CITY OF COATESVILLE BASIC FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION DECEMBER 31, 2008

Transcription

1 BASIC FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION DECEMBER 31, 2008

2 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT 1-3 BASIC FINANCIAL STATEMENTS Entity-wide Financial Statements: - Statement of Net Assets - Statement of Activities 4 5 Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of Balance Sheet - Governmental Funds to Statement of Net Assets Statement of Revenues, Expenditures and Changes In Fund Balances - Governmental Funds Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds to Statement of Activities Budgetary Comparison Statement - General Fund - Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds Statement of Cash Flows - Proprietary Funds Statement of Net Assets - Fiduciary Funds - Statement of Changes in Net Assets - Fiduciary Funds NOTES TO FINANCIAL STATEMENTS

3 TABLE OF CONTENTS SUPPLEMENTARY INFORMATION Combining Fund Financial Statements: Combining Balance Sheet Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds Combining Statement of Net Assets Fiduciary Funds Combining Statement of Changes in Net Assets Fiduciary Funds OTHER REPORTS Report on Internal Control over Financial Reporting and on Compliance and Other Mailers Based on an Audit of Financial Statements Performed in Accordance with Government Auditing standards Report on Fraud and Illegal Acts Based on an Audit of Financial Statements Performed In Accordance with Government Auditing Standards Schedule of Findings and Recommendations

4 November 8, 2010 INDEPENDENT AUDITORS' REPORT 200 Springer Building 3411 Silvcrside Road Wilmington,Delaware FAX: To the Members of Council City of Coatesville Coatesville, Pennsylvania 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 City of Coatesville, Coatesville, Pennsylvania, as of and for the year ended December 31,2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Redevelopment Authority of the City of Coatesville, which represent percent, percent and 23.8 percent, respectively, of the assets, deficit net assets and operating revenues of the business-type activities. Those financial statements were audited by other.auditors whose report thereon has been furnished to us and our opinions expressed herein, insofar as they relate to the amounts Included for the Redevelopment Authority of the City of Coatesville, are based solely on the report of such other auditors. The prior year summarized comparative Information has been derived from the City's 2007 financial statements and, in our report dated June 19, 2009, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. 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. 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. Management has not recorded correctly all of the activity necessary to record capital assets and depreciation expense for the year ended December 31, Accounting principles generally accepted in the United States of America require capital asset additions and deletions and accumulated depreciation to be recorded in the statement of net assets of the governmental and business-type activities. Depreciation expense Is to be recorded in the statement of activities. The amount by which this departure would affect the assets, net assets and expenses of the governmental activities, the businesstype activities and the solid waste fund Is not reasonably determinable. Management has not recorded activity necessary to record the correct balance for taxes receivable and deferred revenues for the year ended December 31, The balances reflected in the financial statements reflect the ending balances as of and for the year ended December 31, The amount by which this departure would affect the assets, liabilities, fund balance and net assets of the governmental activities and general fund is not reasonably determinable. - I - BARBACANE TI-lORNION &CDMPANY CElITlFIED PUBLIC ACCOUNTANTS

5 To the Members of Council City of Coatesville Management has not maintained reliable records supporting compensated absences. The balances reflected in the financial statements reflect the ending balances as of December 31, In addition, a large number of posting errors and lack of supporting documentation have resulted in errors for payroll, payroll benefit expenditures and related liability accounts. The amount by which this departure would affect the assets, liabilities, fund balance and net assets of the governmental activities and general fund is not reasonably determinable. Management has not recorded the activity necessary to record the correct balance for accounts receivable, including solid waste receivables for the year ended December 31, In addition, the allowance for doubtful accounts has not been adjusted for the solid waste receivables. The balances reflected in the financial statements reflect the ending balances as of and for the year ended December 31, The amount by which this departure would affect the assets, liabilities, revenues and net assets of the solid waste fund and business-type activities is not reasonably determinable. Management has been unable to complete accurate bank account reconciliations and to verify that all cash collected was deposited into a bank account in the name of the City. The amount by which this departure would affect the assets, net assets and fund balances of the City is not reasonably determinable. Management has not recorded all activity between funds (borrowings and transfers) for the year ended December 31, Consequently, interfund activity does not balance as required by accounting principles generally accepted in the United States of America. The amount by which this departure would affect the assets, liabilities, net assets and fund balances of the City is not reasonably determinable. The general fund reported a beginning fund balance as of January I, 2008 that was $162,810 less than the fund balance reported as of December 31, The material difference could not be Identified based on the lack of complete and accurate data recorded in the books and records. The result is to materially misstate the fund balance of the general fund and the net assets of the governmental activities. The exceptions noted above are more fully discussed in Notes 1 and 13. We were unable to obtain a discussion or evaluation from the City's outside legal counsel of the pending or threatened litigation described in Note 12. In our opinion, because of the effects of the matters discussed in the preceding paragraphs, the financial statements referred to in the first paragraph do not present fairly, in conformity with accounting principles generally accepted In the United States of America, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Coatesville, Coatesville, Pennsylvania, as of December 31, 2008, and the respective changes in its financial position and its cash flows, where applicable, thereof and the budgetary comparisons for the general fund for the year then ended. The accompanying financial statements have been prepared assuming that the Redevelopment Authority of the City of Coatesville will continue as a going concern. As discussed in Note 11 to the financial statements, the current financial condition of the Authority raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty

