was $668,579.. B Health Care Benefits The City provides life insurance and accidental death and dismemberment insurance to most employees. The-City. has elected to provide employees medical/surgical benefits through Medical Mutual of Northern Ohio. The employees share the cost of the monthly premium. 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 havf; been reclassified and aze reflected as debt service in the general purpose financial statements for the governmental funds. These expenditures are reflected as program/function expenditures on a budgetazy 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 final lease payment was made during 1998. 32 CITY OF FAIItL:AWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 NOTE 15 -LONGTERM OBLIGATIONS Long-term obligations of the City as of December 31, 1998, were as follows: Balance Balance December 31, 1997 Additions Deletions. December 37, 1998 General Obligation Bands (2.80-5.75%) $2,485,000 $4,085,000 $105,000 $6,465,000 Special Assessment Various Puipose Bond (4.80.7.00%) 1,740,000 0 75,000 1,Ei65,000 OPWC Loans (0.00.6.00%) 1,108,216 0 108,633 999,583 Capital Lease (8.30%) 47,475 0 47,475 0 Capital Loan (5.18%)' 389,318 0 90,108 199,210 Intergovernmental Payable 140,522 143;461 140,522 1.43,461 Compensated Absences* 593,330 78,214 16,980 654,564 Total General Long Term Debt $6,503,861 $4 306 675 $583,718 _ $10,2:26,818 * as restated 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' salazies aze: 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 emergency medical transports in the fire equipment fund and the revenues of the ca{»tal improvement fund. Capital leases were paid from revenues of the capital improvement fund. Principal and interest requirements to retire Iong-term obligations outstanding at December 31, 1998 are as follows: 33 CITY OF FAIRLAWN Notes to the General purpose Financial Statements For the Year Ended December 31, 1998 Year Ending Special Assessment Bond General Obligation Bonds OPWC Loans Capital Loan Total 1999 $200,000 $549,055 $165,636 $110,216 _ $1,024,907 2000 197,775 550,165 90,702 110,216 948,858 2001 197,150 550,175 90,702 110,216 948,243 2002 201,118. 549,255 90,707 0 841,075 2003 299,345 547,582 90,702 0 837,629 2004 - 2008 986,090 2,741;255. 453,510 0 4,180,855 2009 - 1013 594,550 2,739,218 , 453,510 0 3,787,278 2014 - 2018 0 1,549,280 90,702 0 1,639,952 Total $2,576,028 $9.775.985 $L526.166 5330.648.. 814 2nR R79 NOTE 16 -NOTE DEBT The City's note activity, including amount outstanding and interest rate, is as follows: Balance Halanu>. December 31, 1997 Additions Reductions December 31 1z 998 Municipal Building Improvement Hond Anticipation Note 3.90% $0 $4,000,000 $0> $4,000,000 The note is backed by the full faith and credit of the City and wilt mature within one year. The note liability is reflected in the fund which received the proceeds and which will repay the debt. The note was issued in anticipation of long-term bond financing. The Municipal Building Improvement Bonds were issued December 1, 1998 and the bond anticipation note was paid on January 20, 1999. OTE 17 -CONTRACTUAL COMMITMENTS As of December 31,.1998, the Ciry had various contractual commitments; for road improvements of $173,685, park improvements of $40,488, sewer cleaning of $23,175, capital equipment purchases of $649,444, and police department/municipal building improvements of $3,504,538. NOTE 18 - CONTINGENCIE A. Grants The City received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits 34 CITY OF FAIRLAWN Notes to the General Purpose Financial Statements For the Year Ended December 31, 1998 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, 1998. B. Litigation The City. is party to legal proceedings. The City management is of the opinion than the ultimate disposition of these claims and legal proceedings will not have a material effect, if any, on the financial condition of the City. NOTE 19 - INTERFUND 1'EtANSACTIONS lnterfund balances at December 31, 1998, consist of the following: General Fund Children Adolesc~f SAEF - Special Revenue Fund Mayors Court -Agency Fund. Total NOTE 20 -YEAR 2000 ISSUE Due From Due To $8,000 $0 4,600 0 0 12,600 $12,600 $12,600 The year 2000 issue is the result of shortcomings in many electronic data processing systems and other equipment that may adversely affect the City's operations as ear]'.yas 5scal 1999. As of December 31, 1998, the City had entered into a contract with`Supertronic Systems to complete a comprehensive Year 2000 readiness evaluation for $4,400. The City has since. completed an inventory of computer systems and other equipment necessary to conducting City operations. The City has identified the following systems requiring year 2000 remediation: • Financial reporting, tax collection and payroll. Validation and testing. of all financial systems has been completed. • A 911 police and ftre emergency reporting system. The City is currently remediating its 911 emergency reporting system. The emergency dispatch center will be relocated to the new police facility now under construction. The dispatch center will be equipped with all new equipment certified as year 2000 compatible by the vendor. The facility is expected to be fully operational by September 1, 35 CITY OF FAIRLAWN Notes to the Creneral Purpose Financial Statements For the Year Ended December 31, 1998 .1999. Remaining. contracted amounts of $632,944 are committed to this projeca as of May 31, 1999. Various personal computers oral Novell network. The City is currently remedia~ting the personal-computers and networking system. Bid specifications have been drawn up to purchase, from outside vendors, hazdwaze and software believed to be year 2000 compliant. The estimated cost of the project is $60,000. Testing and validation of the systems will need to be completed after the hardware and softwaze aze installed. Property tax collection for the City is handled by Summit County. The County is responsible for remediating this system, and is solely responsible for any costs associated with this project. • The City has completed testing and validation on