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Home My WebLink About2011 Annual Town Report 2 2 2 3 2 2 2 2 2 2 5 2 2 2 2 7 7 7 6 2 3 2 2 1 7 7 3 2 7 7 3 7 7 7 3 1 2 2 2 22 3 3 2 1 3 52 12 1 23 2 7 22 Revenue Budget Revenue Budget Revenue Budget General Fund Expenditure Budget General Fund Expenditure Budget General Fund Expenditure Budget Water Enterprise Fund Budget Water Enterprise Fund Budget Sewer Enterprise Fund Budget Sewer Enterprise Fund Budget Stevens Estate Enterprise Fund Budget TOWN OF NORTH ANDOVER, MASSACHUSETTS REPORT ON EXAMINATION OF BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2011 TOWN OF NORTH ANDOVER, MASSACHUSETTS REPORT ON EXAMINATION OF BASIC FINANCIAL STATEMENTS JUNE 30, 2011 TABLE OF CONTENTS Independent Auditors’ Report..........................................................................................................................................1 Management’s Discussion and Analysis.........................................................................................................................3 Basic Financial Statements...........................................................................................................................................13 Statement of Net Assets............................................................................................................................................15 Statement of Activities...............................................................................................................................................16 Governmental funds – balance sheet........................................................................................................................18 Reconciliation of the governmental funds balance sheet total fund balances to the statement of net assets..........19 Governmental funds – statement of revenues, expenditures and changes in fund balances...................................20 Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities.............................................................................................................................21 Proprietary funds – statement of net assets..............................................................................................................22 Proprietary funds – statement of revenues, expenses and changes in fund net assets...........................................23 Proprietary funds – statement of cash flows..............................................................................................................24 Fiduciary funds – statement of fiduciary net assets...................................................................................................25 Fiduciary funds – statement of changes in fiduciary net assets................................................................................26 Notes to basic financial statements...........................................................................................................................27 Required Supplementary Information............................................................................................................................54 Schedule of revenues, expenditures and changes in fund balance – general fund – budget and actual.................56 Retirement System Schedules...................................................................................................................................58 Retirement system schedule of funding progress..................................................................................................59 Retirement system schedule of employer contributions........................................................................................60 Other postemployment benefit plan schedules..........................................................................................................61 Other postemployment benefit plan schedule of funding progress and schedule of employer contributions........62 Other postemployment benefit plan actuarial methods and assumptions.............................................................63 Notes to required supplementary information............................................................................................................64 Additional information................................................................................................................................................67 Enterprise funds – schedule of revenues, expenses and changes in fund net assets – budgetary basis – budget and actual...............................................................................................................................................................68 Independent Auditors’ Report To the Honorable Board of Selectmen Town of North Andover, Massachusetts We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of North Andover, Massachusetts, as of and for the fiscal year ended June 30, 2011, which collectively comprise the Town’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town of North Andover, Massachusetts' management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America andthe standards applicable to financial audits contained inGovernment 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of North Andover, Massachusetts, as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal 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 December 19, 2011, on our consideration of the Town of North Andover, Massachusetts’ internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grantagreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Management’s discussion and analysis, located on the following pages, and the schedule of revenues, expenditures and changes in fund balance - general fund – budgetary basis, retirement system schedule of funding progress, retirement system schedule of employer contributions, other postemployment benefit plan schedule of funding progress and schedule of employer contributions, and other postemployment benefit plan actuarial methods and assumptions, located after the notes to the basic financial statements, are not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 1 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town of North Andover, Massachusetts’ basic financial statements. The additional information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and , in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. December 19, 2011 2 Management’s Discussion and Analysis Town of North Andover, Massachusetts 3 Basic Financial Statements Management’s Discussion and Analysis As management of the Town of North Andover, we offer readers of these financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented in this report. All amounts, unless otherwise indicated, are expressed in whole dollars. The Governmental Accounting Standards Board (GASB) is the authoritative standard setting body that provides guidance on how to prepare financial statements in conformity with generally accepted accounting principles (GAAP) for states and local governmental entities. Users of these financial statements (such as investors, rating agencies and management) rely on the GASB to establish consistent reporting standards for all governments in the United States. This consistent application is the only way users (including citizens, the media, legislators and others) can assess the financial condition of one government compared to others. Recently, significant improvements in financial reporting have been made and more are currently proposed. In 2009, GASB required the full disclosure of other postemployment benefits (OPEB) in footnotes and the recording of the cumulative actuarial liability owed as of a balance sheet date over a thirty year period beginning in 2009. Among the proposals GASB recently made is a requirement that the total cumulative OPEB liability owing workers for past services performed, or (the cumulative actuarial liability owed as of a balance sheet date) would be fully recognized as a liability as of a balance sheet date. GASB has also proposed changes in accounting for governments that provide pension benefits and others that report and administer pension plans for governmental entities. While these changes only relate to financial reporting and do not extend to how governments approach pension plan funding, there is a close connection in existing GASB standards between how governments account for and report information about them in their financial statements. Under these proposals, North Andover would be required to record the entire unfunded actuarially owed pension obligation on their balance sheet as a liability, rather than the current method of just disclosing these future obligations in a footnotes and supplemental data and only recording the current year’s funding requirement as an expense. In effect, this proposal would require the Town’s financial statements to reflect actual liabilities, when incurred, rather than the current method of not recording them as liabilities and accounting for them as a future costs, even though these were incurred in prior periods. By way of example, the cost of raises would not only increase current payroll requirements for budgeting purposes, but the financial statements would also account for the actuarial costs of pension related benefits attributable to these raises in the period(s) when these raises were incurred. Second, pension plan administrators, such as the Essex County Retirement Board (ECRB) would be required to calculate pension obligations using realistic expected rates of returns (presently ECRB uses 8.25%) and more accurate and conservative other assumptions that dramatically have been used in the past to understate the amount of the unfunded liabilities owed employees. The implementation of these significant GASB requirements would dramatically alter the presentation of the Town’s financial position and its operating results to methods required to be used by industry and other non- governmental units. It could result in the recording of over $150 million or perhaps more in additional liabilities on the Town’s balance sheet for liabilities due former and current employees. Finally, as previously indicated, the implementation of these GASB requirements could fundamentally change the way government’s budget costs and negotiate labor contracts, as well as force local town and cities seek state legislative relief on future obligations due employees, either new or existing. Town of North Andover, Massachusetts 4 Basic Financial Statements Financial Overview Governmental net assets decreased by $6.2 million in fiscal 2011 due principally to the long term amortization of OPEB liability, which increased by $8.6 million in fiscal 2011 to bring the total recorded liability on the balance sheet to $22.9 million at year end from $14.3 million as of June 30, 2010. Based on the most recent actuarial report, dated July 1, 2010, the actual unfunded accrued liability as of June 30, 2011 totaled $141.5 million of which $22.9 million has been recorded in the balance sheet and $118.5 is to be recorded in the balance sheet over the next 27 years. See above and Note 12 for further discussion of this liability. The Essex County Retirement Board recently reported that the total unfunded liability for the pension plan that the Town participates in increased by $114 million from $143.8 million to $257.8 million, using an estimated 8.25% annual return on funds, or more than 79% from January 1, 2008 to December 31, 2010. North Andover’s share of this liability is determined annually based on payroll costs but has generally been approximately 15.5% that could resulting in an unfunded liability of $40 million. At the close of the current fiscal year, the Town’s general fund reported an ending fund balance of $4.7 million, an increase of approximately $424,000 in comparison with the prior year. Total fund balance represents 6% of total general fund expenditures. The Town’s total debt (short-term and long-term combined) decreased by a net of $5.4 million during the current fiscal year of which $1.7 million was attributable to sewer enterprise debt, $2.2 million was attributable to water enterprise debt and $1.7 million was attributable to governmental debt funds This was due to the net effect of $5.2 million from the issuance of new debt and $10.6 million in principal payments on outstanding debt The Town adopted GASB Statement No. 54 which provides a more structured classification of fund balance and improves the usefulness of fund balance reporting to the users of the Town’s financial statements. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the Town of North Andover’s basic financial statements. These basic financial statements comprise of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of finances, in a manner similar to private-sector business. Thestatement of net assets presents information on all assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position is improving or deteriorating. Thestatement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Town of North Andover, Massachusetts 5 Basic Financial Statements Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities include general government, public safety, education, public works, health and human services, culture and recreation and interest. The business-type activities include the activities of the water, sewer, and Osgood Hill Estate operations. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements. All of the funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds.Governmental funds are used to account for essentially the same functions reported as governmental activities in the governmental-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Town of North Andover adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided for the general fund to demonstrate compliance with this budget. Proprietary funds. The Town maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The Town uses enterprise funds to account for its water, sewer, and Osgood Hill Estate operations, all of which are considered to be major funds. The Town of North Andover adopts annual appropriated budgets for each enterprise fund. A budgetary comparison schedule has been provided, as additional information, to demonstrate compliance with these budgets. TheInternal Service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk-financing activities related to active employees’ and retirees’ health insurance. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the Town’s own programs. The accounting used for fiduciary funds is much like that used for propriety funds. Private-purpose trust funds and agency funds are reported and combined into a single, aggregate presentation in the fiduciary fund financial statements under the captions “private purpose trust funds” and “agency funds,” respectively. Town of North Andover, Massachusetts 6 Basic Financial Statements Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. North Andover’s assets exceeded liabilities by $137.6 million at the close of fiscal 2011. Net assets include $139.2 million investment in capital assets (e.g., land, buildings and building improvements, machinery and equipment and infrastructure), less any related debt used to acquire those assets that are still outstanding. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the investment in its capital assets is reported net of its related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the net assets, $7.6 million, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets has a year end deficit balance of ($9.2) million. The primary reason for this deficit balance is the increase in the other postemployment benefit liability. At the end of the current fiscal year, the Town is able to report positive balances in two of the three categories of net assets, for the Town as a whole and for its governmental activities. Its business-type activities report positive balances in both categories. The governmental activity and business-type activity components of the Town are presented below. Governmental Activities The Town of North Andover’s assets exceeded liabilities for governmental activities by $98.6 million at the close of fiscal 2011. FY 2011FY 2010 Assets: Current assets………………………………………$28,372,788 $29,267,806 Noncurrent assets (excluding capital)…………… 1,144,264 1,516,574 Capital assets……………………………………… 135,538,168 134,046,177 Total assets……………………………………… 164,830,557165,055,220 Liabilities: Current liabilities (excluding debt)………………… 6,832,998 7,134,598 Noncurrent liabilities (excluding debt): … 21,688,499 13,322,006 Other postemployment benefits……………… Compensated absences………………………… 1,367,000 1,371,000 Current debt………………………………………… 6,492,129 6,689,004 Noncurrent debt……………………………………… 30,042,741 31,516,714 Total liabilities………………………………… 60,033,32266,423,367 Net Assets: Capital assets net of related debt………………… 102,754,256 100,868,439 Restricted…………………………………………… 7,574,263 6,539,198 Unrestricted………………………………………… (11,696,666) (2,610,402) Total net assets………………………………… 98,631,853104,797,235 $$ Town of North Andover, Massachusetts 7 Basic Financial Statements FY 2011FY 2010 Program revenues: Charges for services…………………………………$6,564,295 $6,212,690 Operating grants and contributions……………… 18,853,013 16,448,490 Capital grants and contributions…………………… 1,856,297 455,022 General Revenues: Real estate and personal property taxes………… 57,726,043 55,855,205 Tax liens……………………………………………… 576,219 908,371 Motor vehicle and other excise taxes……………… 3,748,360 3,165,811 Penalties and interest on taxes…………………… 223,861 277,662 Payments in lieu of taxes…………………………… 1,867,094 1,838,821 Community preservation surcharges……………… 1,312,401 1,263,566 Grants and contributions not restricted to specific programs………………………………… 2,222,543 2,748,904 Unrestricted investment income…………………… 445,515 449,199 Total revenues………………………………… 89,623,74195,395,641 Expenses: … 4,559,013 4,021,067 General government……………………………… Public safety………………………………………… 15,134,400 14,654,536 Education…………………………………………… 70,860,92066,409,142 Public works………………………………………… 6,485,227 6,227,974 Health and human services………………………… 2,080,778 2,054,742 Culture and recreation……………………………… 2,192,035 2,109,924 Interest……………………………………………… 1,370,287 1,506,325 Total expenses………………………………… 96,983,710102,682,660 Excess (deficiency) before transfers……………… (7,359,969)(7,287,019) Transfers………………………………………………… 916,2561,121,637 Change in net assets…………………………………$(6,165,382) $(6,443,713) The governmental expenses totaled $102.7 million of which $27.3 million (27%) was directly supported by program revenues consisting of charges for services, operating and capital grants and contributions. General revenues totaled $68.1 million, primarily coming from property taxes, motor vehicle excise, payments in lieu of taxes and non-restricted state aid. The governmental net assets decreased by $6.2 million during the current fiscal year. This was due to an $8.4 million increase in the other postemployment benefits liability and a $1.4 million decrease in the internal service fund. These decreases were partially offset by capital grants and favorable operating results for the general fund and community preservation fund. Town of North Andover, Massachusetts 8 Basic Financial Statements Business-type Activities For the Town’s business-type activities, assets exceeded liabilities by $38.9 million at the close of fiscal 2011. FY 2011FY 2010 Assets: Current assets………………………………………$9,927,896 $11,512,413 Noncurrent assets (excluding capital)…………… 875,504 993,664 Capital assets……………………………………… 56,875,340 56,259,161 Total assets………………………………………67,678,740 68,765,238 Liabilities: Current liabilities (excluding debt)………………… 756,965 758,466 Noncurrent liabilities (excluding debt): Other postemployment benefits………………… 1,219,505 950,071 Court judgments………………………………… - 56,000 Current debt………………………………………… 3,537,069 3,939,351 Noncurrent debt……………………………………… 23,242,392 26,554,462 Total liabilities…………………………………28,755,931 32,258,350 Net Assets: Capital assets net of related debt………………… 36,443,088 32,898,415 Unrestricted………………………………………… 2,479,721 3,608,473 Total net assets…………………………………$38,922,809$ 36,506,888 Program revenues: Charges for services…………………………………$10,787,070 $10,295,194 Operating grants and contributions……………… 141,724 177,861 Total revenues…………………………………10,928,794 10,473,055 Expenses: Water………………………………………………… 3,188,559 2,972,303 Sewer………………………………………………… 3,877,585 3,644,464 Osgood Hill ………………………………………… 325,092 259,595 Total expenses………………………………… 6,876,3627,391,236 Excess (deficiency) before transfers……………… 3,596,6933,537,558 Transfers…………………………………………………(1,121,637)(916,256) Change in net assets…………………………………$ 2,415,921$ 2,680,437 Business-type net assets of $36.4 million represent the investment in capital assets while $2.5 million is unrestricted. The Town’s business-type activities net assets increased by $2.4 million in the current fiscal year. The water enterprise fund net assets increased by $1.9 million. This was due to debt service principal payments exceeding depreciation expense by $1.6 million, some increased consumption and a reduction in the cost of services, primarily in utilities, contract services, chemicals, and materials and supplies. . The sewer enterprise fund net assets increased by $631,000. This increase was primarily due to debt service principal payments exceeding depreciation expense by $845,000. The Osgood Hill enterprise fund net assets decreased by $127,000, which was due to unfavorable operating results totaling $45,000 and depreciation expense totaling $82,000. Town of North Andover, Massachusetts 9 Basic Financial Statements Financial Analysis of the Government’s Funds As noted earlier, the Town uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the Town of North Andover’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town of North Andover’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $15 million, of which $4.7 million is for the general fund, $5,400 is for the state fiscal stabilization fund, $5 million is for the community preservation fund, and $5.4 million is for non-major governmental funds. Cumulatively there was an increase of $283,000 in fund balances from the prior year. The general fund is the chief operating fund. At the end of the current fiscal year, unassigned fund balance of the general fund totaled $3.5 million, while total fund balance was $4.7 million. Restrictions of fund balance for debt service totaled $1 million. Fund balances have been assigned for encumbrances and continuing appropriations in the amount of $184,000. Total fund balance represents 6% of total general fund expenditures. The Town’s general fund increased by $424,000 in fiscal 2011, which was primarily due to $373,000 that was raised on the tax levy for the stabilization fund as well as $51,000 of investment income earned on stabilization funds. The state fiscal stabilization fund is used to account for federal funds that were received through the American Recovery and Reinvestment Act. The fund decreased by $4,600 during fiscal 2011, which is attributable to timing differences between the receipt and expenditure of grant funds. The community preservation fund increased by $763,000 in fiscal 2011, which is due to timing differences between the receipt and expenditure of surcharge and state grant revenues. The nonmajor governmental funds decreased by $899,000 in fiscal 2011, which is due to timing differences between the receipt and expenditure of bond proceeds. Fiscal year 2011 was the Town’s initial year of implementation of GASB #54, Fund Balance Reporting and Governmental Fund Type Definitions. The implementation of this standard has changed the fund balance components into nonspendable, restricted, committed, assigned and unassigned. Additionally, under the new standard, the Town’s stabilization fund is reported within the general fund as unassigned. General Fund Budgetary Highlights The $131,000 increase between the original budget and final budget was due to a $373,000 supplemental transfer to the stabilization fund that was funded by a $100,000 reserve fund transfer and $273,000 of free cash, which resulted in a net increase of $273,000. This increase was offset by budget cuts totaling $109,000 and a reduction in state assessments totaling $33,000. Town of North Andover, Massachusetts 10 Basic Financial Statements Capital Asset and Debt Administration Capital Assets. In conjunction with the annual operating budget, the Town annually prepares a capital budget for the upcoming fiscal year and a five-year Capital Improvement Plan (CIP) that is used as a guide for future capital expenditures Town of North Andover, Massachusetts 11 Basic Financial Statements The Town’s investment in capital assets for its governmental and business-type activities as of June 30, 2011, amounts to $192.4 million(net of accumulated depreciation). This investment in capital assets includes land, land improvements, buildings and building improvements, machinery and equipment, library books, vehicles and infrastructure. The Town invested $9.5 million for new capital asset additions in the fiscal 2011. The major governmental capital asset events during the current fiscal year included the purchase of land, construction of the new police station, construction of modular classrooms, road construction, police communications, police vehicles, two new fire trucks, fire radio equipment, and a new school IT network. The major business-type capital asset events during the current fiscal year consisted of water and sewer main improvements. Debt Administration. Outstanding gross long-term governmental debt, as of June 30, 2011, totaled $35.9 million. The general government’s gross bonded debt decreased $1 million, which was due to the issuance of $4.4 million of general obligation bonds and principal payments totaling $5.4 million. Outstanding gross long-term debt of the water enterprise fund, as of June 30, 2011, totaled $12.2 million. The water gross bonded debt decreased $2.1 million, which was due to the issuance of $225,000 of general obligation bonds and principal payments totaling $2.3 million. Outstanding gross long-term debt of the sewer enterprise fund, as of June 30, 2011, totaled $14.6 million. The sewer gross bonded debt decreased $1.6 million, which was due to principal payments. The Town had $653,000 in outstanding bond anticipation notes (BAN) at year-end. The decrease of $635,000 over the prior year represents permanent funding of the note by the community preservation fund. Please refer to the notes to the basic financial statements for further discussion of the major capital and debt activity. Requests for Information This financial report is designed to provide a general overview of the Town of North Andover’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Budget Director/Town Accountant, Town Hall, 120 Main Street, North Andover, Massachusetts 01845. Town of North Andover, Massachusetts 12 Basic Financial Statements Basic Financial Statements Town of North Andover, Massachusetts 13 Basic Financial Statements This page intentionally left blank. Town of North Andover, Massachusetts 14 Basic Financial Statements STATEMENT OF NET ASSETS JUNE 30, 2011 Primary Government GovernmentalBusiness-type ActivitiesActivitiesTotal ASSETS CURRENT: Cash and cash equivalents………………………………$ 21,665,355 $ 7,098,260 $ 28,763,615 Investments…………………………………………… … 270,897 - 270,897 Receivables, net of allowance for uncollectibles: Real estate and personal property taxes………… 881,754 - 881,754 Tax and utility liens…………………………………… 1,911,180 83,329 1,994,509 Motor vehicle and other excise taxes…………… … 263,036 - 263,036 User charges………………………………………… - 2,645,583 2,645,583 Community preservation…………………………… 19,244 - 19,244 Departmental and other……………………………… 393,594-393,594 Intergovernmental…………………………………… 2,575,215 2,675,939100,724 Tax foreclosures………………………………………… 392,513 - 392,513 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental…………………………………… 1,144,264 875,504 2,019,768 Capital assets, nondepreciable………………………… 20,787,524 6,116,268 26,903,792 Capital assets, net of accumulated depreciation……… 114,750,644 50,759,072 165,509,716 TOTAL ASSETS…………………………………………… 165,055,220 67,678,740 232,733,960 LIABILITIES CURRENT: Warrants payable………………………………………… 1,418,264 473,149 1,891,413 … 3,026,274 3,026,274- Accrued payroll………………………………………… Accrued health claims payable………………………… 768,000 - 768,000 Tax refunds payable…………………………………… 782,000 - 782,000 Accrued interest………………………………………… 480,951 227,816 708,767 Other liabilities…………………………………………… 82,349 - 82,349 Liabilities due depositors………………………………… 106,160 - 106,160 Compensated absences………………………………… 169,000 - 169,000 Court judgments………………………………………… - 56,000 56,000 Notes payable…………………………………………… 652,812 - 652,812 Bonds payable…………………………………………… 5,839,317 9,376,3863,537,069 NONCURRENT: Compensated absences………………………………… 1,367,000 1,367,000- Other postemployment benefits………………………… 21,688,499 1,219,505 22,908,004 Bonds payable…………………………………………… 30,042,741 23,242,392 53,285,133 TOTAL LIABILITIES………………………………………… 66,423,367 28,755,931 95,179,298 NET ASSETS … 102,754,256 36,443,088 139,197,344 Invested in capital assets, net of related debt………… Restricted for: Debt service……………………………………………… 1,033,892 1,033,892- Community preservation………………………………… 5,301,200 5,301,200- Permanent funds: Expendable……….…………………………………… 485,059 - 485,059 Nonexpendable……………………………………… 29,134 - 29,134 Gifts and grants………………………………………… 724,978 - 724,978 Unrestricted…………………………………………………… (11,696,666) 2,479,721 (9,216,945) TOTAL NET ASSETS………………………………………$ 98,631,853 $ 38,922,809 $ 137,554,662 See notes to basic financial statements. Town of North Andover, Massachusetts15Basic Financial Statements STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2011 Program Revenues OperatingCapital Charges forGrants andGrants andNet (Expense) Functions/ProgramsExpensesServicesContributionsContributionsRevenue Primary Government: Governmental Activities: General government……………… $ 4,559,013 $ 616,654 $ 511,117 $ - $ (3,431,242) … 15,134,400 2,536,254 171,523 - (12,426,623) Public safety……………………… Education…………………………… 70,860,920 3,165,842 17,480,918 - (50,214,160) … 6,485,227 116,051 42,365 1,026,557 (5,300,254) Public works……………………… Health and human services……… 2,080,778 117,916 456,908 - (1,505,954) Culture and recreation…………… 2,192,035 11,578 125,084 829,740 (1,225,633) Interest……………………………… 1,370,287 - 65,098 - (1,305,189) Total Governmental Activities… 102,682,660 6,564,295 18,853,013 1,856,297 (75,409,055) Business-Type Activities: … 3,188,559 5,750,569 8,779 - 2,570,789 Water……………………………… Sewer……………………………… 3,877,585 4,797,301 132,945 - 1,052,661 … 325,092 239,200 - - (85,892) Osgood Hill……………………… … 7,391,236 10,787,070 141,724 - 3,537,558 Total Business-Type Activities … $ 110,073,896 $ 17,351,365 $ 18,994,737 $ 1,856,297 $ (71,871,497) Total Primary Government…… See notes to basic financial statements.(Continued) Town of North Andover, Massachusetts16Basic Financial Statements STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2011 Primary Government GovernmentalBusiness-Type ActivitiesActivitiesTotal Changes in net assets: Net (expense) revenue from previous page……$ (75,409,055)$ 3,537,558 $ (71,871,497) General revenues: Real estate and personal property taxes, net of tax refunds payable………………… 57,726,043 - 57,726,043 Tax liens………………………………………… 576,219 - 576,219 Motor vehicle and other excise taxes……… 3,748,360 - 3,748,360 Penalties and interest………………………… 223,861 - 223,861 Payments in lieu of taxes…………………… 1,867,094 - 1,867,094 Community preservation surcharges………… 1,312,401 - 1,312,401 Grants and contributions not restricted to specific programs…………………………… 2,222,543 - 2,222,543 Unrestricted investment income……………… 445,515 - 445,515 Transfers, net…………………………………… 1,121,637 (1,121,637) - Total general revenues and transfers………… 69,243,673 (1,121,637) 68,122,036 Change in net assets……………………… (6,165,382) 2,415,921 (3,749,461) Net Assets: Beginning of year……………………………… 104,797,235 36,506,888 141,304,123 End of year……………………………………$ 98,631,853 $ 38,922,809 $ 137,554,662 (Concluded) Town of North Andover, Massachusetts17Basic Financial Statements GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2011 State FiscalNonmajorTotal StabilizationCommunityGovernmentalGovernmental ASSETSGeneralFundPreservationFundsFunds Cash and cash equivalents………………………………$ 8,975,362 $ 194,876 $ 5,613,230 $ 5,510,288 $ 20,293,756 Investments………………………………………………… - - - 270,897 270,897 Receivables, net of uncollectibles: Real estate and personal property taxes…………… 881,754 - - - 881,754 Tax liens………………………………………………… 1,911,180 - - - 1,911,180 Motor vehicle and other excise taxes………………… 263,036 - - - 263,036 Community preservation……………………………… - - 19,244 - 19,244 Departmental and other……………………………… 313,045 - - 80,549 393,594 Intergovernmental……………………………………… 1,688,667 - 329,740 1,701,072 3,719,479 Tax foreclosures…………………………………………… 392,513 - - - 392,513 TOTAL ASSETS……………………………………………$ 14,425,557$ 194,87 $ 5,962,2164$ 7,562,806 $ 28,145,453 LIABILITIES AND FUND BALANCES LIABILITIES: Warrants payable………………………………………$ 1,005,705 $ 182,462 $ 8,202 $ 221,711 $ 1,418,080 Accrued payroll………………………………………… 2,619,946 7,040 - 399,288 3,026,274 Tax refunds payable…………………………………… 782,000 - - - 782,000 Liabilities due depositors……………………………… 106,160 - - - 106,160 Other liabilities………………………………………… 82,349 - - - 82,349 Deferred revenues……………………………………… 5,155,325 - 348,984 1,554,766 7,059,075 Notes payable…………………………………………… - - 652,812 - 652,812 TOTAL LIABILITIES……………………………………… 9,751,485 189,502 1,009,998 2,175,765 13,126,750 FUND BALANCES: Nonspendable………………………………………… - - - 29,134 29,134 Restricted……………………………………………… 1,033,892 5,374 4,952,216 5,357,907 11,349,389 Assigned………………………………………………… 184,314 - - - 184,314 Unassigned……………………………………………… 3,455,866 - - - 3,455,866 TOTAL FUND BALANCES……………………………… 4,674,072 5,374 4,952,216 5,387,041 15,018,703 TOTAL LIABILITIES AND FUND BALANCES…………$ 14,425,557$ 194,87 $ 5,962,2164$ 7,562,806 $ 28,145,453 See notes to basic financial statements. Town of North Andover, Massachusetts18Basic Financial Statements RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET ASSETS JUNE 30, 2011 Total governmental fund balances………………………………………………………………$15,018,703 Capital assets (net) used in governmental activities are not financial resources and, therefore, are not reported in the funds……………………………………………… 135,538,168 Accounts receivable are not available to pay for current-period expenditures and, therefore, are deferred in the funds………………………………… 7,059,075 Internal service funds are used by management to account for unemployment, health insurance activities. The assets and liabilities of the internal service funds … 603,415 are included in the governmental activities in the statement of net assets………… In the statement of activities, interest is accrued on outstanding long-term debt, … (480,951) whereas in governmental funds interest is not reported until due…………………… Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds. Bonds payable, net of unamortized premiums … (35,882,058) and deferred losses on refundings……..