6 To the Members of Council City of Coatesville In accordance with Government Auditing Standards, we have also issued our report dated November 8, 2010 on our consideration of the City of Coatesville's Internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other mailers. 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 considered in assessing the results of our audit. The management's discussion and analysis is 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. The City of Coatesville has not presented the management's discussion and analysis that accounting principles generally accepted in the United States of America have determined is necessary to supplement, although not required to be part of, the basic financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Coatesville's basic financial statements. The combining fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund financial statements have been subjected to the auditing procedures applied In the audit of the basic financial statements and, in our opinion, because of the effects olthe mailers discussed above, are not fairly stated In all material respects In relation to the basic financial statements taken as a whole. BA ~~N~Lf:7? LLP -3-

7 STATEMENT OF NET ASSETS DECEMBER 31, 2008 (With Summarized Comparative Data for December 31, 2007) ASSETS Current Assets: Cash and cash equivalents Investments Accounts and other receivables, net Taxes receivable Notes receivable Prepaid expenses Interest receivable Issuance costs Total Current Assets Noncurrent Assets: Depreciable capital assets, net Land Construction-in-progress Property held for resale Notes receivable Project advances Total Noncurrent Assets Governmental Activities $ 1,159,608 21,768, , ,856 1,240 40,738 23,590 24,847,197 6,037,198 3,333,230 1,584,545 10,954,973 Business-type Activities $ 658,995 49, ,455 4,547, , ,258 5,783, $ 1,159,608 21,768,726 1,605, ,856 49,460 1,240 40,738 23,590 25,555,652 6,037,198 3,333,230 1,584,545 4,547, , ,258 16,738,748 Totals 2007 $ 1,644,250 21,479,196 1,901, ,856 33,469 40,778 27,815 26,034,028 6,413,352 3,333,230 1,070,116 4,567, , ,258 16,656,370 TOTAL ASSETS $ 35,802,170 $ 6,492,230 $ 42,294,400 $ 42,690,398 LIABILITIES AND NET ASSETS LIABILITIES: Current Liabilities: Cash overdraft Accounts payable and accrued liabilities Accrued salaries and benefits Security deposits Deferred revenue Accumulated compensated absences Accrued interest payable Current portion of long-term debt Total Current Liabilities Noncurrent Liabilities: Accumulated compensated absences Long-term portion of long-term debt Total Noncurrent Liabilities TOTAL LIABILITIES $ 361,967 68,505 57,437 40,780 9, , ,300 14, , ,543 1,285,843 $ 15, ,452 7,809 7,244 6,999,156 7,510,557 7,510,557 $ 15, ,419 68,505 7,809 64,681 40,780 9,443 7,140,324 8,189,857 14, , ,543 8,796,400 $ 1,770, ,931 8,012 61,437 40,780 10, ,641 2,194,183 14,347 7,732,520 7,746,867 9,941,050 NET ASSETS (DEFICIT): Invested in capital assets, net of related debt Restricted Unrestricted (Deficit) TOTAL NET ASSETS (DEFICIT) 10,221,609 21,768,726 2,525,992 34,516,327 (1,018,327) (1,018,327) 10,221,609 21,768,726 1,507,665 33,498,000 9,968,865 21,479,196 1,301,287 32,749,348 TOTAL LIABILITIES AND NET ASSETS $ 35,802,170 $ 6,492,230 $ 42,294,400 $ 42,690,398 The accompanying notes are an integral part of these financial statements. -4-

