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2002 Financial StatementS .31tltlIH .. ,~.. av City of Fairlawn, Ohio General Purpose Financial Statements For the Year Ended December 31, 2002 Compiled By: City of Fairlawn Finance Department CITY aF FAIIiLAWN SUMMIT COUNTY TABLE OF CONTENTS TITLE Independent Accountants' Report ........................................................................... 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 ............................................... Independent Accountants' Report on Compliance and on Internal Control Required by Government Auditing Standards ............................ 'AGE ....... 1 4 8. ............ 10 ............15 ............37 • ~, ~ • ~ Auditor of State Betty Montgomery INDEPENDENT ACCOUNTANTS' REPORT City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333 To the Membeis of City Council: We have audited the accompanying general purpose financial statements of the City of Fairlavm, Summit County, Ohio, (the City) as of and for the year ended December 31, 2002, 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 fmancial statements based on owr audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing 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 fmancial 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 fmancial. statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general purpose fmancial statements referred to above present fairly, in ,all material respects, the fmancial position of the City of Fairlawn, Summit County, as of December 31, 2002, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated August 15, 2003 on our consideration of the City's internal control over fmancial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance vrith Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. ~~ M~'~ Betty Montgomery Auditor of State August 15, 2003 211 Second St., RiW f Fourth Flocr! Canton, QH 49702 Telephone. (830) 438.0617 (800) 443.9272. 1<az: (3'34) 471-Olml wtvcvauditorsta te.nh: us _.. a nau _, iau This page intentionally leftblank. 2 Tltis page intentionally left blank. 3 City of Fairlawn, Ohio Combined Balance Shcet All Fund Types and Account Groups December 31, 2002 Governmental Fund Types Assets and Other Debits: Assets: Equity in Pooled Cash and Cash Equivalents Cash and Cash Equivalents In Segregated Accounts With Fiscal Agent Receivables: Taxes Accounts Special Assessments Intergovernmental Due from Other Funds Materials and Supplies Inventory Fixed Assets Other Debit Special Debt Capit~il General Revenue Service Projects $8,798,028 $1,535,193 $240,546 $9,793,199 7,939 0 0 0 0 0 0 86,823 1,737,481 223,032 0 493,141 4,983 15,165 0 19,233 0 0 3,886,219 0 491,823 146,844 0 15,180 25,203 6,014 0 0 158,225 12,808 0 0 0 0 0 0 Amount Available in Debt Service Fund 0 0 0 0 Amount to be Provided for Retirement of General Long-Term Obligations 0 0 0 0 Total Assets and Other Debits $11,223,682 $1,939,056 $4,126,765 $10,407,576 4 Fiduciary Fund Type Account Groups General General Totals Fined Long-Term. (Memorandum Agency Assets Obligations Only) $42,304 $0 $0 $20,409,270 41,350 0 0 49,289 0 0 0 86,823 0 0 0 .2,453,654 0 0 0 39,381 0 0 0 3,886,219 0 0 0 653,847 0 0 0 31,217 0 0 0 171,033 0 19,973;007 0 19,973,007. 0 0 240,546 240,546 0 0 13,494,197 13,494,197 $83,654 $19,973,007 $13.734,743 $61,488,483 (Continued) 5 City of Fairlawn, Ohio Combined Balance Sheet All Fund Types and Account Groups (Continued) December 31, 2002 Liabilities, Fund Balances and Other Credits: Liabilities: Accounts Payable Contracts Payable Accrued Wages Compensated Absences Payable Due to Other Funds IntergovenunentalPayable Deferred Revenue Retainage Payable Undistributed Monies OPWC Loans Payable General Obligation Bonds Payable Special Assessment Bonds Payable with Govemmental Commitment Total Liabilities Fund Balances and Other Credits: Investment in General Fixed Assets Fund Balances: Reserved for Encumbrances Reserved forlnventory Designated for Sewer Line Repair Undesignated Total Fund Balances and Other Credits Total Liabilities, Fund Balances and Other Credits Governmental Fund Types Special Debt Capital General Revenue Service Projects $92,419 $8,333 $0 $1_`.0,508 19,852 0 0 920,979 130,156 2,534 0 0 24,169 274 0 0 0 0 0 0 123,844 1,646 0 0 1,446,687 316,565 3,886,219 224,604 0 0 0 3417,443 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,837,127 329,352 3,886,2.19 1,64'3,534 0 0 0 0 172,528 46,528 0 5,252,078 .158,225 12,&08 0 0 195,990 0 -0 0> 8,859,812 1,550,368 240,546 3,51.1,964 9,386,555 1,609,704 240,546 8,764,042 $11,223,682 $1,939,056 $4,126,765 $10,4(17,576 See Accomparrying Notes to the Genera) Purpose Financial Statements 6 Fiduciary Fund Type Account Groups General General Totals Fixed Long-Tenn (Memorandum Agency Assets Obligations Only) $0 $0 $0 $251,260 0 0 0 940,831 0 0 0 132,690 0 0 979,490 1,003,933 31,217 0 0 31,217 0 0 187,211 312,701 ,.,, 0 0 0 5,874,075 0 0 0 347,443 ' 52,437 0 0 52,437 0 0 768,042 768,042 o o loslo,ooo loslo,ooo 0 0 1,290,000 1,290,000 83,664 0 13,734,743 21,514,629 0 19,973,007 0 19,973,007 0 0 0 6,471,134. 0 0 0 171,033 0 0 0 195,990 0 0 0 14,162,690 0 19,973,007 0 39,973,864 $83,654 $19,973,007 $13,734,743 $61,488,483 7 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types For the Year Ended December 31, 2002 Governmental Special General Revenue Revenues: Municipal Income Taxes $5,361,777 $0 Property and Other Taxes 580,302 274,339 Charges for Services 6,061 216,806 Licenses, Permits and Fees 75,851 0 Fines and Forfeitures 184,644 74,354 Intergovernmental 3,363,929 527,268 Special Assessments 0 0 Interest 339,588 13,191 Remals 39,973 9,101 Contributions/Donations 200 13,170 Other 113,641 496 Total Revenues 10,065,966 1,128,725 E~x enditures: Curcent: General Government 2,186,757 424 Security of Persons and Property 3;987,114 652,213 Pubfic Health Services 105,002 264,385 Transportation 1,300,627 115,169 Community Environment 29,191 .253,635 Basic Utility Services 119,714 0 Leisure Time Activities 33,425. 