………………………………………… … (21,688,499) Other postemployment benefits……………………………………………………… … (1,536,000) Compensated absences……………………………………………………………… … (59,106,557) Net effect of reporting long-term liabilities……………………………………… Net assets of governmental activities……………………………………………………………$98,631,853 See notes to basic financial statements. Town of North Andover, Massachusetts19Basic Financial Statements GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30, 2011 State FiscalNonmajorTotal StabilizationCommunity GovernmentalGovernmental GeneralFundPreservationFundsFunds REVENUES: Real estate and personal property taxes, net of tax refunds………………………… … $ 57,423,755 $ - $ - $ - $ 57,423,755 Tax and utility liens……………………………… 238,977 - - - 238,977 Payments in lieu of taxes……………………… 1,731,968 - - 135,126 1,867,094 Community Preservation Surcharges………… - - 1,310,382 - 1,310,382 Motor vehicle and other excise taxes……… … 3,790,515 - - - 3,790,515 Charges for services…………………………… 836,864 - - 3,498,702 4,335,566 Penalties and interest on taxes………………… 336,298 - - - 336,298 Licenses and permits…………………………… 220,650 - - 382,665 603,315 Fines and forfeitures…………………………… 113,167 - - - 113,167 Intergovernmental……………………………… 15,660,252 622,762 886,099 4,657,022 21,826,135 Departmental and other……………………… … 1,271,902 - - 406,861 1,678,763 Contributions…………………………………… - - - 620,946 620,946 Investment income ……………………………… 364,914 - 51,763 28,838 445,515 … 81,989,262 622,762 2,248,244 9,730,160 94,590,428 TOTAL REVENUES…………………… EXPENDITURES: Current: General government………………………… 2,866,154 - - 236,599 3,102,753 Public safety………………………………… 8,620,394 - - 4,465,574 13,085,968 Education…………………………………… 37,357,213 627,388 - 8,398,189 46,382,790 Public works………………………………… 4,156,778 - - 1,248,876 5,405,654 Health and human services………………… 938,863 - - 408,219 1,347,082 Culture and recreation……………………… 813,611 - 1,470,105 41,580 2,325,296 Pension benefits……………………………… 9,537,508 - - - 9,537,508 Property and liability insurance…………… 276,258 - - - 276,258 Employee benefits…………………………… 9,415,481 - - - 9,415,481 State and county charges……………………… 2,115,484 - - - 2,115,484 Debt service: Principal……………………………………… 5,574,681 - - - 5,574,681 Interest………………………………………… 1,337,978 - 14,812 - 1,352,790 TOTAL EXPENDITURES……………… 83,010,403 627,388 1,484,917 14,799,037 99,921,745 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES……………………… (1,021,141) (4,626) 763,327 (5,068,877) (5,331,317) OTHER FINANCING SOURCES (USES): Issuance of bonds and notes…………………… - - - 4,365,353 4,365,353 Premium from issuance of bonds……………… 127,464 - - - 127,464 Transfers in……………………………………… 1,322,517 - - - 1,322,517 Transfers out…………………………………… (5,000) - - (195,880) (200,880) TOTAL OTHER FINANCING SOURCES (USES)…………………… 1,444,981 - - 4,169,473 5,614,454 … 423,840 (4,626) 763,327 (899,404) 283,137 NET CHANGE IN FUND BALANCES………… FUND BALANCES AT BEGINNING OF YEAR (REVISED)………………………. 4,250,232 10,000 4,188,889 6,286,445 14,735,566 FUND BALANCES AT END OF YEAR…………… $ 4,674,072 $ 5,374 $ 4,952,216 $ 5,387,041 $ 15,018,703 See notes to basic financial statements. Town of North Andover, Massachusetts20Basic Financial Statements RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FISCAL YEAR ENDED JUNE 30, 2011 …$ 283,137 Net change in fund balances - total governmental funds…………………………………………… Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. … 7,120,754 Capital outlay…………………………………………………………………………………… Depreciation expense……………………………………………………………………………(5,597,636) Net effect of reporting capital assets…………………………………………………… 1,523,118 The net effect of other miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to decrease net assets. ……………………… (31,127) Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable (i.e., real estate and personal property, motor vehicle excise, etc.) differ between the two statements. This amount represents the net change in deferred revenue……………………………………………………………… 805,213 The issuance of long-term debt (e.g., bonds and leases) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Issuance of bonds and notes……………………………………………………………………(4,365,353) Debt service principal payments………………………………………………………………5,574,681 Amortization of deferred losses on refundings………………………………………………(173,669) Net effect of reporting long-term debt…………………………………………………… 1,035,659 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Net change in compensated absences accrual……………………………………………… 4,000 … 28,709 Net change in accrued interest on long-term debt………………………………………… Net change in other postemployment benefits………………………………………………(8,366,493) Net effect of recording long-term liabilities and amortizing deferred losses………… (8,333,784) Internal service funds are used by management to account for health insurance and workers' compensation activities. … (1,447,598) The net activity of internal service funds is reported with Governmental Activities…… …$(6,165,382) Change in net assets of governmental activities……………………………………………………… See notes to basic financial statements. Town of North Andover, MassachusettsBasic Financial Statements 21 PROPRIETARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2011 Business-type Activities - Enterprise FundsGovernmental Activities- Osgood Internal Service WaterSewerHillTotalFunds ASSETS CURRENT: Cash and cash equivalents………………………………$ 2,787,055 $ 4,285,631 $ 2 5,574$ $ 1,371,5997,098,260 Receivables, net of allowance for uncollectibles: User fees………………………………………………… 1,312,192 1,333,391 - -2,645,583 Utility liens……………………………………………… 73,009 10,320 - -83,329 Intergovernmental……………………………………… - 100,724 - -100,724 Total current assets………………………………… 4,172,256 5,730,066 25,574 1,371,5999,927,896 NONCURRENT: Receivables, net of allowance for uncollectibles: Intergovernmental……………………………………… - 875,504 - -875,504 Capital assets, nondepreciable…………………………… 1,982,535 133,733 4 ,000,000 6,116,268 - Capital assets, net of accumulated depreciation……… 27,146,534 22,172,771 1 ,439,767 50,759,072 - Total noncurrent assets…………………………… 29,129,069 23,182,008 5 ,439,767 57,750,844 - TOTAL ASSETS……………………………………………… 33,301,325 28,912,074 5 ,465,341 67,678,740 1,371,599 LIABILITIES CURRENT: Warrants payable…………………………………………… 228,444 235,157 9 ,548 184473,149 Health claims payable……………………………………… - - - - 768,000 Accrued interest…………………………………………… 76,309 151,507 - -227,816 Courtjudgments…………………………………………… - 56,000 - -56,000 Bonds payable……………………………………………… 1,867,574 1,669,495 - -3,537,069 Total current liabilities……………………………… 2,172,327 2,112,159 9 ,548 768,1844,294,034 NONCURRENT: Other postemployment benefits………………………… 762,827 456,678 - -1,219,505 yable……………………………………………… 10,324,588 12,917,804 - -23,242,392 Bonds pa Total noncurrent liabilities………………………… 11,087,415 13,374,482 - 24,461,897 - TOTAL LIABILITIES…………………………………………… 15,486,64113,259,742 9,548 28,755,931768,184 NET ASSETS Invested in capital assets, net of related debt……………… 18,690,954 12,312,367 5 ,439,767 36,443,088 - Unrestricted…………………………………………………… 1,350,629 1,113,066 1 6,026 2,479,721 603,415 TOTAL NET ASSETS…………………………………………$ 20,041,58 $ 313,425,433$ 5,455,79 $ 38,922,803 9 $ 603,415 See notes to basic financial statements. Town of North Andover, Massachusetts22Basic Financial Statements PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FISCAL YEAR ENDED JUNE 30, 2011 Business-type Activities - Enterprise FundsGovernmental Activities- Osgood Internal Service WaterSewerHillTotalFunds OPERATING REVENUES: Employee contributions ………………………………… $ $ - $ - $ - $ 2,275,972- … - - - - 8,520,609 Employer contributions ………………………………… Charges for services ……………………………………… 5,727,456 4,772,782 239,200 10,739,438 - … 23,113 24,519 - 47,632 - Penalties and interest…………………………………… TOTAL OPERATING REVENUES …………………… 5,750,569 239,2004,797,301 10,787,070 10,796,581 OPERATING EXPENSES: Cost of service and administration……………………… 1,770,366 880,774 238,308 2,889,448 - … - 1,428,879 - 1,428,879 - GLSD assessment……………………………………… Repairs and maintenance………………………………… 135,852 66,888 4,647 207,387 - … 815,587 838,205 82,137 1,735,929 - Depreciation……………………………………………… Employee benefits………………………………………… - - - - 12,250,648 TOTAL OPERATING EXPENSES …………………… 2,721,805 3,214,746 325,092 6,261,643 12,250,648 OPERATING INCOME (LOSS)………………………… 3,028,764 1,582,555 (85,892) 4,525,427 (1,454,067) NONOPERATING REVENUES (EXPENSES): Investment income………………………………………… 8,779 4,998 - 13,777 6,469 Interest expense…………………………………………… (466,754) (662,839) - (1,129,593) - … - 127,947 - 127,947 - Intergovernmental……………………………………… TOTAL NONOPERATING REVENUES (EXPENSES), NET…………………… (457,975) (529,894) - (987,869) 6,469 INCOME (LOSS) BEFORE TRANSFERS…………… 2,570,789 1,052,661 (85,892) 3,537,558 (1,447,598) TRANSFERS: Transfers in………………………………………………… - - 5,000 5,000 - Transfers out……………………………………………… (658,016) (422,161) (46,460) (1,126,637) - TOTAL OPERATING TRANSFERS…………………… (658,016) (422,161) (41,460) (1,121,637) - CHANGE IN NET ASSETS…………………………… 1,912,773 630,500 (127,352) 2,415,921 (1,447,598) NET ASSETS AT BEGINNING OF YEAR………………… 18,128,810 12,794,933 5,583,145 36,506,888 2,051,013 … $ 20,041,583 $ 13,425,433 $ 5,455,793 $ 38,922,809 $ 603,415 NET ASSETS AT END OF YEAR……………………… See notes to basic financial statements. Town of North Andover, Massachusetts23Basic Financial Statements PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FISCAL YEAR ENDED JUNE 30, 2011 Business-type Activities - Enterprise Funds Activities - OsgoodInternal Service WaterSewerHillTotalFunds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and users……………………………………………$ 5,788,532 $ 4,866,849 $ 239,200 $ 10,894,581$ 2,275,972 Receipts from interfund services provided…………………………………… - - - 8,520,609- Payments to vendors…………………………………………………………… (957,469) (1,897,330) (140,725) (2,995,524) - Payments to employees………………………………………………………… (617,147) (575,883) (92,682) (1,285,712) - Payments for interfund services used………………………………………… - - - (12,361,479)- NET CASH FROM OPERATING ACTIVITIES…………………………………… 4,213,916 2,393,636 5 ,793 (1,564,898)6,613,345 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in……………………………………………………………………… - - 5 ,000 -5,000 Transfers out……………………………………………………………………… (658,016) (422,161) (46,460) (1,126,637) - NET CASH FROM NONCAPITAL FINANCING ACTIVITIES………………… (658,016) (422,161) (41,460) (1,121,637) - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from the issuance of bonds and notes…………………………… 2 25,000 - - 225,000 - Intergovernmental……………………………………………………………… - 39,775 - 39,775 - Acquisition and construction of capital assets………………………………… (1,362,016) (984,083) (6,009) (2,352,108) - Principal payments on bonds and notes……………………………………… (2,370,448) (1,585,281) - (3,955,729) - Interest expense………………………………………………………………… (414,306) (485,800) - -(900,106) NET CASH FROM CAPITAL AND RELATED FINANCING ACTIVITIES…… (3,921,770) (3,015,389) (6,009) (6,943,168) - CASH FLOWS FROM INVESTING ACTIVITIES: Investment income……………………………………………………………… 8,779 4,998 - 6,46913,777 NET CHANGE IN CASH AND CASH EQUIVALENTS………………………… (357,091) (1,038,916) (41,676) (1,437,683) (1,558,429) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR……………… 3,144,146 5,324,547 67,250 2,930,0288,535,943 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2 ,787,055 $ 4,285,631 $ 25,574 $ 7,098,260 $ 1,371,599 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FROM OPERATING ACTIVITIES: Operating income (loss)………………………………………………………… $ 3 ,028,764 $ $ (85,892)1,582,555 $ 4,525,427 $ (1,454,067) Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation…………………………………………………………………… 815,587 838,205 82,137 -1,735,929 Changes in assets and liabilities: … 12,576 50,874 - -63,450 User fees………………………………………………………………… … 25,387 18,674 - -44,061 Utility liens……………………………………………………………… … 173,417 (151,921) 9 ,548 (39,831)31,044 Warrants payable……………………………………………………… … - - - (71,000)- Health claims payable………………………………………………… … - (56,000) - -(56,000) Court judgments………………………………………………………… … 158,185 111,249 - -269,434 Other postemployment benefits……………………………………… Total adjustments……………………………………………………… 1,185,152 811,081 91,685 (110,831)2,087,918 NET CASH FROM OPERATING ACTIVITIES……………………………………$ 4,213,916 $ 2,393,636 $ 5 ,793 $ 6,613,345$ (1,564,898) NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES: Intergovernmental debt service subsidy (MWPAT)…………………………$ -$ 97,942$ - $ $ 97,942 - … 72,559 41,760 - -114,319 Net change in deferred charges……………………………………………… See notes to basic financial statements. Town of North Andover, Massachusetts24Basic Financial Statements FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2011 Private PurposeAgency Trust FundsFunds ASSETS CURRENT: Cash and cash equivalents………………………………… …$ 70,795 $ 3,913,718 LIABILITIES Warrants payable……………………………………………… - 3,976 Liabilities due depositors…………………………………… … - 3,909,742 TOTAL LIABILITIES……………………………………………… - 3,913,718 NET ASSETS Held in trust for other purposes………………………………$ 70,795 $ - See notes to basic financial statements. Town of North Andover, Massachusetts25Basic Financial Statements FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FISCAL YEAR ENDED JUNE 30, 2011 Private Purpose Trust Funds ADDITIONS: Net investment income: Interest…………………………………………………………$ 57 NET ASSETS AT BEGINNING OF YEAR……………………… 70,738 NET ASSETS AT END OF YEAR………………………………$ 70,795 See notes to basic financial statements. Town of North Andover, Massachusetts26Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to basic financial statements The accompanying basic financial statements of the Town of North Andover, Massachusetts (the Town) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described herein. A. Reporting Entity The Town is a municipal corporation that is governed by an elected Board of Selectmen (the Board). For financial reporting purposes, the Town has included all funds, organizations, account groups, agencies, boards, commissions and institutions. TheTown has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the Town are such that exclusion would cause the basic financial statements to be misleading or incomplete. As required by GAAP, these basic financial statements present the Town (the primary government) and its component units. It has been determined that there are no component units that meet the requirements for inclusion in the Town’s financial statements. Joint Venture A joint venture is an organization (resulting from a contractual arrangement) that is owned, operated and governed by two or more participants as a separate and specific activity subject to joint control in which the participants retain an ongoing financial interest or ongoing financial responsibility. Joint control means that no single participant has the ability to unilaterally control the financial or operating policies of the joint venture. The Town participates in the following joint ventures with other municipalities to pool resources and share the costs, risks, and rewards of providing goods and services to venture participants directly, or for the benefit of the general public or specified recipients. Greater Lawrence Sanitary District (GLSD) GLSD operates a wastewater treatment plant for five member communities and is located within the Town. The GLSD is governed by a seven member board consisting of one appointed representative from the Town. The Town is indirectly liable for the GLSD’s debt and other expenditures and is assessed annually for its share of operating and capital costs. For the fiscal year ended June 30, 2011, the Town’s assessment totaled $1,428,879. Separate financial statements may be obtained by writing to the Treasurer of the GLSD at 240 Charles Street, North Andover, MA 01845. Greater Lawrence Regional Technical Vocational School (GLRTVS) The GLRTVS is governed by a seven member school committee consisting of one elected representative from the Town. The Town is indirectly liable for the GLRTVS’ debt and other expenditures and is assessed annually for its share of operating and capital costs. For the fiscal year ended June 30, 2011, the Town’s assessment totaled $362,500. Separate financial statements may be obtained by writing to the Treasurer of the GLRTVS at 57 River Road, Andover, MA 01810. Town of North Andover, Massachusetts 27 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The government-wide financial statements (i.e., statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which are supported primarily by user fees and charges. Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and displayed in a single column. Major Fund Criteria Major funds must be reported if the following criteria are met: If the total assets, liabilities, revenues, or expenditures/expenses of an individual governmental or enterprise fund are at least 10 percent of the corresponding element (assets, liabilities, etc.) for all funds of that category or type (total governmental or total enterprise funds), and If the total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding element for all governmental and enterprise funds combined. Additionally, any other governmental or enterprise fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. Fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Real estate and personal property taxes are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a particular function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include the following: Charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment. Town of North Andover, Massachusetts 28 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Grants and contributions that are restricted to meeting the operational requirements of a particular function or segment. Grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not identifiable as program revenues are reported as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. However, the effect of interfund services provided and used between functions is not eliminated as the elimination of these charges would distort the direct costs and program revenues reported for the functions affected. Fund Financial Statements Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., measurable and available). Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. Real estate and personal property tax revenues are considered available if they are collected within 60 days after fiscal year-end. Investment income is susceptible to accrual. Other receipts and tax revenues become measurable and available when the cash is received and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria is met. Expenditure driven grants recognize revenue when the qualifying expenditures are incurred and all other grant requirements are met. The following major governmental funds are reported: Thegeneral fund is the primary operating fund. It is used to account for all financial resources, except those that are required to be accounted for in another fund. Thestate fiscal stabilization fund is used to account for federal funds that were received through the American Recovery and Reinvestment Act. Thecommunity preservation fund is a special revenue fund used to account for the 3% local real estate tax surcharge on nonexempt property (and matching state trust fund distribution) that can be used for open space, historic resource and affordable housing purposes. Property exempt from the surcharge consists of the first $100,000 of all residential property and also property owned by low income seniors with a low or moderate income as defined by Massachusetts Department of Revenue (DOR) guidelines. Disbursements from this fund must originate from the Community Preservation Committee and be approved by Town Meeting. Town of North Andover, Massachusetts 29 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 The nonmajor governmental funds consist of other special revenue, capital projects and permanent funds that are aggregated and presented in the nonmajor governmental funds column on the governmental funds financial statements. The following describes the general use of these fund types: Thespecial revenue fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than permanent funds or capital projects. Thecapital projects fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets of the governmental funds. Thepermanent fund is used to account for and report financial resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. Proprietary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary funds principle ongoing operations. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The following major proprietary funds are reported: Thewater enterprise fund is used to account for the water activities. Thesewer enterprise fund is used to account for the sewer activities. TheOsgood Hill enterprise fund is used to account for the operation of Osgood Hill Estate activities. Additionally, the following proprietary fund type is reported: Theinternal service fund is used to account for the financing of services provided by one department to other departments or governmental units. This fund is used to account for risk financing activities related to employees’ health insurance. Fiduciary fund financial statements are reported using the flow of economic resources measurement focus and use the accrual basis of accounting, except for agency funds which have no measurement focus. Fiduciary funds are used to account for assets held in a trustee capacity for others that cannot be used to support the governmental programs. The following fiduciary fund types are reported: Theprivate-purpose trust fund is used to account for trust arrangements that exclusively benefit individuals, private organizations, or other governments. Some of these trusts have donor restrictions and trustee policies that do not allow the endowment portion and any unrealized appreciation to be spent. The donor restrictions and trustee policies only allows the trustees to authorize spending of the realized investment earnings. The Town’s educational scholarship trusts are accounted for in this fund. Town of North Andover, Massachusetts 30 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Theagency fund is used to account for assets held in a custodial capacity. Such assets consist primarily of performance bonds and bid deposits. Agency funds do not present the results of operations or have a measurement focus. Government-Wide and Fund Financial Statements Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected not to follow subsequent private-sector guidance. D. Cash and Investments Government-Wide and Fund Financial Statements Cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with an original maturity of three months or less from the date of acquisition. Investments are carried at fair value. E. Accounts Receivable Government-Wide and Fund Financial Statements The recognition of revenue related to accounts receivable reported in the government-wide financial statements and the proprietary funds and fiduciary funds financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Real Estate, Personal Property Taxes and Tax Liens st Real estate and personal property taxes are levied and based on values assessed on January 1 of every year. Assessed values are established by the Board of Assessor’s for 100% of the estimated fair market value. Taxes stststst are due on August 1, November 1, February 1 and May 1 and are subject to penalties and interest if they are not paid by the respective due date. Real estate tax liens are processed one year after the close of the valuation year on delinquent properties and are recorded as receivables in the fiscal year they are processed. Real estate receivables are secured via the tax lien process and are considered 100% collectible. Accordingly, an allowance for uncollectibles is not reported. Personal property taxes cannot be secured through the lien process. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Motor Vehicle Excise Motor vehicle excise taxes are assessed annually for each vehicle registered and are recorded as receivables in the fiscal year of the levy. The Commonwealth is responsible for reporting the number of vehicles registered and the fair values of those vehicles. The tax calculation is the fair value of the vehicle multiplied by $25 per $1,000 of value. Town of North Andover, Massachusetts 31 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Community Preservation Surcharges Community preservation surcharges are levied annually at a rate of 3% of resident’s real estate tax bills with exemptions for the first $100,000 of residential property and property owned by qualified persons with low income and seniors (60+) with low or moderate income defined by DOR guidelines. The surcharge is due with the real estate tax on August 1st, November 1st, February 1st and May 1st and are subject to penalties and interest if they are not paid by the respective due date. Overdue surcharges are included on the tax liens processed on delinquent real estate taxes. Surcharges are recorded as receivables in the fiscal year of the levy. Since the receivables are secured via the lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Water and Sewer User Charges and Utility Liens User fees are levied monthly based on individual meter readings and are subject to penalties and interest if they are not paid by the respective due date. Water and sewer liens are processed approximately six months after the end of the fiscal year and are included as a lien on the property owner’s tax bill. Water and sewer charges and liens are recorded as receivables in the fiscal year of the levy. Since the receivables are secured via the lien process, these accounts are considered 100% collectible and therefore do not report an allowance for uncollectibles. Departmental and Other Departmental and other receivables consist primarily of amounts due from ambulance charges and police details. These receivables are recorded when the applicable service has been performed. The allowance for uncollectibles is estimated based on historical trends and specific account analysis. Intergovernmental Various federal and state grants for operating and capital purposes are applied for and received annually. For non-expenditure driven grants, receivables are recorded as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant requirements are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectibles. F. Inventories Government-Wide and Fund Financial Statements Inventories are recorded as expenditures at the time of purchase. Such inventories are not material in total to the government-wide and fund financial statements, and therefore are not reported. Town of North Andover, Massachusetts 32 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 G. Capital Assets Government-Wide and Proprietary Fund Financial Statements Capital assets, which include land, land improvements, buildings and improvements, machinery and equipment, library books, vehicles, infrastructure (e.g., roads, treatment plants, pump stations ,sewer mains and similar items) and construction-in-progress, are reported in the applicable governmental or business-type activity column of the government-wide financial statements and in the proprietary fund financial statements. Capital assets are recorded at historical cost, or at estimated historical cost, if actual historical cost is not available. Donated capital assets are recorded at the estimated fair market value at the date of donation. Except for the capital assets of the governmental activities column in the government-wide financial statements, construction period interest is capitalized on constructed capital assets. All purchases and construction costs in excess of $10,000 are capitalized at the date of acquisition or construction, respectively, with expected useful lives of greater than one year. Capital assets (excluding land) are depreciated on a straight-line basis. The estimated useful lives of capital assets are as follows: Estimated Useful Life Capital Asset Type(in years) Land improvements…………………………… 20-30 Buildings and improvements………………… 7-50 Machinery and equipment…………………… 3-20 Library books…………………………………… 10 Vehicles………………………………………… 5 Treatment plants……………………………… 10-40 Pump stations…………………………………… 20-40 Reservoirs……………………………………… 20-40 … 20-60 Infrastructure………………………………… The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized and are treated as expenses when incurred. Improvements are capitalized. Governmental Fund Financial Statements Capital asset costs are recorded as expenditures in the acquiring fund in the fiscal year of the purchase. H. Interfund Receivables and Payables During the course of its operations, transactions occur between and within individual funds that may result in amounts owed between funds. Government-Wide Financial Statements Transactions of a buyer/seller nature between and within governmental funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between the governmental activities and business-type activities are reported in the statement of net assets as “internal balances”. Town of North Andover, Massachusetts 33 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Fund Financial Statements Transactions of a buyer/seller nature between and within funds are not eliminated from the individual fund statements. Receivables and payables resulting from these transactions are classified as “Due from other funds” or “Due to other funds” on the balance sheet. I. Interfund Transfers During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out. Government-Wide Financial Statements Transfers between and within governmental funds are eliminated from the governmental activities in the statement of net assets. Any residual balances outstanding between the governmental activities and business- type activities are reported in the statement of activities as “Transfers, net”. Fund Financial Statements Transfers between and within funds are not eliminated from the individual fund statements and are reported as transfers in and transfers out. J. Deferred Revenue Deferred revenue at the governmental fund financial statement level represents billed receivables that do not meet the available criterion in accordance with the current financial resources measurement focus and the modified accrual basis of accounting. Deferred revenue is recognized as revenue in the conversion to the government-wide (full accrual) financial statements. K. Net Assets and Fund Equity Government-Wide Financial Statements (Net Assets) Net assets reported as “invested in capital assets, net of related debt” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital assets. Net assets are reported as restricted when amounts that are not available for appropriation or are legally restricted by outside parties for a specific future use. Net assets have been “restricted for” the following: “Debt service” represents amounts accumulated from the Massachusetts School Building Authority (MSBA) to reduce school construction excluded debt service costs over the life of the loans. “Community preservation” represents amounts restricted for the purpose of acquiring land for conservation, recreational, and affordable housing purposes. “Permanent funds – expendable” represents the amount of realized and unrealized investment earnings of donor restricted trusts. The donor restrictions and trustee policies only allows the trustees to approve spending of the realized investment earnings that support governmental programs. Town of North Andover, Massachusetts 34 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 “Permanent funds – nonexpendable” represents amounts held in trust for which only investment earnings may be expended. “Gifts and grants” represents restrictions placed on assets from outside parties. Fund Financial Statements (Fund Balances) Governmental fund balances are classified as nonspendable, restricted, committed, assigned, or unassigned based on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The governmental fund balance classifications are as follows: “Nonspendable” fund balance includes amounts that cannot be spent because they are either not in spendable form or they are legally or contractually required to be maintained intact. “Restricted” fund balance includes amounts subject to constraints placed on the use of resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or that are imposed by law through constitutional provisions or enabling legislation. “Committed” fund balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. “Assigned” fund balance includes amounts that are constrained by the Town of North Andover’s intent to be used for specific purposes, but are neither restricted nor committed. “Unassigned” fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. L. Long-term debt Government-Wide and Proprietary Fund Financial Statements Long-term debt is reported as liabilities in the government-wide and proprietary fund statement of net assets. Material bond premiums and discounts are deferred and amortized over the life of the bonds using the straight- line method. Bonds payable are reported net of the applicable bond premium or discount. Governmental Fund Financial Statements The face amount of governmental funds long-term debt is reported as other financing sources. Bond premiums and discounts, as well as issuance costs, are recognized in the current period. Bond premiums are reported as other financing sources and bond discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual bond proceeds received, are reported as general government expenditures. M. Investment Income Excluding the permanent funds, Investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by Massachusetts General Law (MGL). Town of North Andover, Massachusetts 35 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 N. Compensated Absences Employees are granted vacation and sick leave in varying amounts based on collective bargaining agreements, state laws and executive policies. Compensated absences liabilities related to both governmental and business- type activities are normally paid from the funds reporting payroll and related expenditures. Government-Wide and Proprietary Fund Financial Statements Vested or accumulated vacation and sick leave are reported as liabilities and expensed as