HomeMy WebLinkAbout2011East Marion Fire District
Financial Statements
December 31,2011
EAST MARION FIRE DISTRICT
TABLE OF CONTENTS
DECEMBER 31,2011
Independent Auditor's Report
Financial Statements
Combined Statement of Assets, Liabilities and Fund Balances-
Modified Accrual Basis
Statement of Revenues, Expenditures and
Changes in Fund Balance - Modified Accrual Basis
Statement of Revenues, Expenditures and Changes in Fund
Balance - Budget and Actual - General Fund
Modified Accrual Basis
Paqe(s)
1
Notes to Financial Statements
5-18
Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance with Government Auditing
Standards
19-20
Craig, Fitzsimmons & Michaels, LLP
Certified Public Accountants, Management and IT Consultants
20 Manor Road ~ Smithtown, New York 11787
INDEPENDENT AUDITOR'S REPORT
The Board of Fire Commissioners
East Marion Fire District
BO Box 11311
9245 Main Road
East Marion, NY 11939
We have audited the accompanying Combined Statement of Assets, Liabilities and Fund Balance - Modified Accrual
Basis of the East Marion Fire District, as of December 31, 2011; and the related statements of Revenues,
Expenditures and Changes in Fund Balance - Modified Accrual Basis and Revenues, Expenditures and Changes in
Fund Balances - Budget and Actual - General Fund - Modified Accrual Basis for the year ended December 31,
2011. These financial statements are the responsibility of East Marion Fire District's management. Our responsibility
is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America
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 also
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.
As described in Note 1, these financial statements were prepared in conformity with the accounting practices
prescribed by the Office of the New York State Comptroller; this modified accrual basis presentation is a
comprehensive statutory basis of accounting other than generally accepted accounting principles for governmental
entities in the United States, The effects on the financial statements of the variances between these regulatory
accounting practices and accounting principles generally accepted in the United States of America, although not
reasonably determinable, are presumed to be material.
In our opinion, the financial statements referred to above present fairly, in all material respects, the Assets, Liabilities
and Fund Balances of the East Marion Fire District as of December 31, 2011, its Revenues, Expenditures and
Changes in Fund Balances and Revenues, Expenditures and Changes in Fund Balance - Budget and Actual of the
General Fund for the year then ended on the basis of accounting described in Note 1.
In accordance with Government Auditing Standards, we have also issued our report dated April 30, 2012 on our
consideration of the East Marion Fire District's internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The
purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance
and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards
and should be considered in assessing the results of our audit.
Smithtown, NY
April 30, 2012
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East Marion Fire District
Financial Statements
December 31,2011
EAST MARION FIRE DISTRICT
COMBINED STATEMENT OF ASSETS, LIABILITIES AND FUND BALANCES - MODIFIED ACCRUAL BASIS
DECEMBER 31,2011
ASSETS
Cash
Cash in time deposits
Accounts Receivable
Prepaid expenditures
Service award program assets
Land, buildings, and equipment
Amounts to be provided for in future budgets
Total assets
LIABILITIES
Accounts payable and accrued expenditures
Service award program
Deferred income
Installment purchase contract
Total liabilities
FUND BALANCE
Invested in fixed assets
Capital reserve
Building and grounds
Equipment and apparatus
Nonspendable
Assigned appropriated
Assigned unappropriated
Unassigned
Total fund balance
Total liabilities and fund balance
Governmental Funds Fiduciaw Fund Account Groups
General
General Capital General Long-Term
Operating Reserve Agency Fixed Assets Debt
$ 111,561 $ 325,358 $ $ $
104,842
1,000
21,704
1,100,313
1,685,617
$ 134,265 $ 430,200 $ 1,100,313 $ 1,685,617
$ 9,139 $ $ $
1,100,313
15,298
$ 24,437 $ $ 1,100,313 $
$ $ $ $ 1,685,617 $
126,040
304,160
21,704
990
45,000
42,134
$ 109,828 $ 430,200 $ $ 1,685,617
$ 134,265 $ 430,200 $ 1,100,313 $ 1,685,617
48,972
$ 48,972
$
48,972
$ 48,972
$
$ 48,972
Total
Memorandum
Only
$ 436,919
104,842
1,000
21,704
1,100,313
1,685,617
48,972
$ 3,399,367
$ 9,139
1,100,313
15,298
48,972
$ 1,173,722
$ 1,685,617
126,040
304,160
21,704
99O
45,000
42,134
$ 2,225,645
$ 3,399,367
The accompanying notes are an integral part of these financial statements.
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EAST MARION FIRE DISTRICT
STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCE - MODIFIED ACCRUAL BASIS
FOR THE YEAR ENDED DECEMBER 31,2011
REVENUES
Real property taxes
Interest and earnings
Cell tower rental
Insurance proceeds
Federal aid
Rent Income - housing rent
Refund of prior year expenditures
Total revenues
Governmental Funds Total
General Capital Governmental
Operating Reserve Funds
$ 490,252 $ $ 490,252
503 1,558 2,061
53,062 53,062
2,028 2,028
7,739 7,739
1,000 1,000
60 60
$ 554,644 $ 1,558 $ 556,202
EXPENDITURES
Personal services
Equipment
Contractual
State retirement
Service award
Social security
Workers compensation
Unemployment Insurance
MTA Tax
Interest on bonds
Interest on notes
Redemption of bonds
Redemption of notes
Total expenditures
Excess (deficiency) of revenues
over expenditures
OTHER FINANCING SOURCES AND (USES)
Operating transfers in
Operating transfers (out)
Total other financing sources and (uses)
Net Change in Fund Balance for Year
Fund Balance - Beginning of Year
Fund Balance - End of Year
$ 37,938
72,969
163,797
5,143
146,209
2,902
11,574
343
218
1,572
1,383
33,000
6~329
$ 37,938
72,969
163,797
5,143
146,209
2,902
11,574
1,572
1,383
33,000
6,329
483,377 $ $ 482,816
71,267 $ 1,558 $ 73,386
$ 95,000 $ 95,000
(95,000) (95,000)
(95,000) $ 95,000 $
(23,733) $ 96,558 $ 73,386
133,561 333,642 467,203
109,828 $ 430,200 $ 540,589
The accompanying notes are an integral part of these financial statements.
