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Home My WebLink AboutAUDIT 06-30-2000TOWN OF NORTH ANDOVER, MASSACHUSETTS Financial Statements For the Year Ended June 30, 2000 (With Independent Auditors' Report Thereon) TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT GENERAL PURPOSE FINANCIAL STATEMENTS: Combined Balance Sheet- All Fund Types and Account Group Combined Statement of Revenues, Expenditures and Changes in Fund Balance - All Governmental Fund Types and Expendable Trust Funds Statement of Revenues and Other Sources, and Expenditures and Other Uses - Budget and Actual- General Fund Statement of Revenues, Expenses and Changes in Retained Earnings/Fund Balance- All Proprietary Fund Types and Similar Trust Funds Statement of Cash Flows - Proprietary Fund Types and Similar Trust Funds Notes to Financial Statements SUPPLEMENTARY INFORMATION Summary of Activity - Water and Sewer Enterprise Funds Summary of Budget and Actual Activity - Water and Sewer Enterprise Funds (Budgetary Basis of Accounting) PAGE 3 4 5 6 7 8 26 27 I I I I I I I I I I I I I I I I I I MELANSON HEATH ~ COMPANY, PC CERTIFIED PUBLIC ACCOUNTANTS MANAGEMENT ADVISORS Corporate P/ace 93 ' Suite ~ ~4 ~oo Bum Road Andover, MA o ~ 8 ~ o Tel (978)749-00o5 · Fax (978) 749-o006 INDEPENDENT AUDITORS'REPORT To the Board of Selectmen Town of North Andover, Massachusetts We have audited the accompanying general purpose financial statements of the Town of North Andover, Massachusetts as of June 30, 2000 and for the year then ended. These general purpose financial statements are the responsibility of the Town of North Andover's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Govemment Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assur- ance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements referred to above do not include the General Fixed Asset Group of Accounts, as required by generally accepted accounting principles. The amount that should be recorded in the General Fixed Assets Account Group has not been determined. The Town maintains its Water and Sewer Enterprise funds on a modified accrual basis of accounting and has also not recorded all of the inventory of supplies, fixed assets, accumulated depreciation, accrued liabilities, employee compensated absences, contributed capital, and depreciation expense as required by generally accepted accounting principles. -1- Additional Offices: Nashua, NH ° Greenfield, MA ° E//sworth, ME I m m m mm I i I m i i i I ! m I m In our opinion, except for the effects of the items described in the preceding paragraphs, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the Town of North Andover, Massachusetts, as of June 30, 2000, and the results of its operations and cash flows for its proprietary and similar type trust funds for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The supplementary information appearing on pages 26 - 27 are 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 general purpose financial statements and, in our opinion, is fairly presented in all material respects in relation to the general purpose financial statements taken as a whole. In accordance with Government Auditing Standards, we also have issued our report dated November 7, 2000 on our consideration of the Town's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Andover, Massachusetts November 7, 2000 -2- m mm mm m mm mm m mm mmm m mm m m mm m mm m mm m TOWN OF NORTH ANDOVER, MASSACHUSETTS Combined Balance Sheet - All Fund Types and Account Group June 30, 2000 ASSETS Cash and cash investments Receivables: Property taxes Excises taxes Charges for services Due from other governments Other assets Amount to be provided for from Commonwealth Amount to be provided for the retirement of general long-term debt Total Assets LIABILITIES AND FUND EQUITY Liabilities: Warrants payable Accrued liabilities Deferred revenues Reserve for tax refunds Taxes collected in advance Accrued vacation and sick leave Anticipation notes payable General obligation bonds payable Other liabilities Total Liabilities Fund Equity: Retained earnings Fund balances: Reserved for encumbrances Reserved for endowment Unreserved: Undesignated Total Fund Equity Total Liabilities and Fund Equity General $ 4,628,305 1,637,427 212,034 109,503 Governmental Fund Types Proprietary Fund Type Fiduciary Account Group Special Capital Water/Sewer Internal Fund Types General Long- Revenue Proiects Enterprise Service Trust Term Debt $ 3,709,833 $ 784,983 $ 120,077 261,468 1,400,920 1,045,293 $ 960,673 $ 6,587,269 $ 3,829,910 $ 1,046,451 $ 2,446,213 $ 960,673 $ 157,594 $ 606,104 120,077 3,679,000 277,671 4,285,104 $ 752,639 1,351,554 1,664,846 666,436 239,291 298,498 4,973,264 145,082 1,468,923 1,614,005 3,552,239 (3,238,653) 3,552,239 (3,238,653) $ 6,587,269 $ 3,829,910 $ 1,046,451 $ 195,765 1,045,294 1,241,059 $ 4,694,726 $ 4,694,726 1,205,154 883 $ 3,438 455,000 - 1,205,154 2,446,213 455,883 504,790 504,790 $ 960,673 4~520,558 4,523,996 77,271 93,459 170,730 $ 4,694,726 $ 15,006,600 53,563,024 $ 68,569,624 753,229 67,816,395 