incurred. Governmental Fund Financial Statements Vested or accumulated vacation and sick leave, which will be liquidated with expendable available financial resources, are reported as expenditures and fund liabilities upon maturity of the liability. O. Use of Estimates Government-Wide and Fund Financial Statements The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. P. Total Column Government-Wide Financial Statements The total column presented on the government-wide financial statements represents consolidated financial information. Fund Financial Statements The total column on the fund financial statements is presented only to facilitate financial analysis. Data in this column is not the equivalent of consolidated financial information. Q. Individual Fund Deficits Several individual fund deficits exist at June 30, 2011, within the special revenue funds. These deficits will be funded with grant proceeds in subsequent fiscal years. NOTE 2 - CASH AND INVESTMENTS A cash and investment pool is maintained that is available for use by all funds. Each fund type's portion of this pool is displayed on the balance sheet as "Cash and Cash Equivalents.” The deposits and investments of the trust funds are held separately from those of other funds. Statutes authorize the investment in obligations of the U.S. Treasury, agencies, and instrumentalities, certificates of deposit, repurchase agreements, money market accounts, bank deposits and the State Treasurer's Investment Pool (the Pool). The Treasurer may also invest trust funds in securities, other than mortgages or collateral loans, Town of North Andover, Massachusetts 36 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 which are legal for the investment of funds of savings banks under the laws of the Commonwealth. In addition, there are various restrictions limiting the amount and length of deposits and investments. The Pool meets the criteria of an external investment pool. The Pool is administered by the Massachusetts Municipal Depository Trust (MMDT), which was established by the Treasurer of the Commonwealth who serves as Trustee. The fair value of the position in the Pool is the same as the value of the Pool shares. Custodial Credit Risk – Deposits In the case of deposits, this is the risk that in the event of a bank failure, the Town’s deposits may not be returned to it. The Town’s policy is to minimize custodial credit risk by only investing in highly rated banks, which is determined through the utilization of a bank rating service. At fiscal year-end, the carrying amount of deposits totaled $30,758,266 and the bank balance totaled $32,058,209. Of the bank balance, $5,635,626 was covered by Federal Depository Insurance, $9,759,375, was covered by the depositor’s insurance fund, and $16,663,208 was collateralized. Interest Rate Risk The Town’s investment policy limits investment maturities to one year as a means of managing its exposure to fair value losses arising from increasing interest rates. The Town participates in MMDT, which maintains a cash portfolio and a short-term bond fund with combined average maturities of approximately three months. As of June 30, 2011, the Town had the following investments and maturities. Maturities Investment TypeFair Value1-5 Years6-10 Years Debt Securities Bond Mutual Funds………………………………$93,951 $- $93,951 Repurchase Agreements………………………… 380,000 380,000 - Total Debt Securities......................................... $380,000473,951 $93,951 Other Investments Equity Mutual Funds......................................... 176,946 Money Market Mutual Funds…………………… 186,051 MMDT……………………………………………… 1,423,811 Total Investments..............................................$2,260,759 The Town participates in MMDT, which maintains a cash portfolio and a short-term bond fund with combined average maturities of approximately 3 months. Custodial Credit Risk – Investments For an investment, this is the risk that, in the event of a failure by the counterparty, the Town will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The Town did not have investments that were exposed to custodial credit risk. The Town’s policy to minimize custodial credit risk is to obtain from brokerage houses and broker/dealers 1) audited financial statements, 2) proof of National Association of Security Dealers certification, 3) a statement that the dealer has read the Town’s Town of North Andover, Massachusetts 37 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 investment policy and will comply with it and 4) be in business for no less than five years and have a minimum capitalization of $10 million. Credit Risk Standard and Poor’s Investors Service rated $93,951 of bond mutual funds AAA. The $380,000 of repurchase agreements and $1,423,811 of MMDT deposits were unrated. The Town’s investment policy limits investments in debt securities to U.S. Treasuries and U.S. Agency Obligations, which are AAA rated, and like-kind investments that are fully collateralized. Concentration of Credit Risk The Town limits the amount the Town may invest in any one issuer to 10%. The Town does not have investments in corporate bonds or equity securities and therefore does not have exposure to concentration of credit risk. NOTE 3 - RECEIVABLES At June 30, 2011, receivables for the individual major and non-major governmental funds including the applicable allowances for uncollectible accounts are as follows: Allowance GrossforNet AmountUncollectiblesAmount Receivables: Real estate and personal property taxes………………………$983,754 $(102,000) $881,754 Tax liens………………………………………………………… 1,911,180 - 1,911,180 Motor vehicle and other excise taxes………………………… 601,036 (338,000) 263,036 Community preservation surcharges………………………… 19,244 - 19,244 Departmental and other………………………………………… 962,830 (569,236) 393,594 Intergovernmental……………………………………………… 3,719,479 - 3,719,479 Total………………………………………………………………$8,197,523 $(1,009,236) $7,188,287 At June 30, 2011, receivables for the water and sewer enterprise funds are as follows: Allowance GrossforNet AmountUncollectiblesAmount Receivables: User charges……………………………………………………$2,645,583 $- $2,645,583 Utility liens………………………………………………………… 83,329 - 83,329 Intergovernmental……………………………………………… 976,228 - 976,228 $3,705,140 $- $3,705,140 Town of North Andover, Massachusetts 38 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. At the end of the current fiscal year, the various components of deferred revenue reported in the governmental funds were as follows: Other General Governmental FundFundsTotal Receivable and other asset type: Real estate and personal property taxes………………………$758,977 $ $758,977- Tax liens………………………………………………………… 1,911,180 1,911,180- Tax foreclosures………………………………………………… 392,513 - 392,513 Motor vehicle and other excise taxes………………………… 263,036 - 263,036 Community preservation surcharges………………………… - 19,244 19,244 Departmental and other………………………………………… 313,045 80,549 393,594 Intergovernmental (highway construction assistance)……… - 1,474,217 1,474,217 Intergovernmental (school construction assistance)………… 1,516,574 - 1,516,574 Intergovernmental (CPA state match)………………………… - 329,740 329,740 Total………………………………………………………………$5,155,325$1,903,750$7,059,075 NOTE 4 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2011, is as follows: BeginningEnding Governmental Activities: BalanceIncreasesDecreasesBalance Capital assets not being depreciated: Land…………………………………………………$20,284,590 $502,815 $- $20,787,405 Construction in progress…………………………… 4,799,730 119 (4,799,730) 119 Total capital assets not being depreciated…… 25,084,320 502,934 (4,799,730) 20,787,524 Capital assets being depreciated: Land improvements………………………………… 3,257,450 - - 3,257,450 Buildings and building improvements…………… 126,962,103 6,799,602 - 133,761,705 … 7,291,850 1,952,527 (656,052) 8,588,325 Machinery and equipment……………………… Library books……………………………………… 4,014,642 102,795 - 4,117,437 … 5,024,431 1,486,116 (232,703) 6,277,844 Vehicles…………………………………………… Infrastructure……………………………………… 34,913,077 1,076,510 - 35,989,587 Total capital assets being depreciated……… 181,463,553 11,417,550 (888,755) 191,992,348 Less accumulated depreciation for: Land improvements………………………………… (2,063,352) (99,261) - (2,162,613) Buildings and improvements.……………………… (41,956,686) (3,425,748) - (45,382,434) … (4,958,547) (555,142) 656,052 (4,857,637) Machinery and equipment……………………… Library books……………………………………… (3,904,264) (48,410) - (3,952,674) Vehicles.…………………………………………… (3,933,504) (306,581) 201,576 (4,038,509) Infrastructure……………………………………… (15,685,343) (1,162,494) - (16,847,837) Total accumulated depreciation……………… (72,501,696) (5,597,636) 857,628 (77,241,704) Total capital assets being depreciated, net………… 108,961,857 5,819,914 (31,127) 114,750,644 Total governmental activities capital assets, net……$134,046,177$6,322,848 $(4,830,857) $135,538,168 Town of North Andover, Massachusetts 39 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 BeginningEnding Business-Type Activities:BalanceIncreasesDecreasesBalance Capital assets not being depreciated: Land…………………………………………………$6,097,262 $- $- $6,097,262 Construction in progress…………………………… 19,006 - - 19,006 Total capital assets not being depreciated…… 6,116,268 - - 6,116,268 Capital assets being depreciated: Land improvements………………………………… 225,442 6,009 - 231,451 Buildings and improvements……………………… 1,952,335 - - 1,952,335 Machinery and equipment………………………… 2,085,112 82,780 - 2,167,892 Vehicles……………………………………………… 483,715 - (23,000) 460,715 Treatment plants…………………………………… 16,573,234 - - 16,573,234 Pump stations……………………………………… 3,372,491 878,507 - 4,250,998 Reservoirs…………………………………………… 1,477,296 - - 1,477,296 Infrastructure……………………………………… 50,607,404 1,384,812 - 51,992,216 Total capital assets being depreciated……… 76,777,029 2,352,108 (23,000) 79,106,137 Less accumulated depreciation for: Land improvements………………………………… (89,994) (9,454) - (99,448) Buildings and improvements……………………… (661,508) (70,617) - (732,125) Machinery and equipment………………………… (1,145,581) (11,670) - (1,157,251) Vehicles.…………………………………………… (325,944) (37,085) 23,000 (340,029) Treatment plants…………………………………… (9,403,322) (441,286) - (9,844,608) … (1,973,328) (122,151) - (2,095,479) Pump stations…………………………………… … (1,084,862) (52,321) - (1,137,183) Reservoirs………………………………………… Infrastructure……………………………………… (11,949,597) (991,345) - (12,940,942) Total accumulated depreciation……………… (26,634,136) (1,735,929) 23,000 (28,347,065) Total capital assets being depreciated, net………… 50,142,893 616,179 - 50,759,072 Total business-type activities capital assets, net……$56,259,161$616,179 $ $56,875,340- Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: General government……………………………………………$301,210 Public safety…………………………………………………… 462,632 … 3,161,929 Education…………………………………………………… Public works…………………………………………………… 1,358,390 Human services……………………………………………… 132,784 Culture and recreation………………………………………… 180,691 Total depreciation expense - governmental activities…………$5,597,636 Business-Type Activities: Water……………………………………………………………$815,587 Sewer…………………………………………………………… 838,205 Osgood Hill……………………………………………………… 82,137 Total depreciation expense - business-type activities…………$1,735,929 Town of North Andover, Massachusetts 40 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 NOTE 5 - INTERFUND TRANSFERS Interfund transfers for the fiscal year ended June 30, 2011, are summarized as follows: Operating Transfers In: Osgood Hill GeneralEnterprise Operating Transfers Out:FundFundTotal …$- $5,000 $5,000 (1) General Fund……………………… Nonmajor Governmental Funds…… 195,880 - 195,880 (2) Water Enterprise Fund……………… 658,016 - 658,016 (3) Sewer Enterprise Fund……………… 422,161 - 422,161 (3) Osgood Hill Enterprise Fund……… 46,460 - 46,460 (3) $1,322,517 $5,000 $1,327,517 (1) Represents a budgeted transfer to fund an operating deficit. (2) Represents budgeted transfers from other available funds. (3) Represents budgeted transfers for indirect costs. NOTE 6 – LEASES Operating Lease The Town entered into a commercial lease for office space for the Schools Business Office that expires May 31, 2012. The future minimum lease payments are as follows: Governmental Fiscal Years Ending June 30,Activities 2012………………………………………………$91,098 Town of North Andover, Massachusetts 41 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 NOTE 7 - SHORT-TERM FINANCING Short-term debt may be authorized and issued to fund the following: Current operating costs prior to the collection of revenues through issuance of revenue or tax anticipation notes (RANS or TANS). Capital project costs and other approved expenditures incurred prior to obtaining permanent financing through issuance of bond anticipation notes (BANS) or grant anticipation notes (GANS). Short-term loans are general obligations and carry maturity dates that are limited by statute. Interest expenditures and expenses for short-term borrowings are accounted for in the general fund and enterprise funds, respectively. Details related to the short-term debt activity for the fiscal year ended June 30, 2011, are as follows: RateBeginningEnding TypePurpose(%)Due DateBalanceAdditionsReductionsBalance BANLand Acquisition………… 1.156/16/2011$1,288,000 $- $1,288,000 $- BANLand Acquisition………… 1.056/15/2012 652,812- 652,812- Total……………………………… $1,288,000 $652,812 $1,288,000 $652,812 NOTE 8 - LONG-TERM DEBT State law permits the Town, under the provisions of Chapter 44, Section 10, to authorize indebtedness up to a limit of 5% of its equalized valuation. Debt issued in accordance with this section of the law is designated as being "inside the debt limit". In addition, however, a Town may authorize debt in excess of that limit for specific purposes. Such debt, when issued, is designated as being "outside the debt limit". In prior years, the Town defeased certain of its outstanding general obligation bonds by placing the proceeds of new refunding bonds in an irrevocable escrow account to provide amounts sufficient for the future payment of principal and interest on those bonds. Accordingly, neither the assets in the escrow nor the liability for the defeased bonds are included in the Town’s financial statements. At June 30, 2011, $2,500,000 of general obligation bonds outstanding are considered defeased. Town of North Andover, Massachusetts 42 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Details related to the outstanding indebtedness at June 30, 2011, and the debt service requirements are as follows: Bonds and Notes Payable – Governmental Funds Interest RateBeginningEnding Project(%)BalanceAdditionsReductionsBalance Municipal Purpose Loan of 2001…………………… 4.00 - 4.20$85,000 $- $85,000 $- Municipal Purpose Loan of 2002…………………… 4.00 - 4.502,400,000 - 1,200,000 1,200,000 Municipal Purpose Loan of 2003…………………… 2.30 - 4.00290,261 - 100,174 190,087 Municipal Purpose Loan of 2004…………………… 2.00 - 5.002,620,000 - 655,000 1,965,000 Refunding Bonds of 2004…………………………… 2.00 - 4.203,236,294 - 693,200 2,543,094 Municipal Purpose Loan of 2005…………………… 3.00 - 4.00409,440 - 81,888 327,552 Municipal Purpose Loan of 2005…………………… 3.00 - 4.003,910,955 - 389,326 3,521,629 High School Construction…………………………… 3.30 - 5.002,400,000 - 150,000 2,250,000 … 3.60 - 4.5048,195 - 8,195 40,000 Sargent School Ventilation………………………… … 3.60 - 4.50146,805 - 25,555 121,250 School System Technology………………………… … 3.60 - 4.5043,400 - 43,400 - Roadwork…………………………………………… Drainage Improvements……………………………… 3.60 - 4.5031,200 - 5,200 26,000 Town Garage Heating………………………………… 3.60 - 4.5015,000 - 2,500 12,500 Historic Center Roadway……………………………… 4.00 - 4.40208,000 - 30,500 177,500 Olde Center Roadway………………………………… 4.00 - 4.40313,513 - 39,189 274,324 Franklin School Roof………………………………… 4.00 - 4.40193,796 - 11,400 182,396 Front End Loader……………………………………… 4.00 - 4.40144,000 - 18,000 126,000 Ambulance Replacement……………………………… 4.00 - 4.40126,831 - 15,854 110,977 Mosquito Brook Drainage…………………………… 4.00 - 4.4072,000 - 4,000 68,000 Tractor…………………………………………………… 4.00 - 4.4044,000 - 5,500 38,500 Land Acquisition - Refunding………………………… 3.00 - 4.002,420,000 - 265,000 2,155,000 Municipal Purpose Loan 1998 - Refunding………… 3.00 - 4.001,730,000 - 160,000 1,570,000 Municipal Purpose Loan 1998 - Refunding………… 3.00 - 4.006,120,000 - 675,000 5,445,000 Municipal Purpose Loan 2009………………………… 2.75 - 5.006,551,126 - 579,978 5,971,148 Municipal Purpose Loan 2009, Series A…………… 2.25 - 4.004,171,222 - 330,822 3,840,400 Municipal Purpose Loan 2011………………………… 2.00 - 3.75 4,365,353- 4,365,353- Sub-total………………………………………………… 37,731,038 4,365,353 5,574,681 36,521,710 Deferred loss on refundings………………………… (813,321) - (173,669) (639,652) Total governmental bonds and notes payable………$36,917,717$4,365,353 $5,401,012 $35,882,058 Town of North Andover, Massachusetts 43 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Debt service requirements for principal and interest for Governmental bonds payable in future fiscal years are as follows: Fiscal YearPrincipalInterestTotal 2012…………$5,995,123 $1,264,568 $7,259,691 2013………… 4,846,2821,044,6785,890,960 2014………… 4,822,957 886,2525,709,209 2015………… 3,497,880 738,0874,235,967 2016………… 3,142,274 616,5543,758,828 2017………… 2,981,999 509,9943,491,993 2018………… 3,001,331 398,2393,399,570 2019………… 1,601,669 301,6591,903,328 2020………… 1,122,900 245,0721,367,972 2021………… 1,087,900 205,3901,293,290 … 740,400 170,733911,133 2022……… 2023………… 730,400142,243872,643 … 730,399 113,709844,108 2024……… 2025………… 