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EAST MARION FIRE DISTRICT
STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN
FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND - MODIFIED ACCRUAL BASIS
FOR THE YEAR ENDED DECEMBER 31,2011
REVENUES
Real property taxes
Interest and earnings
Cell tower rental
Insurance proceeds
Federal aid
Refund of prior year expenditures
Building use fees
Reserved for encumbrances
Appropriated fund balance
Total revenues
Original Final
Budget Budget Actual
$490,246 $490,246 $490,252
1,500 1,500 503
42,000 42,000 53,062
2,028
7,739
60
750 750 1,000
50,064
45,000 20,000
$579,496 $604,560 $554,644
Variance to
Final Budget
Favorable
(Unfavorable)
$ 6
(997)
11,062
2,028
7,739
6O
25O
(50,064)
(20,000)
$ (49,916)
EXPENDITURES
Personal services
Equipment
Contractual
State retirement
Service award
Social security
Workers compensation
Unemployment Insurance
MTA payroll tax
Interest on bonds
Interest on notes
Redemption of bonds
Redemption of notes
Contingency fund
Total expenditures
Excess (deficiency) of revenues
over expenditures
OTHER FINANCING SOURCES AND (USES)
Operating transfers (out)
Total other financing sources and (uses)
Net Change in Fund Balance ~ for year
Fund Balance - Beginning of Year
Fund Balance - End of Year
$ 32,538 $ 40,538 $ 37,938 $ 2,600
35,000 92,159 72,969 19,190
170,250 145,451 163,797 (18,346)
3,596 7,840 5,143 2,697
157,000 147,000 146,209 791
2,500 2,960 2,902 58
16,000 11,000 11,574 (574)
250 250 343 (93)
218 (218)
1,650 1,650 1,572 78
1,383 1,383 1,383
33,000 33,000 33,000
6,329 6,329 6,329
25,000 20,000 20,000
$484,496 $509,560 $483,377 $ 26,183
$ 95,000 $ 95,000 $ 71,267 $ (23,733)
$ (95,000) $ (95,000) $ (95,000) $
$ (95,000) $ (95,000) $ (95,000) $
$ $ $ (23,733) $ (23,733)
133,561
$ $ $109,828 $
The accompanying notes are an integral part of these financial statements.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
1. Summary of Significant Accountinq Policies
The financial statements of the East Marion Fire District (District) as of and for the year ended December 31,
2011 have been prepared using accounting practices set forth in the Uniform System of Accounts (USA)
prescribed and permitted by the New York State Office of the State Comptroller (OSC), which differs from
accounting principles generally accepted in the United States of America (GAAP) as applied to governmental
units. The financial statements of the District have been prepared using the modified accrual basis of
accounting. This method differs from GAAP, which requires the accrual basis of accounting to be used. The
accrual basis of accounting requires the capitalization and depreciation of property and equipment and the
recording of long-term liabilities. Under the modified accrual basis of accounting, property and equipment are
recorded as an expenditure when purchased and the satisfaction of long-term liabilities are recognized as
expenditures when paid. In addition, GAAP requires the financial statements to be prepared in accordance with
the Governmental Accounting Standard's Board (GASB) No. 34, Basic Financial Statements - and
Management's Discussion and Analysis - for State and Local Governments. GASB 34 financial statements
require the presentation of government-wide financial statements and management's discussion and analysis.
The accounting practices used to prepare these financial statements does not require compliance with GASB
34.
A full discussion of the modified accrual basis of accounting as prescribed by the USA is found in note l(d)
which follows.
The significant accounting policies of the District are described below:
a. Financial Reporting Entity
The District is a district corporation and political subdivision of the State of New York, distinct from the
municipalities in which it is located. In general, the District is governed by an elected Board of Fire
Commissioners (Board) and is required to have a treasurer and secretary. The District has the legal
authority to levy taxes on real property and to borrow in its own name. The District is governed by General
Municipal Law and other laws of the State of New York and its subdivisions. The scope of activities
included in the accompanying financial statements are the transactions which comprise the District's
operations and are governed by, or significantly influenced by, the Board of Fire Commissioners.
The primary function of the District is to provide fire protection, rescue and emergency services to the
community. Services such as firefighting, fire prevention, EMS and )ublic education support this primary
function.
The financial reporting entity includes all funds, functions and organizations over which the District's Board
exercises oversight responsibility. Oversight responsibility is determined on the basis of financial
interdependency, selection of governing authority, designation of management, ability to significantly
influence operations and accountability for fiscal matters.
b. Basis of Presentation
Fund Financial Statements
The District uses funds to report on its financial position and the results of its operations. Fund accounting
is designed to demonstrate legal compliance and to assist management by segregating transactions related
to certain government functions or activities. A fund is a separate accounting entity with a self-balancing
set of accounts.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
1. Summary of Significant Accountinq Policies - continued
b. Basis of Presentation - continued
Fund Financial Statements - continued
The fund financial statements provide information about the District's funds, and account groups. Separate
statements for each fund category and account group are presented. The District's financial statements
reflect the following fund types and account groups:
Governmental Fund Types
Governmental funds are those through which most governmental functions are financed. The acquisition,
use and balances of expendable financial resources and the related liabilities are accounted for through
governmental funds. The measurement focus of the governmental funds is based upon determination of
financial position and changes in financial position. The following are the District's governmental fund
types:
General Fund - the general fund is the principal operating fund of the District. It is used to
account for all financial resources except those required to be accounted for in another fund.
II.
Capital Reserve Fund - the capital reserve fund is used to account for the accumulation of
financial resources and the disbursements for the acquisition, construction or renovation of
major capital facilities, or equipment.
Fiduciary Fund Types
Fiduciary Funds are used to account for assets held by the District in a trustee or custodial capacity.
Aqency Fund - used to account for money (and/or property) received and held in the capacity
of trustee, custodian, or agent.
c. Account Groups
Account Groups are used to establish accounting control and accountability for the Fire District's general
fixed assets and general long-term obligations. The two account groups are not "funds". They are
accounting entities, not fiscal entities, and are concerned only with the measurement of financial position,
and not with the results of operations.
General Fixed Assets Account Group - the general fixed assets account group is used to account
for land, buildings, improvements and equipment owned by the Fire District. The District
accounts for land, buildings and equipment at historical cost.
II.
General Lonq-Term Debt Account Group - the general long-term debt account group is used to
account for all long-term debt and other obligations of the Fire District. Long-term indebtedness
includes obligations such as vested or accumulated vacation and/or sick leave, which will be
funded in future budgets. Also reported in the general long-term debt group are the District's
obligations under lease / purchase and other financing arrangements.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
1. Summary of Significant Accountinq Policies - continued
d. Measurement Focus and Basis of Accountinq
Basis of accounting refers to when revenues and expenditures and the related assets and liabilities are
recognized in the accounts and reported in the financial statements. Basis of accounting relates to the
timing of the measurements made, regardless of the measurement focus. Measurement focus is the
determination of what is measured (i.e., expenditures or expenses).
Modified Accrual Basis - The governmental fund statements are reported on the modified accrual basis of
accounting using the current financial resources measurement focus.
Under this method, revenues are recognized when measurable and available. The District considers all
revenues reported in the governmental funds to be available if the revenues are collected within the current
period or soon enough thereafter to be used to pay liabilities of the current period. Revenues are
considered to be available if collected within 90 days after the calendar year.