8 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2008 (With Summarized Comparative Data for the Year Ended December 31,2007) GOVERNMENTAL ACTIVITIES: General government Public safety Public works - highways and streets Other public works Library Culture and recreation Community and economic development Capital outlays Interest expense TOTAL GOVERNMENTAL ACTIVITIES Expenses $ 2,471,167 4,711, ,120 49,367 11, , ,048 27, ,236 8,994,454 Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions $ 29,305 $ 352,048 $ 555, , ,996 1,123,178 27,423 16,416 10,318 85, ,953 1,723,902 Net {Expense} Revenue and Changes in Net Assets Business- Governmental type Totals Activities Activities $ (2,089,814) $ $ (2,089,814) $ (1,496,779) (4,008,694) (4,008,694) (4,666,673) 639, , ,665 (49,367) (49,367) (57,034) (11,000) (11,000) (11,181 ) (425,724) (425,724) (608,598) (311,268) (311,268) (6,414) (27,550) (27,550) (188,236) (188,236) (218,639) (6,472,599) (6,472,599) (6,792,653) BUSINESS-TYPE ACTIVITIES Solid waste Redevelopment TOTAL BUSINESS-TYPE ACTIVITIES 721, ,024 1,206, , , ,483 (72,198) (72,198) 313,838 (31,812) (31,812) (276,827) (104,010) (104,010) 37,011 TOTAL PRIMARY GOVERNMENT $ 10,200,947 $ 1,650,436 $ 1,723,902 $ 250,000 (6,472,599) (104,010) (6,576,609) (6,755,642) GENERAL REVENUES Taxes: Real estate taxes Real estate transfer taxes Earned income taxes Occupational privilege taxes BUSiness privilege taxes Franchise fees Investment earnings Gain on sale of capital assets Other TOTAL GENERAL REVENUES 2,587,582 2,587,582 2,506, , , ,110 2,559,606 2,559,606 2,492,081 82,060 82, ,624 29,090 29,090 28, , , ,952 1,926,762 40,322 1,967,084 1,511,074 8,215 8, ,061 (368,059) (368,059) 748 7,284,939 40,322 7,325,261 7, CHANGE IN NET ASSETS 812,340 (63,688) 748, ,781 NET ASSETS (DEFICIT), BEGINNING OF YEAR 33,703,987 (954,639) 32,749,348 32,171,377 NET ASSETS (DEFICIT), END OF YEAR Unlocated variance to actual (Note 13) 34,516,327 (1,018,327) 33,498,000 32,912,158 (162,810) NET ASSETS (DEFICIT), END OF YEAR, RESTATED ~ 34, ~ (1 018,327) ~ 33,498,000 ~ 32,749,348 The accompanying notes are an integral part of these financial statements. - 5-

9 BALANCE SHEET - GOVERNMENTAL FUNDS DECEMBER 31, 2008 (With Summarized Comparative Data for December 31,2007) Major Funds Capital Grants Reserve Nonmajor General Projects Trust Governmental Totals Fund Fund Fund Funds ASSETS Cash and cash equivalents $ 553,640 $ 200,181 $ $ 405,787 $ 1,159,608 $ 1,479,960 Investments 21,768,726 21,768,726 21,479,196 Accounts receivable, net 162, , ,305 1,244,772 Taxes receivable, net 906, , ,856 Due from other funds 174, , , ,817 Prepaid expenses 1,240 1,240 Interest receivable 40,738 40,738 40,778 TOTAL ASSETS $1,624,305 $ 986,917 $21,983,786 $ 715,055 $25,310,063 $26,108,379 LIABILITIES AND FUND BALANCE LIABILITIES: Accounts payable $ 244,182 $ 40,607 $ $ 77,178 $ 361,967 $ 1,333,030 Accrued salaries and benefits 68,505 68, ,931 Due to other funds 280, ,485 17, , ,444 Deferred revenue 817, , ,259 Accumulated compensated absences 40,780 40,780 40,780 TOTAL LIABILITIES 1,451, ,092 94,364 1,774,967 3,108,444 FUND BALANCES Reserved for: Specific purposes 21,983,786 21,983,786 21,694,296 Public works - highways and streets 137, , ,569 Capital projects 757, , ,398 Unreserved 172, , , ,672 TOTAL FUND BALANCES 172, ,825 21,983, ,691 23,535,096 22,999,935 TOTAL LIABILITIES AND FUND BALANCES $1,624,305 $ 986,917 $21,983,786 $ 715,055 $25,310,063 $26,108,379 The accompanying notes are an integral part of these financial statements. -6-