0 lntergovemmental 491,930 0 Capital Outlay 0 0 Debt Service: Principal Retirement 0 0 Interest and Fiscal Chazges 0 0 Total Expenditures 8,253,760 1,285,826 Excess of Revenues Over/(Under) Expendihues 1,812,206 (157,101) Other Firumcine Sources/(Uses): Proceeds of Bonds 0 0 Operating Transfers In 0 187,000 Operating Transfers Out (4,187,000) 0 Total Other Financing Sources/(Uses) (4,187,000) 187,000 Excess of Revenues and Other Financing Sources Over Expenditures and Other Financing Uses (2,374,794) 29,899 Fund Balances Beginning of Year 11,749,382 .1,579,247 Increase in Reserve for Inventory 11,967 558 Fund Balances End of Year $9,386,555 $1,609,704 See Accompanying Nares to the General Purpose Financial Statements 8 Fund Types Totals Debt Capital (Memorandum Service Projects Duly) $0 $2,116,312 $7,478,089 0 72,863 927,504 0 25,100 247,967 0 100,495 176,346 0 0 258,998 0 1,215,754 5,106,951 346,578 0 346,578 , 0 0 352,779 0 0 49,074 0 0 13,370 0 114,137 346,578 3,530,524 15,071,793 13,045 0 2,200,226 0 0 '4,639,327 0 0 369,387 0 0 1,415,796 0 0 282,826 0 0 119,714 0 0 33,425 0 1,132,474 1,624,404 0 7,856,305 7,856,305 147,689 280,000 427,689 144,130 269,255 413,385 304,864 9,538,034 19,382,484 41,714 (6,007,510) (4,310,691) 0 5,009,941 5,009,941 0 4,000,000 4,187,000 0 0 (4,187,000) 0 9,009,941 5,009,941 41,714 3,002,431 699,250 198,832 5,761,611 19,289,072 0 0 12,525 $240,546 $8,764,042 $20,000,847 9 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Noh-GAAP) and Actual All Governmental Fund Types For the Year Ended December 31, 2002 General Fund Revised Favorable Budget Actual (Unfavorable) Revenues: Municipal Income Taxes $5,136,080 $5,283,152 $147,072 Property and Other Taxes 585,086. 577,460 (7,626) Charges for Services 14,000 10,012 (3,988) Licenses, Permits and Fees 80,045 75,851 (4,194) FinesandForfeitures 102,000. 172,275 70,275 Intergovernmental 3,901,900: 3,886,121 (15,779) Special Assessments 0 0 0, Interest 332,360 348,872 16,512, Rentals 30,000 39,973 9,973 Contributions/Donations 0 200 200 Other 42,525 113;771 71,246 Total Revenues 10,223,996 10,507,687. 283,691 E_px enditures: Current: General Government 2,727,014 2,314,341 412,673 Security of Persons and Property 4,302,246 3,999,424 302,822 Public Health Services 105,065 105,002 63 Transportation 1,466,232 1,321,843 144,389 Community Environment 31,023 28,935 2,088 Basic Utility Services 142,557 125,622 16,935 Leisure Time Activities 42,603. 36,621 5,982 Intergovernmental 582,000 491,930. 90,070 Capital Outlay 20,250 0 20,250 Debt Service: Principal Retirement 0 0 0 Interest and Fiscal Charges 0 0 0 Total Expenditures 9,418,990 8,423,718 995,272 Excess of Revenues Oved(Under) Expenditures 805,006 2,083,969 1,278,963 Other Financin¢ Sources/(Uses Proceeds of General Obligation Bonds 0 0 0 Operating Transfers In 0 0 0 Operating Transfers Out (4,187,000) (4,187,000) 0 Total Other Financing Sotncesl(Uses) (4,187,000) (4,187,000) 0. Excess of Revenues and Other Financing Sources Over (Under)/Expendihues and Other Financing Uses (3,381,994) (2,103,031) 1,278,963 Fund Balances Beginning of Year 10,244,863 10,244,863 0 Unexpended PriorYeazEncumbrances 357,773 357,773 0 _ Fund Balances End of Year $7,22Q,642 $8,499,605 $1,278,963 See Accompanying Notes to the General Purpose Financial Statements 10 Special Revenue Funds Debt Service Fund _ Variance Variance Revised Favorable Revised Favorable '.. Budget Actual (Unfavorable) Budget Actual (Unfavorable) $0 $0 $0 $0 $0 $0 264,658 265,851 .1,193 0 0 0 194,130 206,418 12,288 0 0 0 0 0 0 0 0 0 46,350 74,204 27,854 0 0 0 359,975 521,042 161,067 0 0 -0 . 0 0 0 321,128 346,578 25,450 ' 14,546 12,796. (1,750) 0 0 0 5,335 9,101 3,766 0 0 0 16,700 13,170 (3,530) 0 0 0 D 496 496 0 0 0 _ 901,694 1,103,078 201,384 321,128 346,578 25,450 1,250 424 826 15,500 13,045 2,455 737,572 667,404 70,168 0 0 0 0 0 0 0 0 0 334,804 303,208 31,596 0 0 0 0 0 0 0 0 0 191,115 116,146 74,969 0 0 0 302,303 254,685 47,618 0 0 0 0' 0 0 0 0 0 0 0 0 0 0 0 0 0 0 147,689 147,689 0 0 0 0 144,130 144,130 0 _ 1,567,044 1,341,867 225,177 307,319 304,864 2,455 (665,350) 2( 38'789) 426,561 13,809 41,714 27,905 _ 0 0 0 0 0 0 152,296 187,000 34,704 0 0 0 0 0 0 0 0 0 152,296 187,000 34,704 0 0 0 _ (513,054) (51,789) 461,265 13,809 41,714 27,905 1,471,309 1,471,309 0 198,832 198,832 0 62,615 62,615 0 0 0 0 $1,020,870 $1,482,135 $461,265 $212,641 $240,546 $27,905 (Contina.ed) 11 City of Fairlawn, Ohio Combined Statement of Revenues, Expenditures and Changes in Fund Balances Budget (Non-GAAP) and Actual (Continued) All Governmental Fund Types For the Year Ended December 31, 2002 Capital Projects Funds _ Vaziance Revised Favorable: Budget Actual (Unfavorable) Revenues: Municipal Income Taxes $2,078,456 $2,078,456 :60 Properly and Other Taxes 78,677 67,749 (10,9:?8) Charges for Services 46,654 42,840 (3,81!4) Licenses, Permits and Fees 0 86,123 86,12 3 Fines and Forfeitures 0 0 0 Intergovernmental 74,000. 1,200,574 1,126,574 Special Assessments 0 0 0 Interest 0 0 0 Rentals 0 0 0 Contributions/Donations 0 0 0 Other 0 0 0 Total Revenues. 2,277,787 3,475,742 1,197,9'i5 Expenditures Currem: General Government 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 0 Basic Utility Services - 0 0 0 Leisure Time Activities 0 ~0 0 Intergovemmemal 0 1,132,474 (1,132,4';4) Capital Outlay 13,482,421 12,873,715 608,7(16 Debt Service: Principal Retirement 280,000 280,000 0 Interest and Fiscal Charges 269,255 269,255 0 Total Expenditures 14,031,676 14,555,444 (523,768) Excess of Revenues Over/(Under) Expenditures (11,753,889) Q1,079,702) , 674,1Fi7 Other Financine Sources!(Usesl: Proceeds of General Obligation Bonds 5,000,000 5,009,941 9,941 Operating Transfers In 2,000,000 4,000,000 2,000,0(10 Operating Transfers Out 0 0 0 TotalOtberFinancingSources/(Uses) 7,000,000 9,009,941 2,009,941 Excess of Revenues and Other Financing Sources Over (Under)/Expenditures and Other Financing Uses (4,753,889) (2,069,761) 2,684,128 Fund Balances Beginning of Year 4,899,413 4,899,413 0 Unexpended Prior Year Encumbrances 751,067 751,719 6:i2 Fund Balances End of Year $896,591 $3,581,371 $2,684,7250 See Accompanying Notes to ehe Cenera! Purpose Financial Statements 12 Totals (Memorandum Only) Variance Revised Favorable Budget Actual (Unfavorable) $7,214,536 $7,361,608 $147,072 928,421 911,060 (17,361) 254,784 259,270 4,486 80,045 161,974 81,929 148,350 246,479 98,129 4,335,875 5,607,737 1,271,862 321,128 346,578 25,450 346,906 361,668 14,762 35,335 49,074 13,739 16,700 13,370. (3,330) 42,525 114,267 71,742 13,724,605 15,433,085 1,708,480 2,743,764 2,327,810 415,954 5,039,818 4,666,828. ..372,990 105,065 105,002 63 1,801,036 1,625,051 175,985 31,023 28,935 2,088 333,672 241,768 91,904 344,906 291,306 53,600 582,000 1,624,404 (1,042,404) 13,502,671 12,873,715 628,956 427,689 427,689 0 413,385 413,385 0 25,325,029 24,625,893 699,136 (11,600,424) (9,192,808) 2,407,616 5,000,000 5,009,941 9,941 2,152,296 4,187,000 2,034,704 (4,187,000) (4,187,000) 0 2,965,296 5,009,941 2,044,645 (8,635,128) (4,182,867) 4,452,261 16,814,417 16,814,417 0 1,171,455 1,172,107 652 $9,350,744 $13,803,657 $4,452,913 13 Tbis page intentionally leflt blank. 