Expenditures are recorded when the related fund liability is incurred, except for prepaid expenses are
recognized in the period of benefit, principal and interest on general long-term debt are not funded as
expenditures until due; unfunded claims and judgments, and unfunded compensated absences, which are
recognized as expenditures to the extent they have been paid. General capital asset acquisitions are
reported as expenditures in governmental funds.
e. Cash
Cash consist of cash on hand and monies in demand deposit checking or savings accounts.
f. Cash in Time Deposits
Cash in time deposits consist of monies held in an interest bearing account with restrictions or penalties for
withdrawal, such as money market accounts, and short-term investments with original maturities of three
months or less from the date of acquisition.
g. Property Taxes
Real property taxes are levied annually by the District no later than November 1st and become a lien on
December 1st. Real property taxes are payable with penalty and interest in two equal installments by
January 10th and May 31st. The District's tax levy is collected by the Town of Southold and then remitted to
the District. Tax collections are remitted in full to the Fire District in accordance with the Suffolk County Tax
Act, hence the County of Suffolk is responsible for all uncollected taxes.
h. Accounts Receivable
Accounts receivable are recorded according to the contracted terms, which in the opinion of the District is
the net realizable value.
i. Prepaid Expenditures
Prepaid items represent payments made by the District for which benefits extend beyond year-end. These
payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid
items in the financial statements. A current asset for the prepaid amounts is recorded at the time of
purchase and an expenditure is reported in the year the goods or services are consumed.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
1. Summary of Significant Accountinq Policies - continued
j. Interfund Transfers
The operations of the District give rise to certain transactions between funds, including transfers of
expenditures and revenues to provide services and construct assets. Interfund transfers and the related
receivables and payables (i.e., due from/to other funds) have been recorded in the funds where applicable.
The amounts reported on the Statement of Assets, Liabilities and Fund Balance for due to and due from
other funds represent amounts due between different governmental fund types. For the year ended
December 31,2011 East Marion Fire District did not have any amounts due to or from other funds.
k. Use of Estimates
The preparation of financial statements on the modified accrual basis requires management to make
estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported revenues and
expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Estimates and assumptions are made in a variety of areas, including computation of encumbrances,
compensated absences, and potential contingent liabilities.
I. Accrued Liabilities and Lonq-Term Debt
In the fund financial statements, liabilities are reported only to the extent that they are due for payment
during the current year. Long term obligations are accounted for in the General Long Term Debt Account
Group.
m. Fund Balance and Equity Classifications
In fiscal 2011, the District implemented Governmental Accounting Standards Board Statement No. 54,
Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54). GASB 54 changed the
classification of fund balance to focus on the constraints imposed on resources in governmental funds,
instead of the previous focus on availability for appropriation.
Fund balance is now broken down into five different classifications: nonspendable, restricted, committed,
assigned, and unassigned.
Nonspendable consists of assets that are inherently nonspendable in the current period either because of
their form or because they must be maintained intact, including prepaid items, inventories, long-term
portions of loans receivable, financial assets held for resale, and principal of endowments.
Restricted consists of amounts that are subject to externally enforceable legal purpose restrictions imposed
by creditors, grantors, contributors, or laws and regulations of other governments; or through constitutional
provisions or enabling legislation. Restricted funds include capital reserves which are used to finance all or
part of the cost of construction, reconstruction or acquisition of a specific or type of capital improvement or
acquisition of a specific item or items or type of equipment.
Committed consists of amounts that are subject to a purpose constraint imposed by a formal action of the
government's highest level of decision-making authority before the end of the fiscal year, and that require
the same level of formal action to remove the constraint. The Board of Commissioners is the decision-
making authority that can, by resolution prior to the end of the fiscal year, commit fund balance.
-8-
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
1. Summary of Significant Accountinq Policies - continued
m. Fund Balance and Equity Classifications - continued
Assigned consists of amounts that are subject to a purpose constraint that represents an intended use
established by the government's highest level of decision-making authority, or by their designated body or
official. The purpose of the assignment must be narrower than the purpose of the general fund, and in
funds other than the general fund, assigned fund balance represents the residual amount of fund balance.
The Board of Commissioners by resolution has authorized the District Treasurer to assign fund balance.
Unassigned represents the residual classification for the government's general fund, and could report a
surplus or deficit. In funds other than the general fund, the unassigned classification is only used to report a
deficit balance resulting from overspending for specific purposes for which amounts had been restricted,
committed, or assigned.
When resources are available from multiple classifications, the District spends funds in the following order:
restricted, committed, assigned, unassigned.
The District has, by resolution, adopted a fund balance policy that states the District must maintain a
minimum unrestricted (the total of committed, assigned, and unassigned) fund balance of at least 2/12 of
the annual budget, subject to periodic review. Unrestricted fund balance below the minimum should be
replenished within the succeeding fiscal year.
Portions of fund balance are reserved or designated to either satisfy legal restrictions or to plan for future
expenditures. Interest earned on reserve fund resources becomes part of the respective reserve fund.
While a separate bank account is not necessary for each reserve fund, a separate identity for each reserve
fund must be maintained.
n. General Fixed Assets
The modified accrual basis of accounting requires that general fixed assets purchased in the current year
be recorded as an expenditure in the respective governmental funds at the time of purchase.
Current year purchases are recorded as additions and assets removed from inventory are deleted at their
historical cost. Capital thresholds, the dollar value above which asset acquisitions are added to the capital
asset accounts are reported as follows:
Capitalization
Threshold
Buildings and improvements $2,000
Equipment and apparatus $2,000
The District is in the process of establishing formal capitalization thresholds.
2. Stewardship, Compliance, Accountability
a. Budqetary Procedures
The District prepares an annual budget for the General Fund, which is approved by the Board of Fire
Commissioners. The budget is then submitted to the Town of Southold for inclusion in the Town Budget
and a public hearing is held thereon. The budget is not subject to a referendum. Any revisions to the annual
budget are adopted by resolution of the Board of Fire Commissioners.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
2. Stewardship, Compliance, Accountability - continued
b. Encumbrances
Encumbrance accounting, under which purchase orders, contracts and other commitments for the
expenditure of monies are recorded for budgetary control purposes to reserve that portion of the applicable
appropriations, is employed as a control in preventing over expenditure of established appropriations.
Open encumbrances are reported as reservations of fund balances since they do not constitute
expenditures or liabilities and will be honored through budget appropriations in the subsequent year.
Expenditures for such commitments are recorded in the period in which the liability is incurred.
East Marion Fire District encumbered $990 of the general fund balance for the purchase of vehicles and
equipment.
c. Budqet Basis of Accountinq
Budgets are adopted annually by the Board in accordance with New York State law. Appropriations
authorized for the current year are increased by the amount of encumbrances carried forward from the prior
year.
East Marion Fire District appropriated $45,000 from the general fund balance and appropriated this for the
year ending December 31,2011.
3. Deposits with Financial Institutions and Investments
The District's investment policies are governed by state statutes and District policy. Resources must be
deposited in Federal Deposit Insurance Corporation (FDIC) insured commercial banks or trust companies
located within the state.