10 BUDGETARY COMPARISON STATEMENT GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2008 REVENUES Taxes: Real estate Real estate w transfer Earned income Occupational privilege Business privilege Licenses, fees and permits Fines, forfeits and costs Interest, dividends and rents Intergovernmental revenues Charges for services/fees Miscellaneous Contributions TOTAL REVENUES Original Budget $ 2,524, ,000 1,869,941 85,000 30, , ,000 83,000 1,140, ,200 92,000 7,674,343 Final Budget $ 2,524, ,000 1,869,941 85,000 30, , ,000 83,000 1,140, ,200 92,000 7,674,343 Actual Amounts (Budgetary Basis) $ 2,587, ,267 2,559,606 82,060 29, , ,735 28, ,786 91, ,389 34,940 7,497,178 Variance Positive (Negative) $ 63,332 (107,733) 689,665 (2,940) (910) (373,466) (13,265) (54,911 ) (530,716) (97,550) 308,389 (57,060) (177,165) EXPENDITURES Current: General government Council Adminstration Finance Legal HUman resources Information technology Buildings and plant Total general government Public safety Police Fire Code enforcement Planning and zoning Total public safety Public works ~ highways and streets Transit system Library Culture and recreation Community and economic development Insurance TOTAL EXPENDITURES 104, , , ,000 88,041 71, ,838 1,666,975 3,640, , ,679 10,500 4,842, ,200 50,000 11, , ,448 1,068,743 8,699, , , , ,000 88,041 71, ,838 1,666,975 3,640, , ,679 10,500 4,842, ,200 50,000 11, , ,448 1,068,743 8,699, , , , , ,600 75, ,726 2,167,894 3,207, , ,814 (63,855) 5,324 (15,177) 109,243 (486,559) (4,007) (45,888) (500,919) 432,918 59, ,865 4, , , (43,063) (235,720) 603, ,301 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,025,338) (1,025,338) (627,202) 398,136 OTHER FINANCING SOURCES (USES) Sale of capital assets Refunds of prior year expenditures Refunds of prior year receipts Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) 1,333, ,872 (25,000) 956,900 (1,539,720) 1,025,338 1,333, ,872 (25,000) 956,900 8, ,240 (63,420) 1,001,733 (275,000) 844,768 (1,325,071) (126,632) (38,420) 44,833 1,264,720 (180,570) NET CHANGE IN FUND BALANCE 217, ,566 FUND BALANCE, BEGINNING OF YEAR 118, ,038 (44,772) (162,810) FUND BALANCE, END OF YEAR $ 118,038 $ 118,038 $ 172,794 $ 54,756 The accompanying notes are an integral part of these financial statements, " 10"

11 STATEMENT OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2008 (With Summarized Comparative Data for December 31, 2007) Major Funds Solid Waste Redevelopment Totals Fund Authorit)! 2008 ASSETS CURRENT ASSETS: Cash and cash equivalents $ $ 18,178 $ 18,178 Accounts receivable, net 640,155 22, ,186 Notes receivable 49,460 49,460 Due from other funds Total Current Assets 640,155 89, ,824 NONCURRENT ASSETS: Notes receivable 735, ,514 Property held for resale 4,547,003 4,547,003 Project advances 501, ,258 Total Noncurrent Assets 5,783,775 5,783,775 TOTAL ASSETS $640,155 $ 5,873,444 $6,513,599 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Cash overdraft $ 34,074 $ $ 34,074 Accounts payable and accrued liabilities 101, , ,452 Due to other funds 3,191 3,191 Security deposits 7,809 7,809 Deferred rent 7,244 7,244 Note payable 6,999,156 6,999,156 Total Current Liabilities 139,166 7,392,760 7,531,926 NONCURRENT LIABILITIES Note payable TOTAL LIABILITIES 139,166 7,392,760 7,531,926 NET ASSETS (DEFICIT): Unrestricted (Deficit) 500,989 (1,519,316) (1,018,327) TOTAL NET ASSETS (DEFICIT) 500,989 (1,519,316) (1,018,327) TOTAL LIABILITIES AND NET ASSETS $640,155 $ 5,873,444 $6,513, $ 164, ,892 33,469 1, , ,679 4,567, ,258 5,839,672 $6,695,950 $ 437, ,000 8,012 6, ,433 6,999,156 7,650,589 (954,639) (954,639) $6,695,950 The accompanying notes are an integral part of these financial statements