730,399 83,836814,235 … 500,399 58,097558,496 2026……… 2027………… 350,399 40,686391,085 … 329,000 26,238355,238 2028……… 2029………… 310,000 12,713322,713 Totals………$36,521,710 $6,858,748 $43,380,458 Bonds and Notes Payable – Water Enterprise Fund Interest RateBeginningEnding Project(%)BalanceAdditionsReductionsBalance Municipal Purpose Loan of 1996…………………… 4.00 - 5.20$274,500 $- $274,500 $- Municipal Purpose Loan of 2001…………………… 4.00 - 4.2065,000 - 65,000 - Municipal Purpose Loan of 2002…………………… 4.00 - 4.50375,000 - 230,000 145,000 Municipal Purpose Loan of 2003…………………… 2.30 - 4.001,537,368 - 421,784 1,115,584 Refunding Bonds of 2004…………………………… 2.00 - 4.20618,705 - 111,800 506,905 Municipal Purpose Loan of 2005…………………… 3.00 - 4.00359,576 - 59,929 299,647 Municipal Purpose Loan of 2005…………………… 3.00 - 4.001,216,000 - 243,200 972,800 Water Supply System Security……………………… 3.60 - 4.50129,000 - 21,500 107,500 Bear Hill Water Tank………………………………… 3.60 - 4.5019,000 - 19,000 - Sutton Hill Water Tank………………………………… 3.60 - 4.5017,000 - 17,000 - Lake Outlet Structure………………………………… 3.60 - 4.50360,000 - 60,000 300,000 MWPAT………………………………………………… 2.005,080,765 - 236,858 4,843,907 Water Mains…………………………………………… 3.70 - 5.0 0520,000 - 65,000 455,000 Water Meter Replacement…………………………… 3.70 - 5.0 0280,000 - 35,000 245,000 Municipal Purpose Loan of 1998 - Refunding……… 3.00 - 4.001,173,777 - 334,477 839,300 Municipal Purpose Loan of 2009…………………… 2.75 - 5.00405,000 - 45,000 360,000 Municipal Purpose Loan of 2009, Series A………… 2.25 - 4.002,025,000 - 130,400 1,894,600 Water Meters…………………………………………… 2.00 - 3.75 225,000- 225,000- Subtotal………………………………………………… 14,455,691 225,000 2,370,448 12,310,243 Deferred loss on refundings………………………… (190,640) - (72,559) (118,081) Total Water Enterprise bonds and notes payable…$14,265,051$225,000 $2,297,889 $12,192,162 Town of North Andover, Massachusetts 44 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Debt service requirements for principal and interest for Water Enterprise fund bonds and notes payable in future fiscal years are as follows: Fiscal YearPrincipalInterestTotal 2012…………$1,917,627 $346,921 $2,264,548 2013………… 1,771,078 285,072 2,056,150 2014………… 1,213,343 233,469 1,446,812 2015………… 1,229,622 194,804 1,424,426 2016………… 855,199 155,418 1,010,617 2017………… 624,558 131,096 755,654 2018………… 629,953 113,167 743,120 2019………… 480,453 95,319 575,772 … 396,073 82,700 478,773 2020……… 2021………… 376,801 73,456 450,257 2022………… 360,146 65,109 425,255 2023………… 366,108 56,873 422,981 2024………… 372,191 48,514 420,705 2025………… 378,397 39,708 418,105 2026………… 384,729 30,777 415,506 2027………… 391,188 21,717 412,905 2028………… 397,777 12,528 410,305 2029………… 65,000 6,600 71,600 2030………… 100,000 4,000 104,000 Totals………$12,310,243 $1,997,248 $14,307,491 Bonds and Notes Payable – Sewer Enterprise Fund Interest RateBeginningEnding Project(%)BalanceAdditionsReductionsBalance MWPAT………………………………………………… 3.70 - 5.40$278,600 $- $46,930 $231,670 MWPAT………………………………………………… 3.40 - 5.40239,185 - 42,686 196,499 MWPAT………………………………………………… 3.40 - 5.40340,485 - 60,764 279,721 … 4.00 - 5.2060,500 - 60,500 - Municipal Purpose Loan of 1996…………………… MWPAT………………………………………………… 2.80 - 3.40230,000 - 20,000 210,000 MWPAT………………………………………………… 2.80 - 3.40835,000 - 75,000 760,000 MWPAT………………………………………………… 2.80 - 3.40100,000 - 10,000 90,000 MWPAT………………………………………………… 2.80 - 3.50130,000 - 10,000 120,000 MWPAT………………………………………………… 2.80 - 3.50160,000 - 15,000 145,000 MWPAT………………………………………………… 2.80 - 3.50620,000 - 55,000 565,000 MWPAT………………………………………………… 2.60 - 2.801,544,891 - 119,891 1,425,000 Municipal Purpose Loan of 2003……………………… 2.30 - 3.702,102,370 - 288,043 1,814,327 Municipal Purpose Loan of 2005……………………… 3.00 - 4.00799,560 - 159,912 639,648 Municipal Purpose Loan of 2005……………………… 3.00 - 4.00244,467 - 40,745 203,722 Sewer Extension………………………………………… 3.60 - 4.50525,400 - 47,650 477,750 Waverly Road…………………………………………… 3.70 - 5.003,491,866 - 112,620 3,379,246 Sewer Watershed……………………………………… 3.70 - 5.00 160 - 20 140 Wastewater Management……………………………… 3.70 - 5.00115,834 - 57,917 57,917 Municipal Purpose Loan of 1998 - Refunding……… 3.00 - 4.00206,223 - 45,523 160,700 Municipal Purpose Loan of 1998 - Refunding……… 3.00 - 4.00310,000 - 35,000 275,000 East Side Sewer………………………………………… 2.75 - 5.00438,872 - 50,022 388,850 Municipal Purpose Loan 2010 - Refunding………… 2.25 - 3.503,465,001 - 305,000 3,160,001 East Side Truck Sewer………………………………… 2.25 - 3.25250,000 - 25,000 225,000 Subtotal………………………………………………… 16,488,414 - 1,683,223 14,805,191 Deferred loss on refundings………………………… (259,652) - (41,760) (217,892) Total Sewer Enterprise bonds and notes payable…$16,228,762$ $1,641,463- $14,587,299 Town of North Andover, Massachusetts 45 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Debt service requirements for principal and interest for Sewer Enterprise fund bonds and notes payable in future fiscal years are as follows: Fiscal YearPrincipalInterestTotal 2012…………$1,707,568 $546,875 $2,254,443 2013………… 1,700,869486,1552,187,024 … 1,740,789 432,9932,173,782 2014……… 2015………… 1,772,907 367,5872,140,494 … 1,422,751 305,4131,728,164 2016……… 2017………… 1,140,500252,4991,392,999 2018………… 1,156,170 205,6021,361,772 2019………… 955,836 158,9911,114,827 … 894,599 121,4211,016,020 2020……… 2021………… 644,600 89,935734,535 2022………… 494,599 68,711563,310 2023………… 209,600 50,327259,927 2024………… 204,601 41,681246,282 2025………… 204,601 62,986267,587 2026………… 194,601 24,290218,891 2027………… 189,601 15,776205,377 2028………… 170,999 7,481178,480 Totals………$14,805,191 $3,238,723 $18,043,914 The Sewer Enterprise Fund is scheduled to be subsidized by the Massachusetts Water Pollution Abatement Trust (MWPAT) on a periodic basis for principal in the amount of $976,228 and interest costs of $643,932. Thus, net MWPAT loan repayments, including interest, are schedule to be $3,277,894. The principal subsidies are guaranteed and therefore a $976,228 intergovernmental receivable has been reported in the proprietary fund financial statements. Since the Town is legally obligated for the total amount of the debt, such amounts have been recorded in the accompanying basic financial statements. The fiscal year 2011 principal and interest subsidies totaled $97,942 and $127,947, respectively. The Commonwealth has approved school construction assistance. The assistance program, which is administered by the Massachusetts School Building Authority, provides resources for future debt service of general obligation school bonds outstanding. During fiscal year 2011, approximately $412,000 of such assistance was received. Approximately $1,649,000 will be received in future fiscal years. Of this amount, approximately $132,000 represents reimbursement of long-term interest costs, and approximately $1,517,000 represents reimbursement of approved construction costs. Accordingly, a $1,517,000 intergovernmental receivable and corresponding deferred revenue have been reported in the governmental fund financial statements. The deferred revenue has been recognized as revenue in the conversion to the government-wide financial statements. Town of North Andover, Massachusetts 46 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 The Town is subject to various debt limits by statute and may issue additional general obligation debt under the normal debt limit. At June 30, 2011, the Town had the following authorized and unissued debt. PurposeAmount Revenue Billing System…………………………………………$75,000 Fire Sprinkler System…………………………………………… 375,000 Meter Replacement……………………………………………… 225,000 Roadway Improvements………………………………………… 342,192 Fire Alarm Boxes and Panels…………………………………… 53,011 Internet Telephone System……………………………………… 375,000 Middle School Roof Replacements…………………………… 1,859,134 Defibrillator Replacement………………………………………… 43,000 Police Station Parking Lot and Exterior Lighting……………… 125,000 Emergency Generator at Public Works………………………… 38,000 School Department Data Storage and Intergration…………… 82,000 … 45,000 Vehicle Fuel Pump System…………………………………… Dump Truck……………………………………………………… 182,579 Sargent School Roof Replacement…………………………… 564,000 Atkinson School Window Replacment………………………… 1,277,000 … 690,000 Heating, Ventilating and Air Conditioning Equipment……… Valve and Hydrant Replacement and Installation…………… 260,000 Sewer Utility Truck……………………………………………… 78,000 Total………………………………………………………………$6,688,916 Changes in Long-term Liabilities During the fiscal year ended June 30, 2011, the following changes occurred in long-term liabilities: BeginningEndingDue within BalanceAdditionsReductionsBalanceOne Year Governmental Activities: …$37,731,038 $4,365,353 $(5,574,681) $36,521,710 $5,995,123 Long-term bonds and notes……… Unamortized deferred loss on refundings………………………… (813,321) - 173,669 (639,652) (155,806) … 36,917,717 4,365,353 (5,401,012) 35,882,058 5,839,317 Bonds and notes payable net……… … 13,322,006 12,086,115 (3,719,622) 21,688,499 - Other postemployment benefits…… Compensated absences……………… 1,540,000 165,000 (169,000) 1,536,000 169,000 Total governmental……………………$51,779,723 $16,616,468$(9,289,634)$59,106,557 $6,008,317 Town of North Andover, Massachusetts 47 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 BeginningEndingDue within BalanceAdditionsReductionsBalanceOne Year Business-Type Activities: Long-term bonds and notes…………$30,944,105 $225,000 $(4,053,671) $27,115,434 $3,625,195 Unamortized deferred loss on refunding………………………… (450,292) - 114,319 (335,973) (88,126) Bonds and notes payable net………… 30,493,813 225,000 (3,939,352) 26,779,461 3,537,069 Other postemployment benefits……… 950,071 389,220 (119,786) 1,219,505 - Court judgments……………………… 112,000 - (56,000) 56,000 56,000 …$31,555,884 $614,220 $(4,115,138)$28,054,966 $3,593,069 Total business-type………………… NOTE 9 – GOVERNMENTAL FUND BALANCE CLASSIFICATIONS The Town has adopted GASB 54 as part of its fiscal year 2011 reporting. Implementation of GASB 54 is required for fiscal years beginning after June 15, 2010. The intention of the GASB is to provide a more structured classification of fund balance and to improve the usefulness of fund balance reporting to the users of the Town’s financial statements. The reporting standard establishes a hierarchy for fund balance classifications and the constraints imposed on the uses of those resources. GASB 54 provides for two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The Town has reported principal portions of endowment funds as nonspendable. In addition to the nonspendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints. Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. : fund balances that contain self-imposed constraints of the government from its highest level Committed of decision making authority. Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. Unassigned: fund balance of the general fund that is not constrained for any particular purpose Massachusetts General Law Ch.40 §5B allows for the establishment of stabilization funds for one or more different purposes. The creation of a fund requires a two-thirds vote of the legislative body and must clearly define the purpose of the fund. Any change to the purpose of the fund along with any additions to or appropriations from the fund requires a two-thirds vote of the legislative body. At year end, the balance of the general stabilization fund is $2,646,278 and is reported as unassigned fund balance within the general fund. Town of North Andover, Massachusetts 48 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 The Town has classified its fund balances with the following hierarchy. GOVERNMENTAL FUNDS State FiscalNonmajorTotal Stabilization Community GovernmentalGovernmental GeneralFundPreservationFundsFunds FUND BALANCES Nonspendable: Permanent fund principal…………………….$ $- $- $29,134- $29,134 Restricted for: Municipal Federal and State Grants………… - - - 288,391 288,391 Education Federal and State Grants - 5,374 - 189,040 194,414 Receipts reserved for appropriations………… - - - 172,285 172,285 Municipal Revolving Funds…………………… - - - 404,097 404,097 Education Revolving Funds…………………… - - - 516,851 516,851 School Lunch Funds………………………… … - - - 185,797 185,797 CPA Fund……………………………………… - - 4,952,216 - 4,952,216 Other Special Revenue Funds……………… - - - 424,190 424,190 Municipal Capital Projects…………………… - - - 1,230,799 1,230,799 Education Capital Projects…………………… - - - 349,523 349,523 Affordable Housing Trust Fund……………… - - - 1,065,949 1,065,949 Other Trust Funds……………………………… - - - 45,926 45,926 … 1,033,892 - - - 1,033,892 Debt Service………………………………… Other Permenant Funds……………………… - - - 485,059 485,059 Assigned to: General government…………………………… 64,770 - - - 64,770 Public safety…………………………………… 12,798 - - - 12,798 Education……………………………………… 43,885 - - - 43,885 … 58,587 - - - 58,587 Public works………………………………… Culture and recreation………………………… 636 - - - 636 Employee benefits……………………………… 3,638 - - - 3,638 Unassigned……………………………………….. 3,455,866 - - - 3,455,866 TOTAL FUND BALANCES (DEFICIT)………………$4,674,072 $5,374 $4,952,216 $5,387,041 $15,018,703 Revisions In accordance with GASB Statement No. 54, the stabilization fund has been reported in the general fund, and accordingly, the general fund beginning balance has been revised by $2,222,033 and totals $4,250,232. Included in the unassigned fund balance of the general fund is $2,646,278 of stabilization fund balance. NOTE 10 - RISK FINANCING The Town is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the Town carries commercial insurance. The Town participates in a premium-based workers’ compensation plan for its active and retired employees. The Town is self-insured for its health insurance activities. These activities are accounted for in the internal service fund where revenues are recorded when earned and expenses are recorded when incurred. Health Insurance Health insurance claims are administered by a third party administrator and are funded on an as needed basis from the Town’s internal service fund. The estimated “Incurred But Not Reported (IBNR)” claims are based on actual and historical lag claims. The Town purchases individual stop loss insurance for claims in excess of the coverage provided by the Town in the amount of $100,000 per claim. The amount of claim settlements has not exceeded the insurance coverage in any of the previous three fiscal years. Town of North Andover, Massachusetts 49 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 The liability at June 30, 2011 totaled $768,000. Changes in the reported liability since July 1, 2009, are as follows: Current Year Balance atClaims andBalance at Beginning ofChanges inClaimsFiscal Fiscal YearEstimatePaymentsYear-End Fiscal Year 2010………. .$754,000 $9,736,000 $(9,651,000) $839,000 Fiscal Year 2011……….. 839,000 12,251,000 (12,322,000) 768,000 NOTE 11 - PENSION PLAN Plan Description - The Town contributes to the Essex Regional Retirement System (the System), a cost sharing multiple-employer defined benefit pension plan administered by the Essex County Retirement Board. School teachers and certain administrators are members of the Commonwealth of Massachusetts’ Teachers Retirement System, to which the Town does not contribute. All pension benefits and expenses paid by the Teachers Retirement System are funded by the Commonwealth of Massachusetts (Commonwealth). The amount of these on-behalf payments totaled approximately $6,734,000 for the fiscal year ended June 30, 2011, and accordingly are reported in the general fund as intergovernmental revenues and pension benefit expenditures. The System provides retirement, disability and death benefits to plan members and beneficiaries. Chapter 32 of the MGL assigns authority to establish and amend benefit provisions of the plan. Cost-of-living adjustments granted between 1981 and 1997 and any increase in other benefits imposed by the Commonwealth’s state law during those years are borne by the Commonwealth and are deposited into the pension fund. Cost-of-living adjustments granted after 1997 must be approved by the System and are borne by the System. The System issues a publicly available financial report in accordance with guidelines established by the Commonwealth’s Public Employee Retirement Administration Commission. That report may be obtained by contacting the System located at 36 Federal Street, Salem, Massachusetts, 01970. Funding Policy - Plan members are required to contribute to the System at rates ranging from 5% to 11% of annual covered compensation. The Town is required to pay into the System its share of the system-wide actuarial determined contribution, which is apportioned among the employers based on active current payroll. The contributions of plan members and the Town are governed by Chapter 32 of the MGL. The Town's contributions to the System for the fiscal years ended June 30, 2011, 2010, and 2009 totaled $2,803,785, $2,596,530, and $2,468,667, respectively, which equaled its required contribution for each fiscal year. The schedule of funding progress, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Additionally, the schedule of employer contributions, presented as required supplementary information, following the notes to the basic financial statements, presents multiyear trend information for required and actual contributions relating to the cost- sharing plan as a whole, of which the Town is one participating employer, as well as the Town’s proportionate share of the plan’s annual contributions. This information is