68,569,624 $ 68,569,624 Totals (Memorandum $ 16,179,440 1,637,427 212,034 1,045,293 381,545 109,503 15,006,600 53,563,024 $ 88,134,866 $ 1,716,423 1,806,554 2,830,217 666,436 239,291 753,229 3,679,000 67,816,395 4,819,056 84,326,601 1,709,944 145,082 77,271 1,875,968 3,808,265 $ 88,134,866 See accompanying notes to financial statements. - 3 - E 0 TOWN OF NORTH ANDOVER, MASSACHUSETTS Statement of Revenues and Other Sources, and Expenditures and Other Uses - Budget and Actual- General Fund For the Year Ended June 30, 2000 Revenues and Other Sources: Property taxes Excise taxes Charges for service Interest penalties and other Licenses, permits and fees Intergovernmental Interest income Departmental and other Transfers in Total Revenues and Other Sources Expenditures and Other Uses: General government Public safety Education Public works Fixed expenses Intergovernmental Transfers out Other uses Total Expenditures and Other Uses Excess (deficiency) of revenues and other sources over expenditures and other uses Budget Actual Variance Favorable (Unfavorable) $ 32,431,971 $ 32,431,971 $ 2,856,948 3,173,205 316,257 330,000 338,621 8,621 242,667 246,868 4,201 887,771 807,830 (79,941) 7,581,380 7,594,350 12,970 291,611 417,701 126,090 1,383,617 1,466,646 83,029 455,756 455,756 46,461,721 46,932,948 471,227 3,130,137 3,136,414 (6,277) 5,895,226 5,860,293 34,933 23,274,778 23,273,684 1,094 3,088,886 3,109,823 (20,937) 9,879,507 9,992,142 (112,635) 402,334 435,838 (33,504) 363,586 363,586 427,267 427,267 46,461,721 46,599,047 (137,326) $ 333,901 -5- See accompanying notes to financial statements. $ 333,901 I I I I TOWN OF NORTH ANDOVER, MASSACHUSETTS Statement of Revenues, Expenses and Changes in Retained Earnings/Fund Balance - All Proprietary Fund Types and Similar Trust Funds For the Year Ended June 30, 2000 Proprietary Fund Types Water/Sewer Internal Enterprise Service Funds Fund Revenues: Charges for services $ 6,352,738 Contributions Interest Total Revenues 6,352,738 Expenses: Personnel services Public works Total Expenses Excess of revenues over expenditures Transfer Out Net Income Retained Earnings/Fund Balance, beginning Retained Earnings/Fund Balance, ending $ 1,205,154 See accompanying notes to financial statements. $ 3,624,542 3,624,542 3,085,074 5,051,727 5,051,727 3,085,074 1,301,011 539,468 (434,109) - 866,902 539,468 338,252 (34,678) $ 504,790 -6- Fiduciary Fund Type Nonexpendable Trust Fund 4,476 4,476 4,476 4,476 72,795 $ 77,271 TOWN OF NORTH ANDOVER, MASSACHUSETTS Statement of Cash Flows ProPrietary Fund Types and Similar Trust Funds For the Year Ended June 30, 2000 Cash Flows From Operating Activities: Operating income Transfer to general fund Adjustments to reconcile operating income to net cash provided by operating activities: Increase (Decrease) in current liabilities: Other liabilities Net Cash Provided by Operating Activities Net increase (decrease) in cash and cash equivalents Cash and Cash Equivalents, July 1, 1999 Cash and Cash Investments, June 30, 2000 Proprietary Fund Types Water/Sewer Internal Enterprise Service Fund Fund Fiduciary Fund Type Nonexpendable Trust $ 1,301,011 $ 539,468 $ 4,476 (434,109) - - 48,705 42,446 915,607 581,914 4,476 Reconciliation of Trust Cash: Total Trust and Agency Cash Less: Expendable Trust and Agency Cash Total Nonexpendable Trust Cash See accompanying notes to financial statements. 915,607 485,313 $ 1,400,920 $ 581,914 4,476 378,759 72,795 960,673 $ 77,271 $ 4,694,726 (4,617,455) $ 77,271 Town of North Andover Notes to General Purpose Financial Statements 1. Summary of Significant Accounting Policies The accounting policies of the Town of North Andover (the Town) conform to generally accepted accounting principles (GAAP) as applicable to govern- mental units, except as indicated in Note 2. The following is a summary of the more significant policies: A. Reporting Entity The government is a municipal corporation governed by an elected Board of Selectmen. As required by generally accepted accounting principles, these financial statements present the government and applicable com- ponent units for which the government is considered to be financially accountable. In fiscal year 2000, it was determined that no entities met the required GASB-14 criteria of component units. B. Basis of Presentation - Fund Accounting For reporting purposes, the financial activities of the Town of North Andover are accounted for through the use of several funds and account groups. Each fund is a separate accounting entity with self-balancing accounts. The following types of funds and account groups are used by the Town of North Andover: Governmental Fund Types Governmental funds are those through which most governmental func- tions of the Town are financed. The acquisition, use and balances of the Town's expendable financial resources and the related liabilities (except those accounted for in fiduciary funds) are accounted for through govern- mental funds. The measurement focus is based upon determination of changes in financial position, rather than upon net income