14 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 NOTE 1-REPORTING ENTITY AND BASIS 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. RenortinQ 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 priimary 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,' emerl;ency medical, recreation (including parks), planning, zoning, street maintenance and repair, and general administrative services. The operation of each of these activities is dcrectly 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 ma}~ 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 fmancial 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 operatians of these entities. The .City participates in the Bath-Akron-Fairlawn Joint Economic Development District (JEDD), which is a jointly governed organization. The JEDD was created to assure the continued economic viability of Bath Township. Anine-member board of directors, three appointed from Bath Township, Akron, and Fairlawn, respectively, controls the operation of the JEDD. The board exercises total control over the operation of the aEDD including budgeting, appropriating, contracting and designating management. 15 City of Fairlawn Notes to the General Putpose Financial Statements For the Year Ended December 31, 2002 Each participant's degree of control is limited to its representation on the board. All 2002 JEDD revenues were the result of the income tax levied by the JEDD effective January 1, 1999. 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 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 acc~~unts recording cash and other financial resources, together v«th all related liabilities and residual equities or balances, and changes therein, which are segregated for. the pwpose 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 fundsare those through which most governnental 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 aze the City's governmental fund types: • General Fund -this fund is the operating fund of the City and is used to account fir 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 transfen•ed 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. • 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 Fundy -these funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. 16 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 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 andlor other funds. There are two types of fiduciary funds,-trust and agency. The City has nc~ 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 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 i'or 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 fmancial statements are summarized below. These policies conform to generally accepted ~.. accounting principles (GAAP) for local governmental units as prescribedvt the statements issued by the GASB and other recognized authoritative sources. A. Measurement Focus and Basis afAccountin2 The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All govemmental fund types are accounted for using a flow of current fmancial 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 iin the accounts and reported in the financial statements. Basis of accounting relates '[o the timing of the measurement made. The modified accrual basis of accounting is followed for the governmental and agency funds. t~ City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 On a modified accrual basis, revenue resulting from exchange transactions in which each party gives and receives essentially equal value is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resource:a will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the City, avaiilable means expected to be received within thirty-one days. ofyear-end. Non-exchange transactions in which the City receives value without directly giving equal value in return, include income tax, property taxes, grants, entitlements and donations. Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. (See Note 5) Revenue from grants, entitlements and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements which specify the year when the resources are required to be used or the fiscal year when use is first permitted, matching requirements in which the City must provide local resources to be used for a specified purpose, and expenditure requirements in which the resources are provided to the City ` on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.. Under the modified accrual basis, the following revenue sources are considered to be both measurable and available at fiscal year-end: interest, state-levied locally shared taxes (including gasoline tax), grants, fines and. forfeitures and income tax. .Deferred revenue arises when assets are. recognized before revenue recognition criteria have been satisfied. Property taxes for which there is an enforceable legal claim as of December 31,.2002,. but which were levied to finance 2003 operations, have been recorded as deferred revenue. Grants and entitlements received before the eligibility requirements are met are: also recorded as deferred revenue. On the modified accrual basis, receivables that will clot be collected within the available period have also been reported as deferred revenue. The measurement. focus of governmental fund accounting is on decreases in net fmtmcial resources (expenditures) rather than expenses.. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. B. BudQetarv 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. 