Permissible investments include obligations of the U.S. Treasury and U.S. Agencies, repurchase agreements
and obligations of New York State or its localities. Collateral is required for demand and time deposits and
certificates of deposit as provided for by law for all deposits not covered by FDIC insurance. Obligations that
may be pledged as collateral are obligations of the United States and its Agencies and obligations of New York
State and its municipalities. Investments are stated at fair value. Custodial credit risk is the risk that in the event
of a bank failure, the District's deposits may not be returned to it. GASB directs that deposits be disclosed as
exposed to custodial credit risk if they are not covered by depository insurance and the deposits are either:
A. Uncollateralized,
B. Collateralized by securities held by the pledging financial institution, or
C. Collateralized by securities held by the pledging financial institution's trust department or agent but
not in the District's name.
None of the District's aggregate bank balances, not covered by depository insurance, were exposed to custodial
credit risk as described above at year-end. The District typically does not purchase investments for long
enough duration for it to be considered to be exposed to a material interest rate risk.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
4. General Fixed Assets
As of December 31,2011, any new additions or deletions are valued at historical cost. Capital asset balances
and activity for the year ended December 31,2011 were as follows:
Balance Balance
1/1/2011 Additions Deletions 12/31/2011
Land $ 61,723 $ $ $ 61,723
Buildings 445,810 445,810
Equipment 1,180,362 (2,278) 1,178,084
$1,687,895 $
$ (2,278) $1,685,617
5. Interfund Transactions
At December 31,2011, the interfund transfer amounts made were as follows:
Interfund Interfund
Revenue Expenditures
General Fund
Equipment and Apparatus Reserve $ 60,000
Building and Grounds Reserve 35,000
$ 95,000
$ 95,000 $ 95,000
The District transfers from the general fund to the reserve funds in accordance with the general fund budget.
The District may also transfer general fund surplus based on Board resolution.
6. Pension Plans
New York State and Local Employees' Retirement System
Plan Description
The District participates in the New York State and Local Employees' Retirement System (ERS). This
system rs a cost-sharing, multiple-employer, retirement system. The System provides retirement benefits as
well as death and disability benefits. Obligations of employers and employees to contribute and benefits to
employees are governed by the New York State Retirement and Social Security Law (NYSRSSL). As set
forth in the NYSRSSL, the Comptroller of the State of New York (Comptroller) serves as sole trustee and
administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for
the administration and transaction of the business of the System and for the custody and control of their
funds. The system issues a publicly available financial report that includes financial statements and required
supplementary information. That report may be obtained in writing to the New York State and Local
Retirement Systems, 110 State Street, Albany, NY 12244.
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EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
6. Pension Plans - continued
New York State and Local Employees' Retirement System - continued
Funding Policy
The system is noncontributory except for employees who joined the New York State and Local Employees'
Retirement System after July 27, 1976, who contribute 3% of their salary for the first ten (10) years of
membership and employees who joined on or after January 1, 2010 who generally contribute 3% of their
salary for the entire length of service. Under authority of the NYSRSSL, the Comptroller annually certifies the
actuarially determined rates expressed used in computing the employers' contributions based on salaries
paid during the System's fiscal year ending March 31. Contributions for the current year and two preceding
years were equal to 100% of the contributions required, and were as follows:
2011 2010 2009
District Contributions $5,143 $2,697 $2,757
The District's contribution to the system is actuarially determined and is established and may be amended
by the ERS Board of Trustees.
Chapter 260 of the Laws of 2004 of the State of New York was enacted that allows local employees to bond
or amortize a portion of their retirement bill for up to 10 years in accordance with the following schedule:
1. For State fiscal year (SFY) 2004-05, the amount in excess of 7 percent of employees' covered
pensionable salaries, with the first payment of those pension costs not due until the fiscal year
succeeding that fiscal year in which the bonding/amortization was instituted.
2. For SFY 2005-06, the amount in excess of 9.5 percent of employees' covered pensionable salaries.
3. For SFY 2007-08, the amount in excess of 10.5 percent of employees' covered pensionable
salaries.
Chapter 57 of the Laws of 2010 of the State of New York was enacted that allows local employers to
amortize a portion of their retirement bill for 10 years in accordance with the following stipulations:
For State fiscal year 2010-2011, the amount in excess of the graded rate of 9.5 percent of
employee's covered pensionable salaries, with the first payment of those pension costs not due
until the fiscal year succeeding that fiscal year in which the amortization was instituted.
For subsequent State fiscal years, the graded rate will increase or decrease by up to one percent
depending on the gap between the increase or decrease in the system's average rate and the
previous graded rate.
For subsequent State fiscal years in which the System's average rates are lower than the graded
rates, the employer will be required to pay the graded rate. Any additional contributions made will
first be used to pay off existing amortizations, and then any excess will be deposited into a reserve
account and will be used to offset future increases in contribution rates.
This law requires participating employers to make payments on a current basis, while amortizing existing
unpaid amounts relating to the System's fiscal years when the local employer opts to participate in the
program.
-12-
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
7. Lenqth of Service Awards Proqram - LOSAP
The Fire District's financial statements are for the year ended December 31,2011. The information contained in
this note is based on information for the Length of Service Awards Program for the plan year ending on
December 31,2011. The voters of the Fire District approved a Service Award Program, which is an unqualified
deferred compensation plan. Under the State legislation, the Service Award Program was specifically excluded
from the State's retirement system.
All persons who are active volunteer firefighters of the East Marion Fire District are eligible to participate in the
program. All eligible persons shall become participants on the last day of the first calendar year after the
Effective Date, during which they meet the following requirements: a) must be 18 years old; and b) must earn a
year of service credit during a calendar year. The entitlement age of 62 or the participant's age upon earning
one year of service credit after the Effective Date of the Award Program. The monthly benefit is $20 for each
year of service credit. The termination benefit is 0% vesting up to five years, and 100% thereafter. The form of
benefit payment is ten year certain and continuous monthly payment life annuity only until the Board
subsequently approves other actuadally equivalent forms.
The East Marion Fire District established a defined benefit Service Award Program (referred to as a "LOSAP" -
length of service award program - under Section 457(e)(11) of the Internal Revenue Code) effective January 1,
1992 for the active volunteer firefighter members of the East Marion Fire Department. The program was
established pursuant to Article 11-A of the New York State General Municipal Law. The program provides
municipally-funded deferred compensation to volunteer firefighters to facilitate the recruitment and retention of
active volunteer firefighters. The East Marion Fire District is the sponsor of the program and the program
administrator.
Program Description
Under the program, participating volunteers begin to be paid a service award upon attainment of the program
"entitlement age". The amount of the service award paid to a volunteer is based upon the number of years of
service credit the volunteer earned under the program for performing active volunteer firefighter activities.
Participation, Vestinq and Service Credit
Active volunteer firefighters who have reached the age of 18 and who have completed 1 year of firefighting
service are eligible to participate in the program. Participants acquire a non-forfeitable right to a service award
after being credited with five (5) years of firefighting service or upon attaining the program's entitlement age
while an active volunteer. The program's entitlement age is age 62. An active volunteer firefighter is credited
with a year of firefighting service for each calendar year after the establishment of the program in which he or
she accumulates fifty points. Points are granted for the performance of certain firefighter activities in
accordance with a system established by the sponsor on the basis of a statutory list of activities and point
values. A participant may also receive credit for five (5) years of active volunteer firefighting service rendered
prior to the establishment of the program as an active volunteer flrefighter member of the East Marion Fire
Department.