determination. The following are the Town's governmental fund types: General Fund - To account for all financial activities of the Town, except those required to be accounted for in another fund. Most revenues and expenditures of a general governmental nature are accounted for in this fund. -8- Special Revenue Funds - To account for the proceeds of specific revenue sources (other than expendable trusts or for major capital projects) that are legally restricted to expenditures for special purposes. Capital Proiect Funds - Transactions related to resources obtained and used for the acquisition, construction, or improvement of major capital facilities are accounted for in capital project funds. Such resources are derived principally from proceeds of general obligation bond issues and from Federal and State grants. Proprietary Fund Types Proprietary funds are used to account for the Town's ongoing organi- zations and activities which are similar to those often found in the private sector. The measurement focus is upon determination of net income. The following is the Town's proprietary fund types: Enterprise Funds - To account for operation which are supported primarily by user charges. Internal Service Funds - To account for goods or services provided by one Town department or agency to other Town departments or agencies. The Town accounts for its self-insured health insurance fund as an internal service fund. Fiduciary Fund Types Fiduciary funds are used to account for assets held by the Town in a trustee capacity. The Town maintains the following fiduciary fund types: Expendable Trust Funds - These funds are accounted for in essentially the same manner as governmental funds. Nonexpendable Trust Funds - These funds are used to account for assets held by the Town in a trustee capacity. The principal balance cannot be spent; however, investment earnings may be spent for intended purposes. Agency Funds - These funds are custodial in nature (assets equal liabili- ties) and do not involve measurement of results of operations. Account Groups Account groups are used to establish accounting control and account- ability for the Town's general long-term obligations. The following account group is maintained by the Town. -9- ! I I General Long-Term Debt Account Group - This account group is used to account for all long-term obligations of the Town. C. Basis of Accountinq The basis of accounting used for each fund is as follows: Modified Accrual Basis (Governmental, Enterprise, Expendable Trust and Aqency Funds) The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental and expendable trust funds are accounted for using a current financial resources measure- ment focus. With this measurement focus, only current assets and cur- rent liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. The modified accrual basis of accounting is applied in all governmental, expendable trust, enterprise and agency fund types. Accordingly, reve- nues are recorded when susceptible to accrual, that is, both measurable and available to finance expenditures of the current period. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The Town considers property tax revenue available if received within 60 days after the close of the fiscal year. All other amounts not received during that period are deferred and recognized in future accounting periods. In applying the susceptible to accrual concept to intergovernmental revenues, the legal and contractual requirements of the numerous indivi- dual programs are used as guidance. There are essentially two types of these revenues: (1) revenues recognized based upon the expenditures recorded, and (2) revenues recognized at the time of receipt or earlier, if the susceptible to accrual criteria is met. Other revenues (except investment earnings) are recorded as revenues when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned since they are measurable and available. Expenditures, except for interest on long-term debt which is recorded when due, and vacation, sick and pension costs because these amounts are not expected to be relieved within the current accounting period, are recorded when the related fund liability is incurred. -10- Accrual Basis (Proprietary and Nonexpendable Funds) All proprietary (Other than enterprise) and nonexpendable trust funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and liabilities associated with the operation of these funds are included on the balance sheet. Proprietary fund type operating statements present increases (e.g., revenues) and decreases (e.g., expenses)in net total assets. The accrual basis of accounting is used by proprietary (other than water/ sewer enterprise) and nonexpendable trust funds. Their revenues are recognized when they are earned, and their expenses are recognized when they are incurred. The Town has elected to apply proprietary fund accounting principles applicable to the private sector issued through November 30, 1989, unless those principles conflict with or contradict pronouncements of the Governmental Accounting