18 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 The certificate of estimated resources and the appropriation ordinance are subject to amendment. throughout the year with the. legal restriction that appropriations casnnot exceed estimated resources, as certified. All funds, other than agency funds, are legally required to be budgeted and appropriated. The legal level of budgetary control has been established by City Council at the object level within each 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 Fiscaf Officer; as Secretary of the County Budget Commission, by July 20 of each year, for the period January 1 to December, 31 e~f the following year. Estimated Resources The County Budget Commission determines if the budget substantiates a need to le`ry 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 ea:ceed 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, oX 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 fmal amended official certificate of estimated resources issued during 2002. Appropriations A temporary appropriation 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 appropriiation 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 ordnance of Council. Duting the year, several supplemental appropriation measures were pas:;ed. 19 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 3I, 2002 None of these supplemental appropriations had any significant affect on the original appropriations. The budget figures that .appear in the statement of budgetary wmparisons represent the final appropriation amounts, including all amendments and modifications. encumbrances As part of formal budgetary control, purchase orders, contracts, and other commitrnents 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 proivbits expenditures plus encumbrances from exceedingappropriations at the fund, department and object level. 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 forward to the succeeding year and is not re-appropriated. C. Cash and Cash Equivalents To improve cash management, cash received by the City is pooled. Monies for all jFunds 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 cash and cash equivalents" on the combined balance sheet. During 2002, investments were limited to overnight repurchase agreements, certificates of deposit 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 had invested funds in the State Treasury Asset Reserve of Ohio (STAR Ohio) during 2002. 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 5EC 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 investrnents could be sold for on December 31, 2002. 20 City of Fairlawn Notes to the General Purpose Financial Statements For the Yeaz Ended December 31, 2002 Investment procedures are restricted by the provisions of the Ohio Revised Code. Interesrrevenue credited to the general fund during 2002 amounted to $339,588, which includes $151,148 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 sheet as "cash and cash equivalents in segregated accounts" since they are not required to be deposited into the City treasury. For presentation on the combined balance sheet, investments of the cash management pool and investments with original maturities of three months or less at the time they are purchased by the City aze considered to be cash equivalents. Investments with an initial maturity of more than three months are reported as investments. The City has monies on deposif with Ohio Department of Transportation (ODOT) to be used fore road `improvement projects. This amount is presented as "cash and cash equivalents with fiscal agent" on the combined. balance sheet. D. Inventoty 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 i~hat it does not constitute available expendable resources even though it is a component of net current assets. E. Fixed Assets and Denreciatlon General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction costs axe reflected as expenditures in governmental funds, and the related assets are reported in the general fixed asset account ~uP• All purchased fixed assets are valued at cost when historical records are available ;md at an estimated historical cost when no historical records exist.. Donated fixed assets are valued of 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. 21 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 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 City. Assets in the general fixed assets account group are not depreciated. 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 vesting method. The lialbility includes employees currently eligible to receive termination benefits and those the City has identified as probable of receiving benefits in the future. The. amount is based on accumulated sick .leave and the employees'. wage rates. at fiscal. year end, taking. into consideration any limits specified in the City's termination policy. The City records a liability for accumulated unused sick leave for all employees hired before December 31, 1991. 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. Interfund Assets/Liabilities During the course of operations, numerous transactions occur between individual i:unds for goods provided or services rendered. These receivables and payables are classified as "due from other funds" or "due to other funds." H. Fund Balances Reservations of fund balance are. established to identify the existence of assets that, because of their non-monetary nature or lack of liquidity, represent financial resources not available for current appropriation or expenditure including amounts that are legally segregated for a specific future use. Fund balances are reserved for encumbrances and inventories of supplies and materials. A designated fund balance has been establisheed for sewer line repairs. 22 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 L 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 reimbursing fund and as reductions of expenditures in the fund that is reimbursed. Nonrecurring or non-routine permanent transfers of equity are reported as residual equity transfers. All other inter-fund transfers are reported as operating transfers. J Accrued and Lone-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 cun•ent resources. However, claims and judgments, compensated absences 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 avaiilable fmancial resources. Payments made more than thirty-one days after year-end are generally considered not to have been paid with current available financial resources. Bonds and long-term loans 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. Actual results may differ from those estimates. 