emergency medical equipment, fire alarms, traffic control devices and communications equipment. Because of the unprecedented nature of the Year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until the year 2000 and. thereafter. Management cannot assure that the City is or will be Yeaz 2000 ready, that the City's remediation efforts will be successful in whole or in part, or that parties with whom the City does business will be yeaz 2000 ready. NOTE 21 -LEGAL COMPLIANCE Contrary to Section 5705.41(B), Ohio Revised Code, the following accounts had expeditures plus encumbrances in excess of appropriations: Expenditure plus Fund/Function Appropriations Encumbrances Excess ;apital Projects Funds: Capital Improvement: CapitalOuHay $7,794,390 $11,054,774 $3,260,384 Irnergovemmental 0 123,248 123,248 These vaziances aze a result of road construction projects which aze being funded by City, State and Federal sources. The Ohio Depaztment of Transportation (ODOT) is responsible for administering the projeca, including the collection and disbursement of funds. The activity is controlled by ODOT and is not under the fiscal control of the City. As of yeaz end, the City recorded an estimate of the "on-behalf-of" activity. 36 CITY OF FAIItLAWN Notes to the General Purpose Financial Statemems For the Year Ended December 3I, 1998 In order to amend appropriations prior to year end, the City requested, but was unable to obtain an estimate of expenditures made by ODOT. Consequently, the City did not modify appropriations for the ODOT expenditures made on behalf of the City, thus creating the variances. Since the actual receipts and disbursements recorded by the City are offsetting amounts, expenditures would"not exceed availabie resources as a. result of this activiry. 37 88 East Broad Street \~tll~7 STATE OF OHIO P.O. Box 1140 OFFICE OF THE AUDITOR Columbus, Ohio 43216-1140 Telephone 614-466-4514 J1M PETRO, AUDITOR OF STATE 800-282.0370 Facsimile 614-466-4490 Report of Independent Accountants on Compliance and on Internal Control Required by Government Auditine Standards The Honorable Mayorand City Council Members City of Fairlawn 3487 South Smith Road Fairlawn, Ohio 44333 We have audited the general purpose financial. statements of the City of Fairlawn (the City) as'of and for the year ended December 31, 1998, and have issued: our report thereon dated July 23, 1999, in wl'nich we noted the change in the City's method of accounting and reporting forits deferred compensation plans. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditine 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 on the determination of financial statement amounts. However, providing an opinion on compliance wiith 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 Govemment Auditine Standazds. However, we noted certain immaterial instances of noncompliance that we have reported to the management of the City in a separate letter dated July 23, 1999. 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. Howevt:r, we noted a certain matter involving the internal control over financial reporting and its operation than we consider to be a reportable condition. 38 The Honorable Mayor and City Council Member City of Fairlawn Report of Independent Accountants on Compliance and on Internal Control Required by Government Auditing Standards Page 2 Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule of Findings as item 1998-20977-001. A material weakness is a condition in which the design or operation of one or more of the intem~.al 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 v+ithin a timely period by employees in the, normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessazily disclose all nnatters in the internal control that might be reportable conditions. and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. $owever, we consider the reportable condition described above to be a material weakness. We also 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 July 23, 1999. This report is intended for the information and use of management and City Counci! and is not intended to be and should not be used by anyone other,than these specified parties: July 23, 1999 39 CITY OF FAH2LAWN SUMMIT COUNTY DECEMBER 31,1998 SCHEDULE OF FINDINGS FINDING RELATED TO THE FINANCIAL STATEMENTS REQUIRED TO BE REPORTED IN ACCORDANCE WITH GAGAS Material Weakness ~ Finding Number ~ 1998-20977-001'. ~ Year 2000 Compliance The City has assessed the wmputer systems and electronic equipment deemed critical to conducting City operations and is performing steps to ettsure that the City becomes Year 2000. compliant. However, the City is still remediating the 911 police and fire emergency reporting systems, as well as various personal computers and the Novell networking system to ensure the City becomes Year 2000 compliant. The current status ofthe City's progress in addressing the Year 2000 issue in these areas could inhibit the City's ability to ensure these systems aze tested and validated prior to the Year 2000. The Year 2000 issue exposes the City 'to potential computer application errors and the corresponding down time to correct such errors. To help ensure continued operations, the City should continue to make the Year 2000 issue a priority by continuing the remediation process for all mission critical systems. The City should also continue to perform the necessary steps to help ensure these systems become Year 2000 compliant in a timely manner. This will include proper testing and validation of these systems subsequent to their remediation. During tbiis process, appropriate documentation should be maintained to support their Yeaz 2000 status as well as the efforts and progress made. 40 \111/~~ .STATE OF OHIO '~i OFFICE OF THE AUDrrOR 88 Ease Broad Street P.O. Box 1140 J1M PETRQAuDrrOR OF STATE Columbus, Olsio 432161140 Telephone 614-4661514 800-282-0370 Facsimile 614166-449(1 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 OtI'ilce of the Auditor of State pursuant to Section 117.26, Revised Code„ and which is filed in Columbus, Ohio. Clerk of the Bureau Date: AUG ~ Q ~~9