Standards Board. D. Cash and Cash Equivalents Cash balances from all funds, except those required to be segregated by law, are combined to form a consolidation of cash. Cash balances are invested to the extent available, and interest earnings are recognized in the General Fund. Certain special revenue funds, proprietary and fidu- ciary funds segregate cash, and investment earnings become a part of those funds. Deposits with financial institutions consist primarily of demand deposits, certificates of deposits, and savings accounts. The Town maintains a cash and investment pool that is available for use by all funds. Each fund's portion of this pool is reflected on the combined financial state- ments under the caption "cash and cash equivalents". The interest earnings attributable to each fund type is included under earnings on investments. For purpose of the statement of cash flows, the proprietary funds and nonexpendable trust funds consider investments with original maturities of three months or less to be cash equivalents. E. Investments State and local statutes place certain limitations on the nature of deposits and investment available to the Town. Deposits in any financial institution may not exceed certain levels within the financial institution. Non-fiduciary fund investments can be made in securities issued by or unconditionally -11 - guaranteed by the U.S. Government or agencies that have a maturity of less than one year from the date of purchase and repurchase agreements guaranteed by such securities with maturity dates of no more than 90 days from the date of purchase. F. Property Tax Limitations Legislation known as "Proposition 2 1/2" limits the amount of revenue the Town can derive from property taxes. The prior fiscal year's tax levy limit is used as a base and cannot increase by more than 2.5 percent (excluding new growth), unless an override or debt exemption is voted. The actual fiscal year 2000 tax levy reflected an excess capacity of $ 983. G. Long-Term Obliqations The government reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. H. Accrued Employee Benefits Town employees are granted vacation and sick leave in varying amounts. Upon retirement, termination, or death, certain employees are compen- sated for unused sick and vacation leave which is (subject to certain limitations) at their.then current rates of pay. The cost of this unused sick and vacation leave, which is expected to be paid from future financial resources, is accounted for as a liability of the general long-term debt account group. Fund Equity Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. J. Encumbrance Accounting and Reportin.q Encumbrance accounting is employed in governmental funds. Encum- brances (e.g., purchase orders, contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expendi- tures or liabilities. -12- K. Memorandum Only- Total Columns Total columns on the general purpose financial statements are captioned as "memorandum only" because they do not represent consolidated financial information and are presented only to facilitate financial analysis. The columns do not present information that reflects financial position, results of operations, or cash flows in accordance with generally accepted accounting principles. Interfund eliminations have not been made in the aggregation of this data. L. Material Chanqes in Classifications The accompanying financial statements reflect various changes in classi- fication from the prior year. Specifically, all employee retirement costs are reported under the expenditure classification of "employee benefits" instead of general government. 2. Departures from Generally Accepted Accountin_q Principles The significant departures of the Town's financial statements from generally accepted accounting principles are as follows: · General fixed asset acquisitions are not capitalized in a general fixed asset group of accounts. In 1999, the Town established separate Water and Sewer Enterprise Funds; however, the Town continued to account for activities on a modified accrual basis similar to governmental funds. As a result, certain assets, certain liabilities, such as bonds payable and accrued expenses, and certain expenses, such as depreciation, have not been recorded as required by generally accepted accounting principles for enterprise funds. The amount by which the actual value for these accounts varies from amounts recorded cannot be determined at this time. 3, Stewardship, Compliance and Accountability A. Bud,qetary Information At the town meeting, the Finance Committee presents an operating and capital budget for the proposed expenditures of the fiscal year commencing the following July 1. The budget, as enacted by the town meeting, establishes the legal level of control and specifies that certain appropriations are to be funded by particular revenues. The original -13- Bo budget is amended during the fiscal year at special town meetings as required by changing conditions. In cases of extraordinary or unforeseen expenses, the Finance Committee is