Benefits
A participant's service award benefit is paid as a ten year certain and continuous monthly payment life annuity.
The amount payable each month equals $20 multiplied by the total number of years of service credit earned by
the volunteer under the point system. The maximum number of years of service credit a participant may earn is
30 years under the program. Currently, there are no other forms of payment of a volunteer's earned service
award under the Program. Except in the case of death or total and permanent disablement, service awards
commence to be paid when a participant attains the entitlement age. Volunteers who continue to be active after
attaining the entitlement age and beginning to be paid a service award continue to have the opportunity to earn
program credit and to thereby increase their service award payments.
-13-
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
7. Length of Service Awards Proqram - LOSAP - continued
Benefits - continued
The program provides death and disability benefits equal to the actuarial value of the participant's earned
service award at death or disablement. These benefits are self insured by the fund. The program provides
additional insurance funded death benefits. The program does not provide extra line of duty death benefits but it
does provide extra line of duty self insured disability benefits.
For a complete explanation of the program, see the Program Document a copy of which is available from the
Fire District Secretary.
Fiduciary Investment and Control
After the end of each calendar year, the fire department prepares and certifies a list of names of all persons
who were active volunteer members of the fire department during the year indicating which volunteers earned
fifty points. The certified list is delivered to the Board of Fire Commissioners for the Board's review and
approval. The fire department must maintain the point system records to verify each volunteer's points on
forms provided and/or approved by the Board of Fire Commissioners.
The Board of Fire Commissioners has retained Penflex, Inc to assist in the administration of the program. The
services provided by Penflex, Inc are described in the attached agreement between Penflex, Inc and the East
Marion Fire District.
Based on the certified calendar year volunteer firefighter listings Penflex determines and certifies in writing to
the Board of Fire Commissioners the amount of the service award to be paid to a participant or to a participant's
designated beneficiary. The person(s) authorized by the Board of Fire Commissioners then authorizes, in
writing, the custodian of the East Marion Fire District's SAP trust funds to pay the service award. No service
award benefit payment is made without the written certification from Penflex and the written directive from the
authorized representative of the Board of Fire Commissioners.
Fiduciary Investment and Control
Penflex bills the East Marion Fire District for the services it provides. Penflex's invoices are authorized for
payment by the Board of Fire Commissioners in the same manner as any other invoice presented to the Fire
District for payment. The Fire District pays Penflex invoices from its general fund.
Program assets are required to be held in trust by Article 1 l-A, for the exclusive purpose of providing benefits to
participants and their beneficiaries or for the purpose of defraying the reasonable expenses of the operation
and administration of the program. The Board of Fire Commissioners created a Service Award Program Trust
Fund through the adoption of a Trust Document, a copy of which is available from the Fire District Secretary.
The Board of Fire Commissioners is the program trustee.
Authority to invest the program assets is vested in the program trustee. Program assets are invested in
accordance with a statutory prudent person rule and in accordance with the attached written investment policy
statement adopted by the Board of Fire Commissioners.
The Board of Fire Commissioners has retained RBC Wealth Management to provide investment management
and custodial services and Comerica Bank to pay benefits to participants.
The Board of Fire Commissioners is required to retain an actuary to determine the amount of the Fire District's
contributions to the plan. The actuary retained by the Fire District for this purpose is Edward J. Holohan of
Penflex, Inc., Mr. Holohan is an Associate of the American Society of Actuaries. Portions of the following
information are derived from a report prepared by the actuary dated April 3, 2012.
-14-
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
7. Lenqth of Service Awards Proqram - LOSAP - continued
Program Financial Condition
Assets and Liabilities
Actuarial Present Value of Accrued Service Awards as of 12/31/11
$ 1,253,229
Less: Assets Available for Benefits
Cash & Money Market
Interest & Dividends Receivable
U.S. Equities - Mutual Funds
International Equities - Mutual Funds
Fixed Income - Bank CD's, Mutual Funds
Mixed Assets ~ Mutual Funds
Advance Benefit Payments
% of total
8.5% $ 93,499
0.0% 126
4.1% 44,820
4.9% 54,333
50.0% 551,830
32.2% 355,705
0.4% 4,680
1,104,993
Total Unfunded Liability for Prior Service
$ 148,236
$ 121,027
$ 27,209
Unfunded Liability for Separately Amortized Costs
Unfunded Normal Benefits
Program Financial Condition
Receipts and Disbursements
Plan Net Assets - Beginning of Year
$ 1,028,761
Changes during the year:
+ Plan contributions (year)
+ Investment income earned
(+/-) Changes in fair market value of investments
- Investment expenses
- Plan benefit withdrawals
- Administrative and other fees/charges
138,784
63,053
(60,770)
(7,991)
(56,160)
(684)
Plan Net Assets, end of year
$ 1,104,993
Separately Amortized Costs
As of January 1, 2008, the Board of Fire Commissioners elected to fund the difference between the net assets
available for benefits and the actuarial present value of accrued benefits over ten years @ 5.5%. In addition,
the Board of Fire Commissioners retroactively eliminated the purported age discrimination in the program by
retroactively paying all post entitlement age participants all additional service award payments they may have
earned for service credit earned after attaining the entitlement age and beginning to be paid a service award.
The unfunded liability resulting from those additional retroactive payments (and service credit) is being
amortized over five years at 5.5%. The unfunded liability for additional service awards earned by post
entitlement age active volunteers for years after 2004 is being amortized over five years at 5.5%.
-15-
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
7. Length of Service Awards Proqram - LOSAP - continued
Contributions
Amount of sponsor's 2011 contribution recommended by actuary:
Amount of sponsor's actual 2011 contribution:
Plan contribution $138,785
Administrative fees paid directly 4,223
Total contribution by sponsor
$ 101,721
$ 143,008
$ 93,785
Amount of sponsor's 2011 contribution recommended by actuary:
Administration Fees
Fees paid to adminstrative/actuarial services provider $ 4,223
Fees paid to investment management $ 7,991
Other administration fees $ 684
Normal Costs
The actuarial valuation methodology used by the actuary to determine the sponsor's contribution is [the
Attained Age Normal Frozen Initial Liability method. The assumptions used by the actuary to determine the
sponsor's contribution and the actuarial present value of benefits are:
Assumed rate of return on program investments 5.5%.
Tables used for:
Post Entitlement Age mortality: 1994 Uninsured Pensioner Male Mortality Table projected with scale
AA to 2007
*Pre Entitlement Age mortality: None
*Pre Entitlement Age disability: None
*Pre Entitlement Age withdrawal: None
*Pre Entitlement Age service credit accruals: 100%
* For program cost calculation purposes, all pre-entitlement age active volunteer firefighter participants are
assumed to: survive to the entitlement age; remain active and earn 50 points each year; and, begin to be paid
service awards upon attainment of the entitlement age.