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. fmancial analysis. Data in these columns do not present fmancial position or results of operations, in conformity with GAAP. Neither is such data comparable to a consolidation. Inter-fund eliminations have not been made in the aggregation of this data. NOTE 3 -BUDGETARY BASIS OF ACCOUNTING While reporting financial position, results of operations, and changes in fund 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. 23 :~.d81 LNW{4 ~Y Lt4L al City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 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 meaningful comparison of actual results with the budga;t 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 govetnmental fund types (GAAP.). The following table summarizes the adjustments necessary to reconcile the GAAP basis statements to the budgetary basis statements on a fund type basis: Excess of ltevem~es and Other Finat~chrg Sources Cv~/(Under) E+g~axiitures and Other Fn~aocing Uses GAAP Basis Revue Accxuals ~~ Expenditu~ Accn~als Budget Bags ~~ ~~ General Rbveuue Debt Service Pt+ojeds $(2,374,794) $29,899 $41,714 $3,002,•431 432,437 (25,873) 0 (54;782) 9,284 226 0 0 115,167 (3,834) NOTE 4 -DEPOSITS AND INVESTMENTS State statutes classify monies held by the City into three categories. 1,281,892 Active deposits aze 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 orderof 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 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. 24 City of Fairlawn Notes to the General Purpose Financial Statements For the Year 1/nded December 31, 2002 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 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. Protection of .the City's deposits is .provided by the Federal Deposit Insiuance Corporation, by eligible securities pledged by the financial institution as security for repayment, by surety company bonds deposited with the finance director by the fmancial institution or by a single collateral pool established by the fmancial institution to secure the repayment of all public monies deposited with the institution. Interim monies may be deposited or invested in the following securities: 1. United States treasury notes, bills, bonds, or any othetobligation 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 Loam Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and Student Loan Marketing; Association. All federal agency securities shall be direct issuances of federal government agencies or instrumentalities. 3. Written repurchase agreements in the securities listed above, provided that the market value of the securities subject to the repurchase agreement must exceed the principal value of the agreement by at least two percent and be: marked to market daily, and that the term of the agreement must not exceed thirty days; 4. Bonds, and other obligations of the State of Ohio; 5. No-load money market mutual funds consisting exclusively of obligation<.; described in division (1) or (2) of this section and repurchase agreements secured by such obligations, provided that investments in securities described m this division are 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 are also prohibited. An investment must mature 25 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 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 wily be head to maturity. 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 finance director or .qualified trustee or, if the securities are not represented by a certificate, upon receipt of confirmation of transfer from the custodian. The following information classifies deposits and investments by categories of risk as defined in GASB Statement 3, "Deposits with Financial Institutions, Investients (including Repurchase Agreements), and Reverse Repurchase Agreements." Cash on Hand At year end, the. City. had $1,400 in un-deposited cash on hand which is included on the balance sheet as part of "equity in pooled cash and. cash equivalents." Cash with Fiscal Agents The City has $86,823 on deposit with the Ohio Department of Transportation (OI>OT). Information regazding the classification of ODOT's deposits and investments per ~iASB Statement No. 3 may be found in the State's Comprehensive Annual Financial Report for the fiscal year ended June 30, 2002. Ciry Deposits At yeaz-end, the carrying amount of the City's deposits was $1,402,713 and the bank balance was $806,142. Of the bank balance, $107,939 was wvered by federal depository insurance and $698,203 was uninsured and un-collateralized. Although the semuities serving as collateral were held by the pledging financial institutions trust departments or agent in the City's name and all state statutory requirements for the deposit of money had been followed, noncompliance with the federal requirements would potentially subject the City to a successful claim by the Federal Deposit Insurance Corporation. 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 year-end. Category 1 includes investments that are 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 counterparty'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. 26 City of Fairlawn Notes to the General. Purpose Financial Statements For the Year Ended December 31, 2002 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_ Repurchase Agreements $3,004,904 $3,004,904 $3,004,904 STAR Ohio 16,049,542 16,049,542 Total Investments $3,004,904 $19,054,446 $19,054,446 The classification of cash and. cash equivalents, and. investments. on the corribined 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: GASB Statement No. 9 Investments which are part of the cash management pool: Repurchase Agreement. STAR Ohio ODOT GASB Statement No. 3 NOTE 5 -RECEIVABLES Cash and Cash EquivalentslDeposits Investments _ $20,545,382 $0 (3,004,904) 3,004,904 (16,049,542) 16,049,542 (86,823) 0 $1,404,113 $19,054,446 Receivables at December 31, 2002 consist primarily of taxes, intergoverrunental receivables, special assessments and accrued interest on investments. All receivables are considered fully collectible. A. Properly Taxes Property taxes include amounts levied against all real, public utility, and tangible personal property located in the City. Property tax revenue received during 2002 for real and public utility property taxes represents collections of 2001 taxes. Property tax payments received during 2002 for tangible personal property (other than public utility property) are for 2002 taxes. 