empowered to transfer funds from the Reserve Fund (a contingency appropriation) to a departmental appro- priation. "Extraordinary" includes expenses which are not in the usual line, or are great or exceptional. "Unforeseen" includes expenses which are not foreseen as of the time of the annual meeting when appropriations are voted. Departments are limited to the line items as voted. Certain items may exceed the line item budget as approved if it is for an emergency and for the safety of the general public. These items are limited by the Massa- chusetts General Laws and must be raised in the next year's tax rate. Formal budgetary integration is employed as a management control device during the year for the General Fund. Effective budgetary control is achieved for all other funds through provisions of the Massachusetts General Laws. At year end, appropriation balances lapse, except for certain unexpended capital items and encumbrances which will be honored during the subse- quent year. Bud.qetary Basis The General Fund appropriation appearing on page 5 of the financial statements represents the final amended budget of the Town and was authorized as follows: 2000 annual appropriations 2000 supplemental appropriations Statutory County and State assessments Other uses legally required to be raised Total Appropriation $ 45,632,120 402,334 427,267 $ 46,461,721 C. Budget/GAAP Reconciliation The budgetary data for the general fund is based upon accounting prin- ciples that differ from generally accepted accounting principles (GAAP). Therefore, in addition to the GAAP basis financial statements, the results of operations of the general fund are presented in accordance with budgetary accounting principles to provide a meaningful comparison with budgetary data. -14- The following is a summary of adjustments made to the actual revenues and other sources, and expenditures and other uses, to conform to the budgetary basis of acCounting. General Fund Revenues/Expenditures (GAAP basis) Other financing sources/uses (GAAP basis) Adjust tax revenue to accrual basis Reverse expenditures of prior year appropriation carryforwards Add end of year appropriation carryforwards to expenditures To reverse non-budgeted state contribution to MTRS Record raising of prior year appropriation deficits To reverse timing differences Budgetary basis Revenues and Other Financing Sources Expenditures and Other Financing Uses $ 48,328,478 $ 48,079,604 455,756 ( 40,269) 363,586 (496,518) 145,082 (1,811,017) (1,811,017) $ 46,932,948 427,267 ( 108,957) $ 46,599,047 D. Overexpenditures The Town overexpended certain appropriations by $149,572. The Town is required by Massachusetts General Laws to raise this amount with the fiscal year 2001 tax rate. E. Deficit Fund Equity The following funds had deficits as of June 30, 2000: Special Revenue Funds: Chapter 90 Police detail Capital Project Funds: Sewer I & I improvements - water filtration Sewer extension Sewer I & I improvements Sewer I & I improvements - water projects Sewer I & I improvements Water improvements Osgood high school Capital improvements $(579,929) $(80,589) $( 9,801) $(91,437) $(474,266) $(325,008) $(2,918,350) $(40,214) $(544,122) $(697,490) -15- I I I I I I I I I I I I I I I '1 I I The deficits in these funds will be eliminated through future departmental revenues, bond proceeds, and transfers from other funds. 4. Cash and Cash Equivalents The carrying amount of the Town's deposits with financial institutions at June 30, 2000 was $16,179,440. The bank balances, which do not include reconciling items such as deposits in transit or outstanding checks, are categorized as follows: Amount insured by the FDIC and DIF, or collateralized with securities held by the Town in its name $ 707,944 U ncollateralized 10,382,331 State investment pool 6,016,423 Total Bank Balance $17,106,698 5, Taxes Receivable Real and personal property taxes are based on assessed values as of the previous January 1 and are normally due on a quarterly basis. By law, all taxable property must be assessed at 100% of fair cash value. Taxes due and unpaid after the due dates are subject to interest and penalties. The Town has an ultimate right to foreclose on property for unpaid taxes. The following is a summary of the property tax calendar used for the 2000 tax levies: June, 1999: First quarterly real estate tax bills are mailed to taxpayers. This bill is approximately equal to one quarter of the prior year's tax levy. August, 1999: First quarter preliminary tax bills are due. All bills paid after this date are charged interest at the rate of 14% from the due date. September, 1999: The second quarter real estate tax bills are mailed to taxpayers. This bill is approximately equal to one quarter of the prior year's tax levy. -16- November, 1999: The second quarter preliminary tax bills are due. All bills paid after this date are charged interest at the rate of 14% from the due date. December, 1999: The third quarter real estate and personal property tax bills are mailed to taxpayers. This bill is approximately