8. Lonq-Term Liabilities
Long-term liability balances and activity for the year are summarized below:
Amounts
Balance Balance Due Within
1/1/2011 Additions Reductions 12/31/2011 OneYear
Long-term debt:
Serial Bonds (Truck Bond) $ 33,000
Emergency Services Loan 55,301
$ $ (33,000) $ $
(6,329) 48,972 7,712
Total $ 88,301 $ $ (39,329) $ 48,972 $ 7,712
The general fund has typically been used to liquidate long-term liabilities.
-16-
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
8. Lonq-Term Liabilities - continued
Serial Bonds
The Fire District borrows money in order to acquire or construct buildings, improvements and apparatus. This
enables the cost of these capital assets to be borne by the present and future taxpayers receiving the benefit of
capital assets. The provision to be made in future budgets for capital indebtedness represents the amount
exclusive of interest, authorized to be collected in the future years from taxpayers and others for liquidation of
the long-term liabilities.
I. Maturity of Lonq Term Indebtedness
Emergency Services Revolving Loan Fund
On January 18, 2010 the district was awarded a loan for a major roof repair. The East Marion Fire District
borrowed $67,500 under a New York State Emergency Services Loan Agreement. This is to be repaid over
ten years at an annual interest rate of 2.5%. Annual payments of $7,712 covering principal and interest are
first due January 18, 2010 and end January 18, 2018.
II. Maturity of Lonq Term Indebtedness
The following is a summary of future debt service requirements:
Year
Principal Principal Interest Total
Balance Payment Payment Payment
2012 $48,972 $ 6,488 $ 1,224 $ 7,712
2013 42,484 6,650 1,062 7,712
2014 35,834 6,816 896 7,712
2015 29,018 6,987 725 7,712
2016 22,031 7,161 551 7,712
2017 14,870 7,340 372 7,712
2018 7,530 7,530 182 7,712
Total $48,972 $ 5,012 $53,984
9. Risk Manaqement
The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets;
injuries to employees; errors and omissions; natural disasters, etc. These risks are covered by commercial
insurance purchased from independent third parties. Settled claims from these risks did not exceed commercial
insurance coverage for the past year.
10. Related Party Transaction
The District's Deputy Treasurer is a principal at the insurance company that the District utilizes.
11. Spendinq Limitation
The District did not exceed the statutory spending limitation mandated by New York State Law for the year
ended December 31,2011.
-17-
12.
EAST MARION FIRE DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2011
Subsequent Events
The date through which management has evaluated the impact of subsequent events on these financial
statements is April 30, 2012
-18-
Craig, Fitzsimmons & Michaels, LLP
Certified lhablic Accountants, Management and Fl? Consultants
20 Manor Road ~ Smithtown, New York 11787
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER
MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
The Board of Fire Commissioners
East Marion Fire District
PO Box 131
9245 Main Road
East Marion, NY 11939
We have audited the Combined Statement of Assets, Liabilities and Fund Balances - Modified Accrual Basis of the
East Madon Eire Distdct as of Decembe~ 31, 20'11; and the related statements of Revenues, Expenditures and
Changes in Fund Balances - Modified Accrual Basis and Revenues, Expenditures and Changes in Fund Balances -
Budget and actual General Fund - Modified Accrual Basis for the year ended December 31,2011, which comprises
the District's basic financial statements, and have issued our report thereon dated April 30, 2012. We conducted our
audit in accordance with auditing standard generally accepted in the United States of America and the standards
applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the
United States.
Internal Control Over Einancial Reportinq
In planning and performing our audit, we considered the East Marion Fire District, New York's internal control over
financial reporting as a basis for designing our audit procedures for the purpose of expressing our opinions on the
financial statements, but not for the purpose of expressing an opinion on the effectiveness of East Marion Fire District,
New York's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness
of the East Marion Fire District, New York's internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a
timely basis. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is
a reasonable possibility that a material misstatement of the financial statements will not be prevented, or detected and
corrected on a timely basis.
Our consideration of the internal control over financial reporting was for the limited purpose described in the first
paragraph of this report and was not designed to identify all deficiencies in internal control over financial reporting that
might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal
control over financial reporting that we consider to be material weaknesses as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the East Marion Fire District, New York's financial
statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing an opinion on compliance with those provisions
was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance or other matters that are required to be reported under Government
Auditing Standards.
We noted certain matters that we reported to the Board of Fire Commissioners of the East Marion Fire District, New
York in a separate letter dated April 30, 2012.
Compliance and Other Matters - continued
The East Marion Fire District, State of New York's written response to the findings identified during our audit is not
due until 90 days after the issuance of this report. As such, we have not audited the East Marion Fire District, State of
New York's response and, accordingly, express no opinion on it.
This report is intended solely for the information and use of Management, the Board of Fire Commissioners, the New
York State Office of the State Comptroller, federal and state awarding agencies, and is not intended to be and should
not be used by anyone other than these specified parties.
Smithtown, NY
April 30, 2012
-20-
Craig, Fitzsimmons & Michaels, LLP
Certified Public Accountants, IManagement and I1' Consultants
April 30, 2012
The Board of Fire Commissioners
East Marion Fire District
PO Box 131
9245 Main Road
East Marion, NY 11939
Dear Fire Commissioners:
We have audited the financial statements of the East Marion Fire District (the District) for the year ended December 31,
2011 and have issued our report thereon dated April 30, 2012. Professional standards require that we provide you with
the following information related to our audit.
Our Responsibility under Auditinq Standards Generally Accepted in the United States of America
As stated in our engagement letter dated October 18, 2011 our responsibilities, as described by professional standards, is
to plan and perform our audit to obtain reasonable, but not absolute, assurance about whether the financial statements
are free of material misstatement and are fairly presented in accordance with the modified accrual basis of accounting.
The modified accrual basis is a statutory basis of accounting, prescribed by the Office of the New York State Comptroller,
and is not a presentation in conformity with generally accepted accounting principles.
You are responsible for the fair presentation of your financial information, as well establishing and maintaining internal
control over financial reporting and for your compliance with laws, regulations, contracts and agreements. Our audit of
your financial statements does not relieve you or your management of your oversight responsibilities.
1. Our responsibility is to plan and perform our audit to obtain reasonable, but not absolute, assurance about
whether the financial statements are free of material misstatement.
2. As part of our audit, we considered the internal control of the District. Such considerations were solely for the
purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are responsible for communicating significant matters related to the audit that are, in our professional
judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not
required to design procedures specifically to identify such matters.
As part of our obtaining reasonable assurance about whether your financial statements are free of material
misstatement, we performed tests on your compliance with certain provisions of laws, regulations, contracts and
grant agreements. However, our work in this regard was not designed to provide an opinion on your compliance
with such provisions.
Because an audit is designed to provide reasonable, but not absolute assurance, and because we did not perform a
detailed examination of all transactions, there is a risk that a material misstatement may exist and not have been detected
by us.