2002 real property taxes are levied after October I, 2002, on the assessed value; as of January 1, 2002, the lien date. Assessed values are established by State law at 35 percent 27 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 of appraised mazket value. 2002 real property taxes are collected in and intended to finance 2003. Public utility tangible personal property currently is assessed at varying percentages of true value; public utility real property is assessed at 35 percent of true value. 2002 public utility property taxes became a lien December 31, 2001, aze levied after October 1, :?002, and are collected in2003 with real property taxes. 2002 tangible personal property taxes are levied after October 1, 2001, on the value as of December 31, 2001. Collections aze made in 2002. Tangible personal property assessments aze 25 percent of true value. The full tax rate for all City operations for the year ended December 31, 2002 was `.62.70 per $1,000 of assessed value. The assessed values of real and tangible personal property upon which 2002 property tax receipts were based are as follows: Assessed Value Real Estate $289,598,570 Public Utility Property 4,340,970 Tangible Personal 27,580,282 Total $321,519,822. Real 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, State statute pernuts 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 senu-annually. If paid annually, payment is due Apri130; if paid semi-annually, the first payment is due Apri130, with the remainder payable September 20. The County Fiscal Officer collects property taxes on behalf of all taxing districts in the county, including the City of Fairlawn. The County Fiscal Officer periodically remits to the City its portion of taxes. Properly taxes receivable represent real and tangible personal property taxes and outstanding delinquencies which are measurable as of December 31, 2002, and for which there is an enforceable legal claim. Although total property. tax collections for the next year are measurable, amounts to be received during the available period are not subject to reasonable. estimation at December 31, nor were they levied to finance 2002 operations. The receivable is offset by deferred revenue. S. Income Taxes The City levies a municipal income tax of 2 percent on gross salaries, wages and other personal service compensation earned by residents of the City and on the earnings of 28 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 nonresidents working within the City. This tax also applies to the net income of business operations within the City. Residents of the City are granted a credit of up to 2 percent for taxes paid to other municipalities. Employers within the City are required to withhold income tax on employee compensation and remit the tax to the City either monthly or quarterly, as required. Corporations and other individual. taxpayers are required to pay their estimated tax quarterly and file a declaration annually. By City ordinance, income tax proceeds are credited as follows: the general fund receives 90 percent and the capital improvement fund receives 10 percent of the first 1.5 percent of the 2 percent income tax. The capital improvement fund receives the remaining .5 percent of the income tax. C. Intergovernmental Receivables A summary of intergovernmental receivables follows Intergovernmental Receivable Amount General Fund: Local Government Tax $256,047 Tangible Exempt 4,695 Liquor Permits. 2,655 Building Permits 7,562 Estate Tax 28,928 Akron Court Fines 1,906 JEDD Disbursements 159;251 Homestead & Rollback ~ 30,779 Total General Fund 491,823 Special Revenue Funds: Gasoline Tax 97,441 Motor Vehicle 17,081 Motor Vehicle Permissive 6,761 Police DARE. Grant 9,565 Fire Equipment Grants 5,785 Court Fines 25 Tangible Exempt 1,360 Homestead & Rollback 8,826 Total Special Revenue Funds - 146,844 Capital Projects Fund: Summit County Shared Projects 15,180 Total All Funds $653,847 29 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 NOTE 6-FIXED ASSETS Changes in general fixed assets during 2002 were as follow: Balance Balance January 1, 2002. Additions Deletions December 31, 2002 Land $2;143,002 $0 $0 $2,143,002 Land Improvements 1,229,033 284,999 0 1,514,032 Buildings _ 6,554,698 0 28,941 6,52'.5,757 Machinery and Equipment 3,264,364 ' 450,693 130,946 3,589,111 Vehicles 2,348,916 309,706 96,084 2,562,539 Construction In Progress 0 3,638,561 0 3,638,567 Total $15,545,013 $4,683,965 $255,971 $19,973,007 NOTE 7 -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 2002, the City contracted with Wichert Insurance Service, Inc. for property and general liability insurance, including boiler and machinery. Police and professional liability policies are provided by CNA Insurance Companies with a $1,000,000 limit and a $10,000 deductible. A commercial umbrella policy through RLI Insurance Company provides additional general liability and auto liability insurance up to an $11,000,000 limit. Vehicles are covered by Westfield Insurance Company and hold a $1,000 deductible for collision. Automobile liability coverage has no limit for collision, a $500,000 limit for uninsured/underinsured motorist and a $1,000,000 limit for bodily injury. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year. Volunteer Fireman's Insurance Services covers Firemen and EMT professional liability with a limit of $1,000,000 and no deductible. The City 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. 