equal to one half of the current tax levy less preliminary payments. February, 2000: The third quarter tax bills are due. All bills paid after this date are charged interest at the rate of 14% from the due date. March, 2000: The fourth quarter real estate and personal property tax bills are mailed to taxpayers. This is for the remainder of the tax levy. May, 2000: The fourth quarter tax bills are due. All bills paid after this date are charged interest at the rate of 14% from the due date. Fourteen days after the due date for the fourth quarter tax bill for real estate taxes, a demand notice may be sent to the delinquent taxpayer. Fourteen days after the demand notice has been sent, the tax collector may proceed to file a lien against the delinquent taxpayers' property. Taxes receivable at June 30, 2000 consist of the following (in thousands): Real Estate 2O00 $112 Prior 171 283 Personal Property 8 Tax Liens 1,340 Deferred taxes 6 Total $1_,637; Due From Other Governments This balance represents amounts owed to the Town from the state for various highway projects. -17- I I I I I I I I I I I I I '1 7. Amount to be Provided by Commonwealth The balance in this account represents the estimated portion of bonds payable expected to be reimbursed through the Commonwealth's Massachusetts Water Pollution Abatement Trust and the School Building Assistance Bureau. Warrants Payable Warrants payable represent 2000 expenditures paid by July 15, 2000 as permitted by law. 9. Accrued LiabilitieS Accrued liabilities in the general funds represent salaries earned by Town employees but unpaid as of year end. Accrued liabilities in the internal service fund represent an estimate of incurred but unpaid health insurance claims. 10. Deferred Revenue The balance of the General Fund deferred revenues account is equal to the total of all June 30, 2000 receivable balances, except real and personal property taxes that are accrued for subsequent 60 day collections. The Town's statutory "allowance for abatements and exemptions" (overlay) account, with a balance of $ 647,714 has been reclassified to deferred revenue for reporting purposes. 11. Reserve for Tax Refunds 12. This balance consists of an estimate of refunds due to property taxpayers for potential abatements. These cases are currently pending with the state Appellate Tax Board. Other Liabilities This balance consists primarily of various payroll deductions. -18- i 13. Long-Term Debt A. General Obl~qation Bonds The Town issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Payment is not limited to a particular revenue source. However, as previously noted, the Town's ability to raise property taxes is restricted by the enactment of legislation known as "Proposition 2 1/2". General obligation bonds currently outstanding are as follows: Interest Maturity Balance Rate Date June 30, 2000 General purpose, fiscal year 1989 6.20 - 7.40% 11/01/12 $ 760,000 General purpose, fiscal year 1991 5.50 - 7.10% 11/01/12 2,000,000 General purpose, fiscal year 1993 6.20 - 7.40% 11/01/12 975,000 General purpose, fiscal year 1995 4.60 - 6.80% 6/15/15 3,440,000 General purpose, fiscal year 1996 4.40 - 5.20% 9/15/11 5,190,000 General purpose, fiscal year 1997 6.00 - 5.50% 1/15/16 10,275,000 General purpose, fiscal year 1998 4.30 - 6.00% 1/15/13 4,340,000 General purpose, fiscal year 1998 4.25 - 5.38% 1/15/18 23,140,000 General purpose, fiscal year 1999 4.37 - 5.00 9/01/18 12,035,000 MWPAT variable 2/01/15 2,001,683 MWPAT variable 8/01/20 2,560,819 MWPAT variable 8/01/20 1,098,893 Total $ 6_~7 816,395 Future Debt Service The annual principal and interest payments to retire all general obliga- tion long-term debt outstanding as of June 30, 2000 are as follows (in thousands): 2001 2002 2003 2004 2005 after Principal Interest Total $ 4,636 $ 2,886 $ 7,522 4,127 2,653 6,780 4,219 2,451 6,670 4,157 2,273 6,430 3,750 2,097 5,847 46,927 14,530 61,457 $ 67,816 $ 26,890 $~4,70~ C. Bond Authorizations Long-term debt authorizations which have not been issued as long term bonds or rescinded as of June 30, 2000 are as follows: -19- I .,P, urpose DPW roof repair Building improvements Phase 3B sewer Sewer improvements No. Main sewer Sewer I/I Sewer GPR Phase 2 Lake outlet control Water main rehab Sewer improvements I/I Sewer GPR Phase 3a Sewer Police - automobiles Brad Street school - heating Water main replacement Town Hall School Amount $ 75,000 15,000 72,620 1,340,000 63,529 280,000 29,682 30,000 750,000 520,000 51,341 3,770,000 25,000 200,000 858,500 250,000 58,462,000 Total $ 66.792,672 D. Legal Debt Mar,qin The Town is subject to the General Laws of the Commonwealth of Massa- chusetts which limits the amount of bonded debt the Town may have out- standing to 5 percent of the valuation of taxable property as last equalized by the Commonwealth's Department of Revenue. The following is a com- putation of the legal debt margin as of June 30, 2000 (in thousands of dollars): Equalized valuation - January 1,2000 $ 2,595,730 Debt limit - 5% of equalized valuation Total debt outstanding Less: debt exempt