Planned Scope and Timinq of the Audit
We performed our audit according to the planned scope and timing previously communicated to you in our audit-planning
memorandum. Our work for 2011 included other additional procedures related to your LOSAP as required by current NYS
legislation. This increased the time it took to perform certain audit procedures and financial statement disclosures.
20 Manor Road, Smithtown, New York 11787
Phone (631) 360-1400 ,~ (877) NPO~CPAS ~ Fax (631) 360~77;14 ~ www. cfmllp.com
Board of Fire Commissioners
April 30, 2012
Page 2 of 4
Other Information in Documents Containin~ Audited Financial Statements
Our responsibility for other information in documents containing the District's audited financial statements does not extend
beyond the financial information identified in our report and we have no professional obligation to perform procedures to
corroborate such other information. In the event the financial statements are incorporated into a printed document, please
forward a printer's proof for our approval before final production.
Siqnificant Accountinq Policies
Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of
our engagement letter, we advise management about the appropriateness of accounting policies and their application.
The significant accounting policies used by the District are described Note 1 to the financial statements.
There was a significant change in the District's Fund Balance Policy. The District implemented the presentation standards
outlined in Governmental Accounting Standards Board Statement No. 54 entitled "Fund Balance Reporting and
Governmental Fund Type Definitions." With the adoption of GASB 54 the District changed its fund balance classifications
to focus on the constraints imposed on resources in government funds instead of the focus on the availability of funds for
appropriation.
Fund balance is now broken down into five different classifications: nonspendable, restricted, committed, assigned and
unassigned.
Nonspendable consists of assets that are inherently nonspendable in the current period either because of their form or
because they must be maintained intact, including prepaid items, inventories, long-term portions of loans receivable,
financial assets held for resale, and principal of endowments.
Restricted consists of amounts that are subject to externally enforceable legal purpose restrictions imposed by creditors,
grantors, contributors, or laws and regulations of other governments; or through constitutional provisions or enabling
legislation.
Committed consists of amounts that are subject to a purpose constraint imposed by a formal action of the government's
highest level of decision-making authority before the end of the fiscal year, and that require the same level of formal action
to remove the constraint. The Board of Commissioners is the decision-making authority that can, by board resolution prior
to the end of the fiscal year, commit fund balance.
Assigned consists of amounts that are subject to a purpose constraint the represents an intended use established by the
government's highest level of decision-making authority, or by their designated body or official. The purpose of the
assignment must be narrower that the purpose of the general fund, and in funds other than the general fund, assigned
fund balance represents the residual amount of fund balance. The Board of Commissioners by board resolution has
authorized the District's Treasurer to assign fund balance.
Unassigned represents the residual classification for the government's general fund, and could report a surplus or deficit.
In funds other than the general fund, the unassigned classification is only used to report a deficit balance resulting from
overspending for specific purposes for which amounts had been restricted, committed, or assigned.
When resources are available from multiple classifications, the District spends funds in the following order: restricted,
committed, assigned, unassigned.
The District has, by resolution, adopted a fund balance policy that states the District must maintain a minimum
unrestricted (the total of committed, assigned, and unassigned) fund balance of at least 2/12 of the general fund operating
budget. Unrestricted fund balance below the minimum should be replenished within the succeeding fiscal year.
We noted no transactions entered into by the District during the year for which there is a lack of authoritative guidance or
consensus. There are no significant transactions that have been recognized in the financial statements in a different
period than when the transaction occurred. We noted no transactions entered into by the District during the year that were
both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions
for which there is lack of authoritative guidance or consensus.
Board of Fire Commissioners
April 30, 2012
Page 3 of 4
Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on
management's knowledge and experience about past and current events and assumptions about future events. Certain
accounting estimates are particularly sensitive because of their significance to the financial statements and because of the
possibility that future events affecting them may differ significantly from those expected. The most significant estimate in
the financial statement relates to the calculation of the total unfunded benefits and the unfunded normal benefits of the
LOSAP program. The methodologies and assumptions used to calculate the liability uses an assumed rate of return on
the underlying investments of 5.5%. The higher the assumed rate of return, the lower the District's liability. If actual
investment results are less than the assumed rate of 5.5%, the plan will be underfunded and additional contributions will
be required to be made by the district to cover its commitment under the LOSAP program.
Audit Adiustments
For the purpose of this letter, professional standards define an audit adjustment as a proposed correction of the financial
statements that, in our judgment, may not have been detected except through our auditing procedures. An audit
adjustment may or may not indicate matters that could have a significant effect on the District's financial reporting process
(that is, cause future financial statements to be materially misstated). In our judgment, none of the audit adjustments we
proposed, whether recorded or unrecorded by the District, individually or taken together, indicate matters that could have
a significant effect on the District's financial reporting process. The adjustments we presented were typical "yearend
adjustments" to take the District's records from the "cash basis" of accounting to the "modified accrual basis" of
accounting required to be followed under the direction of the New York Office of State Comptroller. Management has
reviewed all the adjusting journal entries we proposed and is in agreement with the presentation of these adjustments in
the audited financial statements.
Management Representations
We have requested certain written representations from management. These are included in the management
representation letter provided to us dated April 30,2012.
Disaqreements with Manaqement
For the purpose of this letter, professional standards define a disagreement with management as a matter, whether or not
resolved to our satisfaction, concerning a financial accounting, reporting or auditing matter that could be significant to the
financial statements of the auditor's report. We are pleased to report that no such disagreements arose during the course
of our audit.
Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar
to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the
District's financial statements or a determination of the type of auditor's opinion that may be expressed on those
statements, our professional standards require the consulting accountant to check with us to determine that the consultant
has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
Issues Discussed Prior to Retention of Independent Auditors
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with
management each year prior to retention as the District's auditors. However, these discussions occurred in the normal
course of our professional relationship and our responses were not a condition to our retention.
Difficulties Encountered in Performinq the Audit
We encountered no significant difficulties in dealing with management in performing our audit.
Board of Fire Commissioners
April 30, 2012
Page 4 of 4
Deficiencies and Other Matters
In planning and performing our audit of the financial statements of the District for the year ended December 31,2011, we
considered your internal control structures in order to help us determine the nature, timing and extent of our audit
procedures. These procedures were designed to allow us to formulate an expression of our audit opinion as to the
fairness of your financial statement presentation and disclosures in accordance with the modified accrual basis as outlined
in the Uniform System of Accounts. Our work in this regard was not designed for, nor intended to provide you with
assurances on your internal controls. However, during the course of our audit we did note certain matters involving your
control framework and its operation in addition to those mentioned above that we recommend be addressed. Enclosed
with this letter we have detailed certain recommendations related to financial controls we believe will help to strengthen
your overall control environment. We strongly suggest the District review these findings and implement corrective actions
during the current year.
Management is responsible for establishing and maintaining internal controls, such controls should include the ability to
prepare financial statements and related disclosures. East Marion Fire District does not have a system of internal controls
that would enable management to conclude the financial statements and related disclosures are complete and presented
in accordance with the modified accrual basis of accounting without our assistance in our capacity as your independent
auditors.