12 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2008 (With Summarized Comparative Data for the Year Ended December 31, 2007) Major Funds Solid Waste Redevelopment Totals Fund Authori~ 2008 OPERATING REVENUES Charges for service $ 649,271 $ $ 649,271 Rental income 226, ,071 Developer contributions Intergovernmental revenues Loss on sale of property held for resale (25,052) (25,052) Other 2,193 2,193 Total Operating Revenues 649, , , $ 1,073, ,571 3,000 15,535 3,981 1,322,668 OPERATING EXPENSES Advertising and marketing Salaries and fringe benefits 47,151 47,151 Solid waste and recycling collection 694, ,020 Bad debt expense 3,105 3,105 General administrative expenses 3,655 3,655 Professional services 27,449 40,675 68,124 Property taxes 77,272 77,272 Rent expense 39,641 39,641 Repairs and maintenance 14,911 14,911 Utilities 3,689 3,689 Total Operating Expenses 721, , ,568 OPERATING INCOME (LOSS) (72,198) (26,887) (99,085) NONOPERATING REVENUES (EXPENSES) Interest income ,359 40,322 Interest expense (254,925) (254,925) I ntergovernmental grant revenue Pass-through grant expense Contributed property held for sale 250, ,000 Other Total Nonoperating Revenues (Expenses) ,434 35,397 CHANGE IN NET ASSETS (71,235) 7,547 (63,688) NET ASSETS (DEFICIT), BEGINNING OF YEAR 572,224 (1,526,863) (954,639) NET ASSETS (DEFICIT), END OF YEAR $ 500,989 $ (1,519,316) $ (1,018,327) 2,101 47, ,785 11,217 80,623 92,654 35,385 19,496 5,143 1,037, ,764 46,676 (409,640) 568,282 (400,000) (6,395) (201,077) 83,687 (1,038,326) $ (954,639) The accompanying notes are an integral part of these financial statements

13 STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2008 (With Summarized Comparative Data for the Year Ended December 31, 2007) Major Funds Solid Waste Redevelopment Totals Fund Authorit~ CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 649,271 $ 226,385 $ 875,656 $1,095,184 Other receipts ,364 Cash paid to suppliers (822,977) (185,734) (1,008,711) (849,772) Cash paid to employees (94,651) (94,651) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (173,706) (53,324) (227,030) 247,776 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Intergovernmental grant revenue 16,737 16, ,545 Pass-through grant expense (400,000) NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 16,737 16, ,545 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Repayment of note payable (6,357) (6,357) (6,445) Cash overdraft 34,074 34,074 Interest paid (254,925) (254,925) (409,640) NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES 34,074 (261,282) (227,208) (416,085) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property held for sale 253, ,280 Purchase of property held for sale (7,600) (7,600) Interest income ,572 26,535 46,676 Proceeds received from notes receivable 19,174 19,174 29,134 Project advances (117,200) NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES , ,389 (41,390) NET DECREASE IN CASH AND CASH EQUIVALENTS (138,669) (7,443) (146,112) (58,154) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 138,669 25, , ,444 CASH AND CASH EQUIVALENTS, END OF YEAR $ $ 18,178 $ 18,178 $ 164,290 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) $ (72,198) $ (26,887) $ (99,085) $ 284,764 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Loss on sale of property 25,052 25,052 Bad debt expense 3,105 3,105 Decrease (Increase) in assets: Accounts receivable, net (11,349) (11,349) (194,931) Due from other funds 1,627 1,627 (1,627) Increase (Decrease) in liabilities: Accounts payable and accrued liabilities 93,674 (50,286) 43, ,844 Due to other funds (196,809) (196,809) 18,493 Prepaid rent 7,244 7,244 Security Deposits (203) (203) (1,767) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (173,706) $ (53,324) $ (227,030) $ 247,776 The accompanying notes are an integral part of these financial statements