from limit Legal Debt Margin * = does not include authorized but unissued debt. 67,816 (32,398.) $129,787 (35,418) $ 94,369* Changes in General Long-Term Liabilities During the year ended June 30, 2000, the following changes occurred in liabilities reported in the general long-term debt account group (in thousands): - 20 - Accrued employee benefits General obligation debt Total Balance Balance July 1, 1999Additions Reductions June 30, 2000 $ 343 $ 410 $ $ 753 69,667 2,560 4,411 67,816 $ 70,01Q $ 2,970 $ _4,411 $ 66_8,569_ 14. Reserves and Designations of Fund Equity The Town has established "reserves" of fund equity to segregate fund balances which are either not available for expenditure in the future or are legally set aside for a specific future use. Fund "designations," which are not legally required segregations, have also been established to indicate tenta- tive plans for future financial utilization. The Town reported the following types of reserves and designations at June 30, 2000: Reserved for Encumbrances - An account used to segregate that portion of fund balance committed for expenditure of financial resources upon vendor performance. Reserved for Endowments - Represents the principal of the nonexpendable trust fund investments. The balance cannot be spent for any purpose; how- ever, it may be invested and the earnings may be spent. 15. General Fund Undesignated Fund Balance The undesignated general fund balance reported on the balance sheet is stated in accordance with generally accepted accounting principles (GAAP), which differs in certain respects from the Massachusetts Uniform Municipal Accounting System (UMAS). The following paragraphs summarize the major differences. Massachusetts General Laws include provisions to allow municipalities to overexpend certain appropriations if they are incurred in an emergency situa- tion and for the safety of the public. The most common example involves the "snow and ice" appropriation. All such overexpenditures, however, must be funded in the subsequent year's tax rate. Massachusetts General Laws require that non-property tax revenue budget shortfalls, net of appropriation turnbacks, be funded in the subsequent year. The same treatment is also applied to the excess of actual property tax -21 - abatements and exemptions over the provision for abatements and exemp- tions (overlay). The accompanying financial statements include an estimate for future poten- tial tax refunds, which is not recognized under UMAS. The following summarizes the specific differences between GAAP basis and statutory basis of reporting the general fund undesignated fund balance: GAAP basis balance Appropriations deficits to be raised Tax refund estimate $1,468,923 149,572 666,436 Statutory (UMAS) Balance $ 2,284,931 16. Commitments and Contingencies Outstanding Lawsuits - There are several pending lawsuits in which the Town is involved. The Town's management is of the opinion that the potential future settlement of such claims would not materially affect its financial statements taken as a whole. Grants - Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time, although the Town expects such amounts, if any, to be immaterial. Contracts - The Town is a member of North East Solid Waste Committee (NESWC) and is required by contract to dispose of a minimum tonnage of solid waste and to make certain minimum payment for such disposal. The Town is unconditionally obligated to make these payments. The disposal facility was financed by $197 million bonds ($ 23,075,000 allocated to a bond reserve fund). The Town's indirect share of the bonds (net of the reserve fund) approximate 3.9%. As the host community to this facility, the Town collects a $ 2.05 fee in lieu of property taxes, for each ton of waste delivered. 17. Post-Retirement Health Care and Life Insurance Benefits The Town's employee contracts provide for health care and life insurance benefits to retirees, their dependent, or their survivors. These benefits are ~ 22 - provided through the Town's group plans. The cost of these benefits are included in the total cost of benefits for both active and retired employees. The number of participants currently eligible to receive benefits, and cost of benefits for retirees, their dependents, or their survivors for the year ended June 30, 2000 was not available. 