designed to be helpful for understanding the scale of the information presented relative to the Town. Town of North Andover, Massachusetts 50 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 NOTE 12 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Description – The Town of North Andover administers a single-employer defined benefit healthcare plan (“the Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the Town’s group health insurance plan, which covers both active and retired members. Chapter 32B of the MGL assigns authority to establish and amend benefit provisions of the plan. Benefit provisions are negotiated between the Town and the unions representing Town employees and are renegotiated each bargaining period. The Retiree Health Plan does not issue a publicly available financial report. Funding Policy – Contribution requirements are also negotiated between the Town and union representatives. The required contribution is based on a pay-as-you-go financing requirement. The Town contributes a variable portion of the cost of current-year premiums, which varies by plan, for eligible retired plan members and their spouses. Plan members receiving benefits contribute the remaining portion of their premium costs. For fiscal year 2011, the Town contributed $3.8 million to the plan. Annual OPEB Cost and Net OPEB Obligation – The Town’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45.The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The components of the Town’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the Town’s net OPEB obligation are summarized in the following table: Annual required contribution……………………………………$12,441,414 Interest on net OPEB obligation……………………………… 642,243 Adjustment to annual required contribution………………… (608,322) … 12,475,335 Annual OPEB Cost (expense)……………………………… … (3,839,408) Contributions made…………………………………………… … 8,635,927 Increase in net OPEB obligation…………………………… … 14,272,077 Net OPEB obligation - beginning of year…………………… …$22,908,004 Net OPEB obligation - end of year………………………… The Town’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2011 was as follows: Percentage of Fiscal YearAnnual Annual OPEBNet OPEB EndedOPEB CostCost ContributedObligation 6/30/2011$12,475,335 31%$22,908,004 6/30/201011,632,440 33%14,272,077 6/30/200910,964,622 36%6,986,513 Funded Status and Funding Progress – As of July 1, 2010 the actuarial accrued liability for benefits was $118.6 million, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $39.3 million, and the ratio of the UAAL to the covered payroll was 301.5 percent. Town of North Andover, Massachusetts 51 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2010 actuarial valuation, actuarial liabilities were determined using the projected unit credit cost method. The actuarial assumptions included a 4.5% investment return assumption, which is based on the expected yield on the assets of the Town, calculated based on the funded level of the plan at the valuation date, and an annual health care trend rate of 9.5% initially, graded to 5% over 9 years. The UAAL is being amortized with a level dollar amount over a 30 year period on an open basis. The remaining amortization period at June 30, 2011 is 30 years. NOTE 13 – CONTINGENCIES The Town participates in a number of Federal award programs. These programs are subject to financial and compliance audits. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although the Town expects such amounts, if any, to be immaterial. Various legal actions and claims are pending against the Town. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not always predictable. Although the amount of liability, if any, at June 30, 2011, cannot be ascertained, management believes any resulting liability should not materially affect the financial position of the Town at June 30, 2011. NOTE 14 – IMPLEMENTATION OF NEW GASB PRONOUNCEMENTS During fiscal year 2011, the following GASB pronouncements were implemented: , Fund Balance Reporting and Governmental Fund Type Definitions, was GASB Statement #54 implemented in fiscal year 2011. Financial statements changes include new fund balance designations and the reclassification of stabilization funds from the special revenue fund to the general fund. The notes to the basic financial statements were changed to provide additional disclosure on the new designations of fund balance. GASB Statement #59,Financial Instruments Omnibus, was implemented in fiscal year 2011 and did not impact the financial statements. Town of North Andover, Massachusetts 52 Basic Financial Statements Notes to Basic Financial Statements Fiscal Year Ended June 30, 2011 Other Future GASB Pronouncements: The GASB issued Statement #60,Accounting and Financial Reporting for Service Concession Arrangements, which is required to be implemented in fiscal year 2013. Management expects that the implementation of this pronouncement will have an impact on the basic financial statements. The GASB issued Statement #61,The Financial Reporting Entity: Omnibus, which is required to be implemented in fiscal year 2013. Management’s current assessment is that this pronouncement will not have a significant impact on the basic financial statements. The GASB issued Statement #62,Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which is required to be implemented in fiscal year 2013. Management’s current assessment is that this pronouncement will not have a significant impact on the basic financial statements. ,Financial Reporting of Deferred Outflows of Resources, Deferred The GASB issued Statement #63 Inflows of Resources, and Net Position, which is required to be implemented in fiscal year 2013. Management’s current assessment is that this pronouncement will have a significant impact on the basic financial statements. The GASB issued Statement #64,Derivative Instruments: Application of Hedge Accounting Termination Provisions, an amendment of GASB Statement No. 53, which is required to be implemented in fiscal year 2012. Management’s current assessment is that this pronouncement will not have a significant impact on the basic financial statements. Town of North Andover, Massachusetts 53 Basic Financial Statements Required Supplementary Information Town of North Andover, Massachusetts 54 Required Supplementary Information This page intentionally left blank. Town of North Andover, Massachusetts 55 Required Supplementary Information GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 Budgeted Amounts AmountsCurrent Year Carried forwardInitialOriginalFinal From Prior YearBudgetBudgetBudget REVENUES: Real estate and personal property taxes, net of tax refunds……………………………………………$ - $ 58,258,340 $ 58,258,340 $ 58,258,340 Tax liens………………………………………………………… - - - - Motor vehicle and other excise taxes………………………… - 3,522,184 3,522,184 3,522,184 Charges for services…………………………………………… - 790,000 790,000 790,000 Penalties and interest on taxes……………………………… - 350,152 350,152 350,152 Payments in lieu of taxes……………………………………… - 1,754,759 1,754,759 1,754,759 Licenses and permits………………………………………… - 173,000 173,000 173,000 Fines and forfeitures…………………………………………… - 177,000 177,000 177,000 Intergovernmental……………………………………………… - 8,867,453 8,867,453 8,867,453 Departmental and other……………………………………… - 1,132,288 1,132,288 1,132,288 Investment income……………………………………………… - 267,000 267,000 267,000 TOTAL REVENUES…………………………………… - 75,292,176 75,292,176 75,292,176 EXPENDITURES: Current: General government……………………………………… 71,694 3,376,962 3,448,656 3,082,841 Public safety………………………………………………… 17,337 8,923,401 8,940,738 8,787,010 Education…………………………………………………… 102,544 37,348,253 37,450,797 37,440,797 Public works………………………………………………… 43,894 3,910,302 3,954,196 4,298,929 Health and human services……………………………… 5,460 942,151 947,611 947,851 Culture and recreation……………………………………… 1,264 827,510 828,774 816,344 Pension benefits…………………………………………… - 2,803,785 2,803,785 2,803,785 Property and liability insurance…………………………… - 300,641 300,641 293,688 Employee benefits………………………………………… 24,500 9,531,593 9,556,093 9,531,093 State and county charges……………………………………… - 2,101,820 2,101,820 2,068,403 Debt service: Principal……………………………………………………… - 5,574,681 5,574,681 5,574,681 Interest……………………………………………………… - 1,337,978 1,337,978 1,337,978 TOTAL EXPENDITURES……………………………… 266,693 76,979,077 77,245,770 76,983,400 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES……………………………………… (266,693) (1,686,901) (1,953,594) (1,691,224) OTHER FINANCING SOURCES (USES): Premium from issuance of bonds…………………………… - - - - Transfers in……………………………………………………… - 1,322,517 1,322,517 1,322,517 Transfers out…………………………………………………… - - - (393,167) TOTAL OTHER FINANCING SOURCES (USES)…… - 1,322,517 1,322,517 929,350 NET CHANGE IN FUND BALANCE……………………………… (266,693) (364,384) (631,077) (761,874) BUDGETARY FUND BALANCE, Beginning of year…………… - 2,605,019 2,605,019 2,605,019 BUDGETARY FUND BALANCE, End of year……………………$ (266,693) $ 2,240,635 $ 1,973,942 $ 1,843,145 See notes to required supplementary information. Town of North Andover, Massachusetts56Required Supplementary Information ActualAmountsVariance BudgetaryCarried ForwardTo Final AmountsTo Next YearBudget $ 57,505,519 $ $ (752,821)- 238,977 238,977- 3,790,517 268,333- 836,864 46,864- 336,298 (13,854)- 1,731,968 (22,791)- 220,650 47,650- 113,167 (63,833)- 8,926,529 59,076- 1,271,902 139,614- 313,836 46,836- 75,286,227 - (5,949) 2,866,154 64,770 151,917 8,620,394 12,798 153,818 37,357,213 43,885 39,699 4,156,778 58,587 83,564 938,863 - 8,988 813,611 636 2,097 2,803,785 - - 276,258 17,430- 9,415,481 3,638 111,974 2,115,484 (47,081)- 5,574,681 - - 1,337,978 - - 76,276,680 184,314522,406 (990,453) (184,314) 516,457 127,464 127,464- 1,322,517 - - (378,167) 15,000- 1,071,814 142,464- 81,361 (184,314) 658,921 2,605,019 - - $ 2,686,380 $ (184,314) $ 658,921 Town of North Andover, Massachusetts57Required Supplementary Information Retirement System Schedules of Funding Progress and Employer Contributions The Retirement System Schedule of Funding Progress presents multiyear trend information about whether the actuarial value of planned assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The Retirement System Schedule of Employer Contributions presents multiyear trend information for required and actual contributions relating to the cost-sharing plan as a whole, of which the Town is one participating employer, as well as the Town’s proportionate share of the plan’s annual contributions. Retirement System Schedules Town of North Andover, Massachusetts 58 Required Supplementary Information ESSEX REGIONAL RETIREMENT SYSTEM SCHEDULE OF FUNDING PROGRESS ActuarialUAAL as a ActuarialAccruedUnfundedPercentage ActuarialValue ofLiability (AAL)AALFundedCoveredof Covered ValuationAssetsEntry Age(UAAL)RatioPayrollPayroll Date(A)(B)(B-A)(A/B)(C)((B-A)/C) 01/01/11$278,332,006$536,115,536 $257,783,530 51.9%$119,707,156215.3% 01/01/08301,420,965 445,171,554 143,750,58967.7%111,726,856128.7% 01/01/06261,327,047 376,034,621 114,707,57469.5%98,641,094 116.3% 01/01/04229,852,971 333,396,222 103,543,25168.9%93,404,002 110.9% 01/01/02218,346,198 287,390,715 69,044,51776.0%85,005,338 81.2% 01/01/00190,363,700 253,847,100 63,483,40075.0%69,525,900 91.3% 01/01/99180,034,700 268,386,000 88,351,30067.1%89,645,300 98.6% The Town's share of the UAAL, as of January 1, 2011 is approximately 15%. See notes to required supplementary information. Town of North Andover, MassachusettsRequired Supplementary Information 59 ESSEX REGIONAL RETIREMENT SYSTEM SCHEDULE OF EMPLOYER CONTRIBUTIONS System WideTown of North Andover (B/A) Fiscal YearAnnual(A)(B)Town's Percentage EndedRequiredActualPercentageActualof System Wide June 30ContributionsContributionsContributedContributionsActual Contributions 2011$19,093,942 $19,093,942 100%$2,803,785 14.7% 201017,648,430 17,648,487 100%2,596,530 14.7% 200915,601,671 15,601,671 100%2,468,667 15.8% 200815,788,864 15,788,864 100%2,261,142 14.3% 200716,622,274 16,622,274 100%2,227,020 13.4% 200613,080,011 13,080,011 100%2,181,588 16.7% 200512,223,776 12,223,776 100%1,946,329 15.9% 200412,516,569 12,516,569 100%1,693,461 13.5% The Town's Actual Contributions equaled 100% of its Required Contributions for each year presented. See notes to required supplementary information. Town of North Andover, Massachusetts60Required Supplementary Information Other Postemployment Benefit Plan Schedules Other postemployment benefit plan schedules The Schedule of Funding progress compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions compares, overtime, the annual required contributions to the actual contributions made. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. Town of North Andover, Massachusetts 61 Required Supplementary Information OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS AND SCHEDULE OF EMPLOYER CONTRIBUTIONS Schedule of Funding Progress Actuarial AccruedUAAL as a ActuarialLiability (AAL)UnfundedPercentage ActuarialValue ofProjectedAALFundedCoveredof Covered ValuationAssetsUnit Credit(UAAL)RatioPayrollPayroll Date(A)(B)(B-A)(A/B)(C)((B-A)/C) 07/01/10$- $118,595,377 $118,595,377 0.0%$39,329,676 301.5% 07/01/08- 125,963,157 125,963,157 0.0%39,189,469 321.4% Schedule of Employer Contributions Annual Actual Fiscal YearRequiredContributionsPercentage EndedContributionMadeContributed 6/30/11$12,441,414$3,839,408 30.9% 6/30/1011,241,110 4,346,87638.7% 6/30/0910,964,622 3,978,10936.3% See notes to required supplementary information. Town of North Andover, MassachusettsRequired Supplementary Information 62 OTHER POSTEMPLOYMENT BENEFIT PLAN ACTUARIAL METHODS AND ASSUMPTIONS Actuarial Methods: … July 1, 2010 Valuation date………………………………………… Actuarial cost method…………………………………… Projected Unit Credit Amortization method…………………………………… Level dollar amount over thirty years based on an open group, open basis … 30 years Remaining amortization period……………………… Actuarial Assumptions: … 4.5% Investment rate of return……………………………… Plan Membership: … 417 Current retirees, beneficiaries, and dependents…… Current active members………………………………… 1,060 Total1,477 See notes to required supplementary information. Town of North Andover, Massachusetts63Required Supplementary Information Notes to Required Supplementary Information Fiscal Year Ended June 30, 2011 NOTE A - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Notes to required supplementary information 1. Budgetary Information Municipal Law requires the Town to adopt a balanced budget that is approved by Town Meeting. The Finance Committee presents an annual budget to Town Meeting, which includes estimates of revenues and other financing sources and recommendations of expenditures and other financing uses. Town Meeting, which has full authority to amend and/or reject the budget or any individual line item, adopts the expenditure budget by majority vote. Increases or transfers between departments subsequent to the approval of the annual budget, requires majority Town Meeting approval via a supplemental appropriation. The majority of the Town’s appropriations are non-continuing which lapse at the end of each fiscal year. Others are continuing appropriations for which the governing body has authorized that an unspent balance from a prior fiscal year be carried forward and made available for spending in the current fiscal year. These carry forwards are included as part of the subsequent fiscal year’s original budget. Generally, expenditures may not exceed the legal level of spending authorized for an appropriation account. However, the Town is statutorily required to pay debt service, regardless of whether such amounts are appropriated. Additionally, expenditures for disasters, natural or otherwise, and final judgments may exceed the level of spending authorized by majority vote of the Town Meeting. The Town adopts an annual budget for the General Fund in conformity with the guidelines described above. The original fiscal year 2011 approved budget for the General Fund authorized approximately $77.3 million in appropriations and other amounts to be raised. The $131,000 increase between the original budget and final budget was due to a $373,000 supplemental transfer to the stabilization fund that was funded by a $100,000 reserve fund transfer and $273,000 of free cash. This resulted in a net increase of $273,000, which was offset by budget cuts totaling $109,000 and a reduction in state assessments totaling $33,000. The Town Accountant’s office has the responsibility to ensure that budgetary control is maintained on an individual line item appropriation account basis. Budgetary control is exercised through the Town’s accounting system. 