14 STATEMENT OF NET ASSETS - FIDUCIARY FUNDS DECEMBER 31, 2008 and 2007 Pension Trust Funds ASSETS Cash and cash equivalents $ $ 28,916 Investments, at fair value 8,865,199 11,676,823 Accounts receivable 642,017 TOTAL ASSETS $ 8,865,199 $ 12,347,756 LIABILITIES AND NET ASSETS LIABILITIES $ $ NET ASSETS Held in trust for pension benefits and pool participants 8,865,199 TOTAL LIABILITIES AND NET ASSETS $ 8,865,199 12,347,756 $ 12,347,756 The accompanying notes are an integral part of these financial statements

15 STATEMENT OF CHANGES IN NET ASSETS FIDUCIARY FUNDS FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007 ADDITIONS AND INVESTMENT INCOME (LOSS) 2008 Pension Trust Funds 2007 Contributions: State aid Employer contributions Employee contributions Total Contributions Investment income (loss): Investment earnings Net (depreciation) appreciation in fair value of investments Net Investment Income (Loss) TOTAL ADDITIONS AND INVESTMENT INCOME (LOSS) DEDUCTIONS Pension payments Administrative expenses TOTAL DEDUCTIONS $ 313, ,000 83, ,003 16,604 (3,599,858) (3,583,254) (2,976,251) 456,006 50, ,306 $ 323, ,170 91, , , , ,251 1,588, ,775 66, ,748 CHANGE IN NET ASSETS NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR (3,482,557) 12,347,756 $ 8,865,199 1,081,550 11,266,206 $12,347,756 The accompanying notes are an integral part of these financial statements

16 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Coatesville have been prepared, based on available information In conformity with generally accepted accounting principles ("GAAP") as applied to government units. The Governmental Accounting Standards Board ("GASB") Is the accepted standard selling body for establishing governmental accounting and financial reporting principles. The most significant of the government's accounting policies are described below. Significant Record-Keeping Deficiencies For the year ended December 31,2008, the individuals responsible for initiating, recording and reconciling financial data of the City did not complete a majority of those functions prior to their departure. Based on the lack of maintaining systems and supporting documentation, the present management has been unable to sufflclenlly account for mqterial activity, including: Reconciliation of all bank accounts to a general ledger control account. Reconciliation of accounts receivable and accounts payable balances based on subsidiary detail. Accounting for capital asset additions and deletions, and related accumulated depreciation. Verification that all cash collected was deposited into a bank account in the name of the City of Coatesville. Determination that all balances for payroll expenses, benefils and related liabilities are recorded in correct accounts for accurate amounts. Interfund transfers and balances owed between funds of the City. Adjusted allowance for doubtful accounts for solid waste receivables. Reporting Enlily The City used guidance contained in GASB Statement No. 14, "The Financial Reporting Entity," as amended by GASB Statement No. 39, to evaluate the possible inclusion of related entities (authorities, boards, councils, etc.) within Its reporting enlily. The criteria used by the City for inclusion are financial accountability and the nature and significance of the relationships. In determining financial accountability in a given case, the City reviews the applicability of the following criteria. The City Is financially accountable for: Organizations that make up the legal City entity. Legally separate organizations if City officials appoint a voting majority of the organization's governing body and the City is able to impose its will on the organization or if there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the City as defined below

17 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Impose Its will -If the City can significantly influence the programs, projects or activities of, or the level of services performed or provided by, the organization. Financial benefit or burden - exists if the City (1) Is entitled to the organization's resources; (2) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide supporf to, the organization; or (3) is obligated in some manner for the debt of the organization. Organizations that are fiscally dependent on the City. Fiscal dependency is established if the organization is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the City. Based on the foregoing criteria, the reporting entity has been defined to include all the fund types and account groups for which the City Is financially accountable or for which there is another significant relationship. Specific information on the nature of the various potential component units and a description of how the aforementioned criteria have been considered in determining whether or not to include or exclude such units In the City's financial statements are provided in the following paragraphs. Blended Component Un" - The purpose of the Redevelopment Authority of the City of Coatesville is to perform all the redevelopment functions within the City of Coatesville. The Authority is considered a blended component unit and Is shown In the financial statements as part of the City of Coatesville's proprietary funds. The Authority is audited by other auditors, whose report dated September 11, 2009 Is publicly available through the offices of the City of Coatesville. Basis of Presentation Ent/ly-wide Financ/al statements The statement of net assets and the statement of activities display information about the City as a whole. These statements distinguish between activities that are governmental and those that are considered business-type activities. These statements exclude fiduciary activities such as pension and agency funds. The entity-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting as further defined under proprietary funds below. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Therefore, governmental fund financial statements include a reconciliation with brief explanations to better identify the relationship between the entity-wide statements and the statements of governmental funds. The entity-wide statement of activities presents a comparison between expenses and program revenues for each different identifiable activity of the business-type activities of the City and for each governmental function. Expenses are those that are specifically associated with a service

