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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 -1- 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. -2- 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. -3- 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. -4- 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. -5- 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. -6- 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. -7- 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. -9- 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. -10- 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. -11- 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 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 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