30 City of Fairlawn Notes to the General Puipose Financial Statements For the Year Ended December 31, 2002 NOTE 8 -DEFINED BENEFIT PENSION PLANS A. Ohio Public Employees Retirement System (OPERS) All City full-time employees, other than non-administrative full-time police officers and firefighters, participate in the Ohio Public Employees Retirement System (OPEP:S), a cost-sharing multiple-employer public employee retirement system administered by the Ohio Public Employees Retirement Boazd. OPERS provides basic retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. The Authority to establish and amend benefits is provided by Chapter 145 of the Ohio Revised Code. OPERS issues astand-alone fmancial 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 8.5 percent' of their annual covered salary to fund pension obligations. The 2002 employer contribution rate for the City was 8.55 percent of covered payroll, reduced from 9.25 percent in 2001. Contributions are authorized by State statute. The City's required contributions to OPERS for the years ended December 31, 2002, 2001, and 2000 were $186,605, $187,231 and $ll~i,321, respectively. The full amount has been contributed for 2001 and 2000. 76.8 percent has been contributed for 2002 with the remainder being reported as a liability within the general long-term obligations account group. . B. Ohio Police and Fire Pension Fund The City contributes to the. Ohio Police and Fire Pension Fund (OP&F),` acost-sharing multiple employer public employee retirement system administered by the OF'&F's Boazd of Trustees. OP&F provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by the Ohio State Legislature and codified in Chapter 742 of the Ohio Revised Code. OP&F issues a publicly available financial report that includes fmancial information and required supplementary information. That report may be obtained by writing to the Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164. 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 11.75 percent for police and 16.25 percent for firefighters. Contributions are authorized by State statute. The City's contributions to the OP&F for police and firefighters were $141,067 and $111,917 for the year ended December 31, 2002, $135,718 and $96,404 for the year ended December 31, 2001 and $123,958 and $77,119 for the year ended December 31, 2000. The full amount has been contributed for 2001 and 2000. 76.4 percent and 74.4 percent, respectively, have been contributed for 2002 with the remainder being reportedl as a liability in the general long-term obligations account group. 31 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 C. Socia! Security System Effective August 3, 1992, all volunteer firefighters, not otherwise covered by another retirement system, are covered by social security. The City's liability is 6.20 percent of wages paid. NOTE 9 -POST EMPLOYMENT BENEFITS A. Ohio Publie Employees Retirement System The Ohio Public Employees Retirement System (OPERS) provides postretirement health caze coverage to age and service .retirees with ten or more years of qualifying Ohio service credit. Health care coverage for disability recipients and primary survivor recipients is available. The health care coverage provided by the retirement system is considered an Other ]?ostemployment Benefit as described in GASB Statement No. 12. A portion of each employer's contribution to OPERS is set aside for the funding of postretirement health care. based on authority granted by .State statute. .The. 2002 employer contribution rate was 13.55 percent of covered payroll; 5.00 percent. was the portion that was used to fund health care for 2002. For 2001, the contribution rate was 13.55 percent of covered payroll; 4.3 percent was the portion that .was used to fund healthcare. Benefits are advance-funded using the entry age normal cost method. Significant actuarial assumptions, based on OPERS's latest. actuarial review, .performed as of December 31, 2001, include a rate of return on investments of 8.00 percent, an annual increase. in active employee total payroll. of 4.00 percent compounded annually (asstuning no change in the number of active employees) and an additional increase in total payroll of between .50 percent and 6.3 percent based on additional annual pay increases. Health care premiums were assumed to increase, 4.00 percent annually. All .investments are carried at market. For actuarial valuation purposes, a smoothed market approach is used. Assets are adjusted to reflect 25 percent of unrealized market appreciation or depreciation on investment assets. The number of active contributing participants was 402,896. The City's actual contributions for 2002 which were used to fund postemployment benefits were $1013,126. The actual contribution and the actuarially required contributions are the same. OP]~RS's net assets available for payment of benefits at December 31, 2001, (the latest information available) were $11.6 billion. The actuarially accrued'liability and the unfunded actuarial accrued liability were $16.4 billion and $4.8 billion, respectively. 32 City of Fairlawn Notes to the Genetal Purpose Financial Statements For the Year Ended December 31, 2002 B. Ohio Police and Fire Pension Fund The Ohio Police and Fire Pension Fund (OP&F) provides postretirement health care coverage to any person who receives or is eligible to receive a monthly 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 Ohio Police and Fire Pension Fund's Boazd of Trustees to provide health care coverage and states that health care costs paid from the Ohio Police and Fire Pension Fund shall be included in the employer's contribution rate. Health care funding and accounting is on apay-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 oovered payroll, of which 7.75 percent of covered payroll .was applied to the postemployment health care program during 2002. For 2001 the percent used to fund healthcare was 7.50 percent. In addition, since 7uly 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 2002 that were used to fund postemployment benefits were $90,043 for police and $51,654. for fire. The OP&F's total health care expenses for the year ended December 31, 2001, (the latest information available) were $122,298,771, which was net of member contributions of $6,874,699. The number of OP&F participants eligible to receive health care benefits as of December 31; 2001, was 13,174 for ;police and 10,234 for firefighters. NOTE 10 -OTHER EMPLOYEE BENEFITS A. Compensated Absences The criteria for determining vested vacation and sick leave components aze derived from negotiated agreements and state laws. Employees cam ten to thirty days of vacation per year, depending upon length of service. Vacation accumulation is typically limited to one year. Employees may carry over ,vacation earned for three years prior to the employee's retirement date. All accumulated unused vacation time is paid upon termination of employment. Employees earn sick leave at the rate of 1.25 days per month of service. Sick leave accumulation is limited to 220 days. Upon retirement, employees hired before 1991 are _ eligible to receive payment for accumulated unused sick days. The exact terms vary in accordance with the negotiated collective bargaining agreement in effect. In most cases, the sick leave ternnation payment is limited to 90 days. Employees with a hue date 33 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 subsequent to 1991 are generally not eligible to receive termination payments for sick leave. As of December 31, 2002, the total liability for unpaid compensated absencesa was $979,490. 