Management requested us to prepare a draft of the financial statements, including the related footnote disclosures. The
outsourcing of these services is typical in government organizations of your size and is a service that we have historically
provided. Typically this would be considered a material weakness, however since you have designated your treasurer to
oversee these services, and because of his technical experience has the competencies to oversee this work we do not
consider our assistance as an indication of a material weakness under the new standards.
Conclusion
We would like to take this opportunity to re-emphasize the conditions noted herein that were considered in the nature,
timing and extent of our audit testing and would not necessarily disclose all matters involving internal control that might be
control deficiencies. Accordingly, our work would not necessarily disclose all significant deficiencies that are considered
material weaknesses as defined by the AICPA. Also of significance to note is that any internal control system is subject to
inherent limitations in its design and operation, this means that non-compliance, errors or frauds could occur and not be
detected by such controls.
This information is intended solely for the use of the Board of Fire Commissioners of the District, Management, others
within the District and the Office of the Comptroller of the State of New York. It is not intended to be, and should not be
used by anyone other than these specified parties.
Very truly yours,
Craig, Fitzsimmons & Michaels, LLP
Craig, Fitzsimmons & Michaels, LLP
Certified Public Accountants, IManagement and I1' Consultants
April 30, 2012
The Board of Fire Commissioners
East Marion Fire District
PO Box 131
9245 Main Road
East Marion, NY 11939
Dear Fire Commissioners:
In planning and performing our audit of the East Marion Fire District (the District) as of and for the year ended December
31,2011, in accordance with audit standards generally accepted in United States of America, we considered the District's
internal controls over financial reporting (internal control) as a basis for designing our audit procedures for the purpose of
expressing our opinion on the District's financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the District's internal controls.
A control deficiency exists when the design or operation of a control does not allow management or employees, in the
normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A control
deficiency may be either a deficiency in design or a deficiency in operation. A deficiency in design exists when a control
necessary to meet the control objectives is missing or an existing control is not properly designed so that even if the
control operates as designed the control objective would not be met. A deficiency in operation exists when a properly
designed control does not operate as designed or the person performing the control does not possess the necessary
authority or competence to perform the control properly.
A significant deficiency is a deficiency or combination of deficiencies in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance.
A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be prevented, detected and corrected
on a timely basis.
Our consideration of internal control was for the limited purpose described in the first paragraph and would not necessarily
disclose all deficiencies in internal control that might be significant deficiencies or material weaknesses as defined above.
During our audit we reviewed the status of previous year's recommendations; we also became aware of certain issues
that present opportunities for strengthening controls as well as better complying with laws and regulations or meeting
organizational objectives. The following paragraphs summarize our observations and our suggestions concerning those
matters we consider to be deficiencies.
Prior Year Comments
We found that the Board of Commissioners and the District's management team adequately addressed the following prior
year recommendations:
Bonding
Sales Tax
Fund Balance Presentation and Disclosure Alterations
Fixed Asset Policy
20 Manor Road, Smithtown, New York 11787
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Board of Fire Commissioners
April 30, 2012
Page 2 of 3
Prior Year Comments - continued
There was one (1) recommendation that was noted from 2010 audit that was in the process of being corrected at
December 31,2011, but had yet to be completely closed. We are including this finding again for informational purposes
only.
Preferred Vendors
Preferred Vendors (Originally presented in 2010, included again in 2011)
In our management letter following the 2010 audit of the East Marion Fire District, we recommended that the Board review
and amend the current procurement policy to include provisions for preferred vendors.
The District's management team has taken significant steps during the year under audit, 2011, as well as the current year
to compile a list of preferred vendors. The District bid out building maintenance, landscaping, computer services,
equipment maintenance and all general services that are required by the District. Additionally, the District has required
certificates of insurance and W-9 forms, among other items from all vendors.
We recommend that the District, in an effort to meet the "spirit" of the procurement laws, adopt a listing of preferred
vendors by resolution that should declare why, as a matter of fact, not opinion, the District will be economically and
efficiency served by utilizing those vendors. The resolution should explore in detail the impact of standardization, such as
better operation of a product, less downtime, less repairs, and thus savings to the District. Additionally, the Board should
determine how frequently the vendor listing should be re-evaluated. We recommend documenting the process of
selecting a preferred vendor at a minimum of every 3 years.
2011 Comments
The following suggestions are new observations resulting from our 2011 audit and are being provided to assist
management in strengthening controls as well as better complying with laws and regulations.
Formal Disaster Recovery Business Continuity and Related IT Policies
Recent audits of the NYS Comptroller have noted that computerized data is a valuable resource that District officials rely
on to make financial decisions and report to State agencies. If computers on which this data is stored fail, or the data is
lost or altered, either intentionally or unintentionally, the results could range from an inconvenient to catastrophic event for
the District. Even small disruptions can require extensive time and effort to evaluate and repair. For this reason, it is
important that District officials control and monitor computer system access and usage, establish a formal disaster
recovery plan, and ensure that computerized data and assets are physically secured. The Board is responsible for
adopting policies and procedures and developing controls to safeguard computerized data and assets.
District officials have not developed comprehensive information technology (IT) policies and procedures that provide
guidance to the District Treasurer and LOSAP Administrator on all aspects and appropriate use of IT systems and data
security. In addition, District officials have not sufficiently addressed the security and safeguarding of the District's IT
resources, systems, and financial data in a formal IT policy as recommended by the Office of State Comptroller..
A formal disaster recovery plan should address the effects of potential disasters. As a result, the District's IT resources,
systems, and its electronic data are subject to increased risk of unauthorized access, manipulation, theft, and loss or
destruction. Good internal controls over computerized data should include policies and procedures designed to limit
access to data. District officials and employees are assigned user accounts to enable them to access the District's
network. Any changes to user access accounts, including additions, deletions and modifications, should be authorized
and approved, in writing, by an appropriate District official (i.e., Commissioner). Further, there needs to be a process for
outlining how and when user accounts are to be deactivated upon employee terminations or severance. The Board should
formally adopt policies and procedures to ensure that changes to access accounts are properly documented and that user
accounts are deactivated in a timely manner.
Board of Fire Commissioners
April 30, 2012
Page 3 of 3
ConcludinR Remarks
The conditions noted above were considered in determining the nature, timing and extent of the audit tests applied in our
audit of the December 31,2011 financial statements. This report does not affect our report dated April 30, 2012. We have
not considered your internal controls since the date of our report.
Additionally, it is important to once again note that our consideration of internal control would not necessarily disclose all
matters in internal control that might be reportable conditions and, accordingly, would not necessarily disclose all
reportable conditions that are also considered to be material weaknesses as defined above. Also of importance to note is
that because of the inherent limitations in any internal control framework, errors or fraud could occur and not be detected
by such controls.
This information is intended solely for the use of the Board of Fire Commissioners of the District, Management, others
within the District and the Office of the Comptroller of the State of New York. It is not intended to be, and should not be
used by anyone other than these specified parties.
Respectfully submitted,
Craig, Fitzsimmons & Michaels, LLP