18 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) or program and are, therefore, clearly Identifiable to a particular function. Program revenues include charges paid by the recipients of the goods or services offered by each function and the grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each function is self-financing or draws from the general revenues of the City. Except for interfund activity and balances between the funds that underlie governmental activities and the funds that underlie business-type activities, which are reported as transfers and internal balances, the effect of Interfund activity has been removed from these statements. The entity-wide financial statements report net assets in one of three components. Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of borrowing attributable to acquiring, constructing or improving those assets. Net assets are reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. Those restrictions affect net assets arising from special revenue and capital projects funds. Unrestricted net assets consist of net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted." Fund Financial statements Fund financial statements report detailed information about the City. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund Is presented in a separate column. The non major governmental funds are presented in a single column on the governmental fund financial statements. Fiduciary fund financial statements are represented by fund type. The City reports the following major governmentai funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The general tax revenues of the City, as well as other resources received and not designated for a specific purpose, are accounted for in the General Fund. The Capital Grants Projects Fund accounts for resources accumulated for future capital projects. The Reserve Trust Fund accounts for the proceeds from the sale of the City of Coatesville Water Authority assets. These funds are to be preserved and maintained so as to produce income stabilization for future annual operating budgets

19 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) The City reports the following proprietary funds: The Solid Waste Fund accumulates resources necessary to fund solid waste collection in the City. The Redevelopment Authority of the City of Coatesville performs all the redevelopment functions within the City. Governmental Funds All governmental funds are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. Revenue Recognition In applying the "susceptible to accrual" concept under the modified accrual basis, revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers property and earned income tax revenue to be available If collected within 60 days of the end of the fiscal period. Revenues for state and federally funded projects are recognized at the time all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use Is first permitted; matching requirements, in which the City must provide local resources to be used for a specified purpose; and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. Property tax and earned Income tax receivables collected after 60 days from year end, though measurable, are not available soon enough in the subsequent year to finance current period obligations. Therefore, property and earned income tax receivables are recorded and deferred until they become available. Other revenues, including certain other charges for services and miscellaneous revenues, are recorded as revenue when received in cash because they generally are not measurable until actually received. Expenditure Recognition The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Most expenditures are measurable and are recorded when the related fund liability is incurred. However, principal and interest on general long-term debt which has not matured are recognized when paid. Further, as provided

20 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) in GASB Interpretation No.6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund financial statements, certain governmental fund liabilities and expenditures, such as for compensated absences, are recognized to the extent the liabilities mature (come due for payment) each period. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds. Proprietary Funds Proprietary funds are accounted for using the accrual basis of accounting. These funds account for operations that are financed primarily by user charges. The economic resource focus concerns determining costs as a means of maintaining the capital investment and management control. Revenues are recognized when they are earned and expenses are recognized when they are incurred. Allocations of certain costs are recorded in proprietary funds. 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 fund's principal ongoing operations. The principal operating revenues of the City'S proprietary funds are solid waste fees and rental income. Operating expenses for the City's proprietary funds includes solid waste disposal, recycling, supplies, rental property holding costs and administrative costs. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 are followed in both the entity-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-seelor guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. Fiduciary Funds Trust Funds - Trust Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments and other funds. These consist of the Pension Trust Funds. Pension Trust Funds are accounted for in essentially the same manner as proprietary funds since the measurement of the economic resources is critical. Budgets and Budgetary Accounting The City follows these procedures in establishing the budgetary data reflected in the financial statements: At least 45 days before the end of the fiscal year, the City Manager and Finance Director submit to the City Council a proposed operating budget for the fiscal year commencing the following January 1. The operating budget Includes proposed expenditures and the means of financing them