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 medicaUsurgical be~refits through Medical Mutual of Northern Ohio. The employees share the cost of the monthly premium. Dental insurance is provided by the City through Delta Dental. NOTE 11-LONG-TERM OBLIGATIONS Long-term obligations of the City as of December 31, 2002, were as follows: Balance Balance December 31,2001 Additions Deletions December 31, 2002 General Obligation Bonds (2.80-5.75%) $5,685,000 $S,1D5,000 $280,000, $10,510,000 Special Assessment Vazious Purpose Bond (4.80-7.00%) 1,395,000 0 SO5,000 1,2.90,000 OPWCLoans(6.00%) 810,731 . 0 42,689 768,042 Intergovernmental Payable 185,976 187,211 185,976 187,211 Compensated Absences 844,359 153,298. 18,167 9'79,490 Total General Long-Term Debt $8,921,066 $5,445,509 $631,832 $13,734,743 The general obligation bonds will be paid from income taxes receipted into the capital improvement fund. The special assessment bond and OPWC loans will be paid from the proceeds of special assessments levied against the benefited property owners. In the evert flrat a pmpaiy owtgr fails to pay the assessment, payment will 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 aze paid. Intergovernmental payable represents unfunded pension contribution not paid with current avaiilable fmancial resources and will be paid from the general fund and special revenue funds. 34 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 Principal and interest requirements to retire long-term obligations outstanding at December 31, 2002 areas follows: Special General Assessment Obligation OPWC Year Ending Bond .Bonds Loans Total _ 2003 199,345 937,839 90,702 1,227,886 2004 197,140 930,318 90,702 1,218,160 2005 199,550 927,995 90,702 1;218,247 2006 195,800 934,897 90,702 1,221,399 2007 196,700 924,070 90,702 . .1,211,472 2008-12 791,450 4,638,765 453,509 5,883,724 2013-17 0 .3,680,977 181,404 3,862,381 2018+ 0 2,204,150 0 .2,204,150 Total principal and interest 1,779,985 15,179,011 1,088,423 .18,047,419 Less interest 489,985 4,669,011 320,381 5,479,377 Total principal $1,290,000 $10,510,000 $768,042 $12,568,042 NOTE 12 -CONTRACTUAL COMMITMENTS As of December 31; 2002, the City had various contractual commitments;. for road maintenance and improvements of $2,138,278, sewer cleaning and improvements of $131,120, building improvements of $3,703,621, purchases of various capital equiipment of $173,372, computer equipment of $8,287 and park equipment and improvements of $181,486. NOTE 13 -CONTINGENCIES 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 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 fmancial position of the City as of December 31, 2002. 35 City of Fairlawn Notes to the General Purpose Financial Statements For the Year Ended December 31, 2002 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 14 - INTERFUND TRANSACTIONS Intexfund balances at December 31, 2002, consistof the following: Due From Due To General Fund Special Revenue Funds; Children Adolescent SAEF - Mayor's Court -Agency Fund Total $25,203 $0 G,014 0 0 31,217 $31,217 $31,217 36 • ~ ^ • ~ Auditor of State ;Betty Montgomery INDEPENDENT ACCOUNTANTS' REPORT ON COMPLIANCE AND ON INTERNAL CONTROL REQUII2ED BY GOVERNMENTAUDITING STANDAh'DS City of Fairlawn Summit County 3487 South Smith Road Fairlawn, Ohio 44333 To the Members of City Council: We have audited the general purpose financial statements of the City of Fairlawn, Summit CoLtiity, Ohio, (the City) as of and for the year ended December 31, 2002 and have issued our report thereon dated August 15, 2003. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standazds applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City's financial statements au~e 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 effe:et on the determination of financial statement amounts. However,'providing anopinion 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 certain immaterial instances of noncompliance that we have reported to management of the City in a separate letter dated August 15, 2003. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's intemal 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 a11. matters in the intemal 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 ins 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. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. 1115econd 56., N W J'Faurlh Floor / Cauton, OH 44702 Telephone. (330) 438.11617 (1300)443.9272 Fax (330} 471-OODl wwtiv.auditarstate.ah.us 37 City of Fairlawn Summit County Independent Accountants' Report on Compliance and on Internal Coniml Required by Governmeru Auditing Standards Page 2 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 datrd August 15, 2003. This report is intended for the information and use of management and City Council, and is not intended to be and should not be used by anyone other than these specified parties. ~~ Betty Montgomery Auditor of State August 15,.2003 38 • •. - Auditor of State ' Betty Montgomery CITY OF FAIRLAWN SUMMIT COUNTY 68 Last Bvoad Street P.O. Boat 140 Columbus, Ohio 4327.61140 Telephone 614-0664314 800 28L4370 Facsimile 614466-0490 .CLERK'S CERTIFICATION This is a true and correct copy of the report which is required to be filed in tF~e Office of the Auditor of State pursuant to Section 117.26, Revised Code, and whichh is filed in Columbus, Ohio. CLERK OF THE BUREAU CERTIFIED SEPTEMBER 23, 2003