2. Budgetary - GAAP Reconciliation For budgetary financial reporting purposes, the Uniform Municipal Accounting System basis of accounting (established by the Commonwealth of Massachusetts) is followed, which differs from the GAAP basis of accounting. A reconciliation of budgetary-basis to GAAP-basis results for the General Fund for the fiscal year ended June 30, 2011, is presented below: Net change in fund balance - budgetary basis…………………………………………$81,361 Perspective difference: Activity of the stabilization fund recorded in the general fund for GAAP………………………………………………………………… 424,245 Basis of accounting differences: Net change in recording 60 day receipts…………………………………………… (46,766) Net change in recording tax refunds payable……………………………………… (35,000) Recognition of revenue for on-behalf payments…………………………………… 6,733,723 Recognition of expenditures for on-behalf payments……………………………… (6,733,723) …$423,840 Net change in fund balance - gaap basis…………………………………………… Town of North Andover, Massachusetts 64 Required Supplementary Information Notes to Required Supplementary Information Fiscal Year Ended June 30, 2011 3. Excess of Expenditures over Appropriations During fiscal year 2011, expenditures exceeded budgeted appropriations for state & county charges. These amounts will be raised on the fiscal 2012 Tax Recapitulation. NOTE B – PENSION PLAN The following actuarial methods and assumptions were used in the Retirement System’s most recent actuarial valuation: Actuarial Methods and Assumptions: …January 1, 2008 Valuation Date………………………………… Actuarial Cost Method………………………… …Entry Age Normal Cost Method Amortization Method……………………………Increasing at 4.5% per year, level dollar for ERI liability for certain units Remaining Amortization Period…………………19 years remaining as of July 1, 2009 Asset Valuation Method…………………………A preliminary actuarial value is first determined by taking the actuarial value of assets at the beginning of the year and adding assumed investment earnings (at the assumed actuarial rate fo return) and the net new money during the year (contributions less benefit payments and administrative expenses). 20% of the difference between the market value of assets and the preliminary actuarial value is added to the preliminary actuarial value. In order that the actuarial value not differ too significantly from the market value of assets, the final actuarial value of assets must be within 20% of the market value of assets. Actuarial Assumptions: Investment rate of return………………………8.50% Projected salary increases……………………5.00% Cost of living adjustments………………………3.0% of first $12,000 of retirement income. Plan Membership: Retired participants and beneficiaries receiving benefits……………………… 1,568 Inactive participants..............................................................................……… 880 Disabled...............................................................................………………… 65 Active participants………………………………………………………………… 3,139 Total…………………………………………………………………………………5,652 NOTE C – OTHER POSTEMPLOYMENT BENEFITS PLAN The Town administers a single-employer defined benefit healthcare plan (“The Retiree Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the Town’s group health insurance plan, which covers both active and retired members. Additionally, retired teachers and their spouses receive health insurance through the Group Insurance Commission of the Commonwealth of Massachusetts (GIC). Each participating municipality is assessed for the governmental share of health and life insurance premiums paid on behalf of its teacher retirees by the state. The Town currently finances its other postemployment benefits (OPEB) on a pay-as-you-go basis. As a result, the funded ratio (actuarial value of assets expressed as a percentage of the actuarial accrued liability) is 0%. In accordance with Governmental Accounting Standards, the Town has recorded its OPEB cost equal to the actuarially determined annual required contribution (ARC) which includes the normal cost of providing benefits for the year and a component for the amortization of the total unfunded actuarial accrued liability of the plan. Town of North Andover, Massachusetts 65 Required Supplementary Information Notes to Required Supplementary Information Fiscal Year Ended June 30, 2011 The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarial accrued liability for benefits with the actuarial value of accumulated plan assets. The Schedule of Employer Contributions compares, overtime, the annual required contributions to the actual contributions made. Projections of benefits for financial reporting purposes are based on the substantive plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The Schedule of Actuarial Methods and Assumptions presents factors that significantly affect the identification of trends in the amounts reported. Town of North Andover, Massachusetts 66 Required Supplementary Information Additional Information Additional information Town of North Andover, Massachusetts 67 Additional Information ENTERPRISE FUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS BUDGETARY BASIS - BUDGET AND ACTUAL FISCAL YEAR ENDED JUNE 30, 2011 Water Fund Amounts ActualCarriedVariance Original FinalBudgetaryForward ToTo Final BudgetBudgetAmountsNext YearBudget OPERATING REVENUES: Charges for services ………………………………………………………………$ 5,349,752 $ 5,349,752 $ 5,765,416 $ - $ 415,664 Penalties and interest……………………………………………………………… 22,000 22,000 23,113 - 1,113 TOTAL OPERATING REVENUES …………………………………….……… 5,371,752 5,371,752 5,788,529 416,777- OPERATING EXPENSES: Cost of service and administration………………………………………………… 1,983,867 1,983,867 1,745,906 52,076 185,885 GLDS assessment……………………………………………………………..…… - - - - - TOTAL OPERATING EXPENSES …………………………………….……… 1,983,867 1,983,867 1,745,906 52,076 185,885 OPERATING INCOME (LOSS)…………………………………………..…… 3,387,885 3,387,885 4,042,623 (52,076) 602,662 NONOPERATING REVENUES (EXPENSES): Investment income………………………………………………………………… 1,500 1,500 8,779 - 7,279 Interest expense…………………………………………………………………… (420,830) (420,830) (414,308) 6,522- Debt service - principal……………………………………………………………… (2,370,448) (2,370,448) (2,370,448) - - TOTAL NONOPERATING REVENUES (EXPENSES), NET………………………………………..…… (2,789,778) (2,789,778) (2,775,977) - 13,801 INCOME (LOSS) BEFORE TRANSFERS…………………..……………… 598,107 598,107 1,266,646 (52,076) 616,463 TRANSFERS: Transfers in………………………………………………………………………… - - - - - Transfers out………………………………………………………………………… (658,016) (658,016) (640,999) - 17,017 TOTAL OPERATING TRANSFERS………………………………….……… (658,016) (658,016) (640,999) - 17,017 CHANGE IN NET ASSETS…………………………………………………… (59,909) (59,909) 625,647 (52,076) 633,480 NET ASSETS AT BEGINNING OF YEAR……………………………..…………… 178,916 178,916 178,916 - - …$ 119,007 $ 119,007 $ 804,563 $ (52,076) $ 633,480 NET ASSETS AT END OF YEAR………………………………………………… Town of North Andover, Massachusetts68Additional Information Sewer FundOsgood Hill Fund AmountsAmounts Actual CarriedVarianceActual CarriedVariance OriginalFinal BudgetaryForward ToTo Final Original Final BudgetaryForward ToTo Final BudgetBudgetAmountsNext YearBudgetBudgetBudgetAmountsNext YearBudget $ 5,026,817 $ 5,026,817 $ 4,842,333 $ $ (184,484)- $ 2 93,184$ 2 93,184$ 239,200 $ -$ (53,984) 20,000 20,000 24,519 - 4,519 - - - - - 5,046,817 5,046,817 4,866,852 (179,965)- 2 93,184 2 93,184 2 39,200 - ( 53,984) 915,698 915,698 892,413 933 22,352 2 56,882 2 44,087 242,955 189 943 1,642,900 1,642,900 1,428,879 214,021- - - - - - 2,558,598 2,558,598 2,321,292 933 236,373 2 56,882 2 44,087 2 42,955 1 89 9 43 2,488,219 2,488,219 2,545,560 (933) 56,408 3 6,302 4 9,097 ( 3,755) ( 189) ( 53,041) 3,000 3,000 4,937 1,937- - - - - - (485,804) (485,804) (485,804) - - - - - - - (1,585,278) (1,585,278) (1,585,278) - - - - - - - (2,068,082) (2,068,082) (2,066,145) 1,937- - - - - - 420,137 420,137 479,415 (933) 58,345 3 6,302 4 9,097 ( 3,755) ( 189) ( 53,041) - - - - - - - 5,000 - 5,000 (422,161) (422,161) (422,161) - - (46,460) (46,460) (46,460) - - (422,161) (422,161) (422,161) - - (46,460) ( 46,460) ( 41,460) - 5 ,000 (2,024) (2,024) 57,254 (933) 58,345 ( 10,158) 2 ,637 ( 45,215) ( 189) (48,041) 376,288 376,288 376,288 - - 4 7,399 4 7,399 47,399 - - $ 5 0,036$ 2 ,184 $ ( 189)$ ( 48,041) $ 374,264 $ 374,264 $ 433,542 $ (933) $ 58,345 $ 37,241 Town of North Andover, Massachusetts69Additional Information TOWN OF NORTH ANDOVER, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2011 TOWN OF NORTH ANDOVER, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2011 TABLE OF CONTENTS PAGE Report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards. 1 Report on compliance with requirements that could have a direct and material effect on each major program and on internal control over compliance in accordance with OMB Circular A-133 3 Schedule of expenditures of federal awards 5 Notes to schedule of expenditures of federal awards 6 Schedule of findings and questioned costs 7 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Board of Selectmen Town of North Andover, Massachusetts We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of North Andover, Massachusetts, as of and for the fiscal year ended June 30, 2011, which collectively comprise the Town of North Andover, Massachusetts’ basic financial statements and have issued our report thereon dated December 19, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Town of North Andover, Massachusetts’ internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town of North Andover, Massachusetts’ internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Town of North Andover, Massachusetts’ internal control over financial reporting. Adeficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected in a timely basis, Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town of North Andover, Massachusetts’ financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported underGovernment Auditing Standards. 1 We noted certain other matters that we reported to management of the Town of North Andover, Massachusetts in a separate letter dated December 19, 2011. This report is intended solely for the information and use of management, the Board of Selectmen, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. December 19, 2011 2 REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Honorable Board of Selectmen Town of North Andover, Massachusetts Compliance We have audited the compliance of the Town of North Andover, Massachusetts, with the types of compliance requirements described in theU.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Town’smajor federal programs for the fiscal year ended June 30, 2011. The Town of North Andover, Massachusetts’ major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Town of North Andover, Massachusetts’ management. Our responsibility is to express an opinion on the Town of North Andover, Massachusetts' compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Town of North Andover, Massachusetts’ compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Town of North Andover, Massachusetts’ compliance with those requirements. In our opinion, the Town of North Andover, Massachusetts, complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the fiscal year ended June 30, 2011. Internal Control Over Compliance Management of the Town of North Andover, Massachusetts is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Town of North Andover, Massachusetts’ internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Town of North Andover, Massachusetts’ internal control over compliance. 3 Adeficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, detect, and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. Amaterial weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule of Expenditures of Federal Awards We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of North Andover, Massachusetts as of and for the fiscal year ended June 30, 2011, and have issued our report thereon dated December 19, 2011. Our audit was performed for the purpose of forming our opinions on the financial statements that collectively comprise the Town of North Andover, Massachusetts’, basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A- 133 and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of management, the Board of Selectmen, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. December 19, 2011 4 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Federal CFDA Federal Grantor/Program TitleNumberExpenditures U.S. DEPARTMENT OF AGRICULTURE: Passed through Massachusetts Department of Elementary and Secondary Education: Non-Cash Assistance (Commodities): National School Lunch Program10.555$42,282 Cash Assistance: School Breakfast Program10.55340,141 National School Lunch Program10.555307,548 TOTAL AGRICULTURE389,971 U.S. DEPARTMENT OF ENERGY: Passed through Massachusetts Department of Energy Resources: ARRA - Energy Efficiency and Conservation Block Grant Program81.128 103,845 U.S. DEPARTMENT OF EDUCATION: Passed through Massachusetts Department of Elementary and Secondary Education: Title I Grants to Local Educational Agencies84.010 205,780 Special Education Grants to States84.0271,051,348 Safe and Drug Free Schools and Communities State Grants (A)84.186 8,997 Fund for the Improvement of Education84.215 137,146 Improving Teacher Quality State Grants84.367 87,389 ARRA - Title I Grants to Local Educational Agencies84.389 146,349 ARRA - Special Education - Grants to States84.391 722,243 ARRA - State Fiscal Stabilization Fund - Education State Grants84.394 627,388 ARRA - Race to the Top84.395 4,114 Passed through Massachusetts Department of Early Education and Care: Special Education - Preschool Grants84.173 27,821 ARRA - Special Education - Preschool Grants84.392 27,093 TOTAL EDUCATION3,045,668 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE: Direct Program: Learn and Serve America School and Community Based Programs94.004 2,500 SOCIAL SECURTIY ADMINISTRATION: Passed through Massachusetts Rehabilitation Commission: Social Security Disability Insurance96.001 250 U.S. DEPARTMENT OF HOMELAND SECURITY: Passed through the State Office of Emergency Management: Public Assistance Grants97.036 89,197 TOTAL$3,631,431 See notes to schedule of expenditures of federal awards. Town of North Andover, MassachusettsReports on Federal Award Programs 5 Notes to Schedule of Expenditures of Federal Awards Fiscal Year Ended June 30, 2011 Note 1 - Definition of Reporting Entity The accompanying Schedule of Expenditures of Federal Awards presents the activity of all federal financial assistance programs of the Town of North Andover, Massachusetts. All federal financial assistance received directly from federal agencies as well as federal financial assistance passed through other governmental agencies is included on the schedule. Note 2 - Significant Accounting Policies The accounting and reporting policies of the Town of North Andover, Massachusetts, are set forth below: (a) Basis of Presentation - The accompanying Schedule of Expenditures of Federal Awards is presented on the modified accrual basis of accounting. Accordingly, expenditures are recognized when the liability is incurred. (b) Cash Assistance - School Breakfast and Lunch Program - Program expenditures represent federal reimbursement for meals provided during the fiscal year. (c) Non-Cash Assistance (Commodities) – School Lunch Program – Program expenditures represent the value of donated foods received during the fiscal year. (d) Public Assistance Grants – Program expenditures represent federal reimbursement received during the fiscal year. Note 3 – Program Clusters In accordance with Subpart A §_.105 of OMB Circular No. A-133, Audits of States, Local Governments and Non Profit Organizations, certain programs have been clustered in determining major programs. The following represents the clustered programs: CFDA Number Name of Cluster/Program Child Nutrition Cluster School Breakfast Program 10.553 National School Lunch Program 10.555 Title I Cluster Title I Grants to Local Educational Agencies 84.010 ARRA - Title I Grants to Local Educational Agencies 84.389 Special Education Cluster Special Education Grants to States 84.027 Special Education Preschool Grants 84.173 ARRA - Special Education - Grants to States 84.391 ARRA - Special Education - Preschool Grants 84.392 Town of North Andover, Massachusetts 6Reports on Federal Award Programs Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2011 A. Summary of Auditors’ Results 1. The auditors’ report expresses an unqualified opinion on the financial statements of the Town of North Andover, Massachusetts. 2. No significant deficiencies relating to the audit of the financial statements are reported in the Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards. 3. No instances of noncompliance material to the financial statements of the Town of North Andover, Massachusetts, were disclosed during the audit. 4. No significant deficiencies relating to the audit of the major federal award programs is reported in the Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133. 5. The auditors’ report on compliance for the major federal award programs for the Town of North Andover, Massachusetts, expresses an unqualified opinion. 6. No audit findings were required to be reported in accordance with Section 510(a) of OMB Circular A-133. 7. The programs tested as major programs include: CFDA Program Title Number Title I Grants to Local Educational Agencies 84.010 Special Education Grants to States 84.027 Special Education Preschool Grants 84.173 ARRA - Title I Grants to Local Educational Agencies 84.389 ARRA - Special Education - Grants to States 84.391 ARRA - Special Education - Preschool Grants 84.392 ARRA - State Fiscal Stabilization Fund - Education State Grants 84.394 8. The threshold for distinguishing Types A and B programs was $300,000. 9. The Town of North Andover, Massachusetts was determined to be a low-risk auditee. B. Findings-Financial Statements Audit None. C. Finding and Questioned Costs – Major Federal Award Programs None D. Prior Fiscal Year Audit Findings and Questioned Costs None Town of North Andover, Massachusetts 7Reports on Federal Award Programs