18. Pension Plan The Town follows the provisions of GASB Statement No. 27, Accounting for Pensions for State and Local Government Employees, with respect to the employees' retirement funds. A. Plan Description The Town contributes to the Essex County Retirement System (the "System"), a cost-sharing multiple-employer, defined benefit pension plan administered by a county retirement board. The System provides retirement, disability and death benefits to plan members and bene- ficiaries. Chapter 32 of the Massachusetts General Laws assigns the System the authority to establish and amend benefit provisions of the plan, and grant cost-of-living increases, to the State legislature. The System issues a publicly available financial report which can be obtained through the Essex County Retirement System at 36 Federal Street, Salem, Massachusetts, 01970. B. Funding Po/icy 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 remaining systemwide actuarially determined contribution plus administration costs which are apportioned among the employers based on active covered payroll. The contribu- tions of plan members and the Town are governed by Chapter 32 of the Massachusetts General Laws. The Town's contributions to the System for the years ended June 30, 2000 and 1999 were $1,476,550 and $1,403,947, respectively, which were equal to its annual required contributions for each of these years. C. Teachers As required by State statutes, teachers of the Town are covered by the Massachusetts Teachers Retirement System (MTRS). The MTRS is funded by contributions from covered employees and the Commonwealth of Massachusetts. The Town is not required to contribute. - 23 - All persons employed on at least a half-time basis, who are covered under a contractual agreement requiring certification by the Board of Education are eligible, and must participate in the MTRS. Based on the Commonwealth of Massachusetts' retirement laws, employees covered by the pension plan must contribute a percentage of gross earnings into the pension fund. The percentage is determined by the participants date of entry into the system and gross earnings, up to $ 30,000, as follows: Before January 1, 1975 January 1, 1975 - December 31, 1983 January 1, 1984 - June 30, 1996 Beginning July 1, 1996 5% 7% 8% 9% Effective January 1, 1990, all participants hired after January 1, 1979, must pay an additional 2% of salary in excess of $ 30,000. The Town's current year covered payroll for teachers was $1,811,017. In fiscal year 2000, the Commonwealth of Massachusetts contributed $1,811,017 to the MTRS on behalf of the Town. This is included in the education expenditures and intergovernmental revenues reported on page 4. 19. Self Insurance The Town self insures against claims for employee health coverage. Annual estimated requirements for claims are provided in the Town's annual opera- ting budget. The Town contracts with an insurance carrier for excess liability coverage and an insurance consultant for claims processing. Under the terms of its insurance coverage, the Town is liable for claims up to $ 60,000 per incident. The claims liability represents an estimate of claims incurred but unpaid at year end, based on past historical costs and claims paid subsequent to year end. This liability is reported as part of accrued liabilities in the general fund. Changes in the aggregate liability for claims for the year ended June 30, 2000 are as follows: Claims liability, July 1, 1999 Claims incurred/recognized in fiscal year 2000 Claims paid in fiscal year 2000 $ 413,437 3,085,074 (3,043,511.) Claims liability, June 30, 2000 $ 455.000 - 24 - 20. Risk Mana.qement The government 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 government carries commercial insurance. There were no significant reductions in insurance coverage from the previous year and have been no material settlements in excess of coverage in any of the past three fiscal years. 1 I i I I I i I I I - 25- t I I I I I I i i 1 I I I I ! TOWN OF NORTH ANDOVER, MASSACHUSETTS Summary of Activity Water and Sewer Enterprise Funds As of and for the Year Ended June 30, 2000 Assets: Cash Accounts receivable Total Assets Liabilities: Warrants payable Deferred revenue Total Liabilities Fund balance - Reserved Fund Balance - Unreserved Total Liabilities and Fund Balance Revenues: Revenue Expenditures; Expenditures Excess of revenues over (under) expenditures Transfers Out Total Transfers Net income Retained Earnings/Fund Balance, beginning Retained Earnings/Fund Balance, ending Sewer Water Fund Fund Total $ 669,635 $ 731,285 $ 1,400,920 428,126 617,167 1,045,293 $ 1,097,761 $ 1,348,452 $ 2,446,213 446,590 794,469 1,241,059 45,564 27,020 72,584 605,607 526,963 1,132,570 1,097,761 $ 1,348,452 $ 2,446,213 2,395,963 3,956,775 6,352,738 1,798,049 3,253,678 5,051,727 597,914 703,097 1,301,011 (168,624) (265,485) (434,109) (168,624) (265,485) (434,109) 429,290 437,612 866,902 221,881 116,371 338,252 651,171 $ 553,983 $ 1,205,154 See Independent Auditor'S report. - 26 - 18,464 177,301 195,765 428,126 617,168 1,045,294 TOWN OF NORTH ANDOVER, MASSACHUSETTS Summary of Budget and Actual Activity Water and Sewer Enterprise Funds (Budgetary Basis of Accounting) For the Year Ended June 30, 2000 Sources: User fees Total Sources Water Fund Budget Actual Variance Budget 3,453,987 $ 3,956,775 $ 502,788 $ 2,065,474 Sewer Fund Actual 2,395,963 Variance 330,489 3,453,987 3,956,775 502,788 2,065,474 2,395,963 330,489 Uses: Appropriation 3,188,502 3,163,997 24,505 1,896,850 1,840,456 56,394 Transfer-out (overhead allocation) 265,485 265,485 168,624 168,624 Total Uses 3,453,987 3,429,482 24,505 2,065,474 2,009,080 56,394 Excess (sources) over (under) uses $ $ 527,293 $ 527,293 $ $ 386,883 $ 386,883 See Independent Auditor's report. - 27 -