21 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Public hearings are conducted to obtain taxpayer comments. Prior to December 31, the budget is legally enacted through passage of an ordinance. Each department director is authorized to transfer budgeted amounts between departments within any fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budgets lapse at year end. Any subsequent budget amendments must be approved by Council. Excess of Expenditures Over Appropriations For the year ended December 31, 2008, expenditures exceeded general fund appropriations (the legal level of budgetary control) in the following functions: General government Culture and recreation Community and economic development $ 500,919 $ 43,063 $ 235,720 The excess of expenditures over appropriations was financed with approved transfers from the City's rainy day fund (a non major fund). Cash and Cash Equivalents The City of Coatesville maintains various cash accounts, including accounts required by contractual obligation. For purposes of the statement of cash flows, the City of Coatesville considers all highly liquid debt investments with an original maturity of three months or less to be cash equivalents. Investments Investments are recorded at fair value. Properly Held for Resale Property held for resale is stated at the lower of cost or fair market value. In addition, all costs associated with preparing the property for resale including improvements and feasibility studies are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Since the intent of the Authority is to hold these properties for resale, there is no depreciation associated with property held for resale. 21

22 CllY OF COATESVILLE NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (conl'd) Compensated Absences The City's policy concerning compensatory time, vacation and sick leave is as follows: Police Total compensatory hours accumulated shall not exceed 48 hours. Compensatory time not used will be paid at the applicable rate of one and one-half for each hour of overtime. A police officer may choose compensatory time in lieu of overtime. Police officers shall be permitted to carry over from one year to the next, up to one-half of their vacation time. Police officers shall be paid for all unused and accrued vacation leave at retirement or voluntary resignation. Police officers employed full-time on or before April 1, 1988 shall be compensated for their unused sick time up to a maximum of 640 hours. Non-Uniformed Employees AFSCME union employees and non-union employees shall receive vacation pay prorated from the date of the most recent hire. Historically, the General Fund has been responsible for liquidation of compensated absences associated with governmental activities. Interfund Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the entity-wide financial statements as "internal balances." Capital Assets Capital assets, which Include property, plant and equipment, and infrastructure assets are reported in the applicable governmental or business-type activities columns in the entity-wide financial statements as well as in the proprietary fund financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized

23 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Major outlays for capital assets and improvements are capitalized as projects are constructed, inclusive of ancillary costs. Property, plant and equipment, and infrastructure assets of the City are depreciated using the straight-line method over the following estimated useful lives: Machinery and equipment Vehicles Land improvements/infrastructure Buildings and improvements 5-10 years years years 50 years Long-term Obligations In the entity-wide financial statements and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. 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. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. Deferred amounts are recorded as a decrease to debt payable and amortized over the life of the debt. In the fund financial statements, governmental fund types report discounts and premiums,,as well as bond issuance costs, during the current period. The face arnount of debt issued is reported as other financing sources. Premiums received and discounts paid on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures except for refundings paid from proceeds, which are reported as other financing uses. Fund Eguity In the fund financial statements, governrnental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Restricted Net Assets When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first and then unrestricted resources as they are needed. Allowance for Doubtful Accounts The City has established an allowance for doubtful accounts in the business-type activities and the solid waste fund based upon historical trends and the periodic aging of accounts receivable related to the collection of solid waste fees. The City's allowance for estimated uncollectible solid waste receivables at December 31,2008 was $112,968. The allowance account was not adjusted from the December 31, 2007 amount, as previously discussed

24 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (conl'd) Advertising and Marketing Advertising and marketing costs In the business-type activities and the proprietary funds are expensed when incurred. There was no advertising expense for the year ended December 31, Use of Estimates in the Preparation of Financial Statements The preparation of financial statements In conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 DEPOSITS AND INVESTMENTS Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the City's deposits may not be returned. At December 31,2008, the carrying amount oflhe City's deposits was $1,143,712 and the bank balance was $1,351,675. Of the bank balance, $259,032 was covered by federal depository insurance and $1,092,643 was exposed to custodial credit risk because, in accordance with Act 72 of the Commonwealth of Pennsylvania, it was uninsured and the collateral held by the depository's agent was not in the City's name. The above does not include pension fund deposits reflected in Notes 8, 9 and 10. Investments The Third Class City Code authorizes the City to invest in U.S. Treasury bills, short-term obligations of the U.S. Government or its agencies or Instrumentalities, deposits In savings accounts or time deposits or share amounts of institutions and certificates of deposit insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund. The City is also authorized to invest In obligations of the United States of America or any of its Instrumentalities or agencies backed by the full faith and credit of the United States of America or the Commonwealth of Pennsylvania or any of its agencies or instrumentalities. Additionally, the City may invest in shares of an investment company registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, provided that the only investments of that company are in the authorized investments for City funds