Comprehensive Annual Financial ReportCity Secretary
Comprehensive Annual
Financial Report
Police Headquarters
For Fiscal Year Ended
September 30, 2004
CITY OF ALLEN
CITY OF ALLEN
ALLEN, TEXAS
CITY OF ALLEN, TEXAS
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
CITY OF ALLEN
FISCAL YEAR ENDED
SEPTEMBER 30, 2004
AS PREPARED BY THE
FINANCE DEPARTMENT
CITY OF ALLEN, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
EXHIBIT Page
I. INTRODUCTORY SECTION
Letter of Transmittal i
Certificate of Achievement x
Organizational Chart A
Elected Officials and Administrative Officers xii
II. FINANCIAL SECTION
Independent Auditors Report 1
A. MANAGEMENT'S DISCUSSION AND ANALYSIS 3
B. BASIC FINANCIAL STATEMENTS
Government -Wide Financial Statements
Statement of Net Assets
1
17
Statement of Activities
2
18
Fund Financial Statements
Governmental Funds Financial Statements
Balance Sheet- Governmental Funds
3
20
Reconciliation of the Balance Sheet of Government
Funds to the Statement of Net Assets
4
22
Statement of Revenues, Expenditures and
Changes in Fund Balances - Governmental Funds
5
24
Reconciliation of the Statement of Revenues,
Expenditures and Changes in Fund Balances
of Governmental Funds to the Statement
of Activities
6
26
Proprietary Funds Financial Statements
Statement of Net Assets - Proprietary Funds
7
27
Reconciliation of the Statement of Net Assets
of Proprietary Funds
8
28
Statement of Revenues, Expenses and Changes
In Net Assets - Proprietary Funds
9
29
Reconciliation of the Statement of Revenues,
Expenses and Changes in Net Assets of
Proprietary Funds to the Statement of Activities
10
30
Statement of Cash Flows - Proprietary Funds
11
31
Component Units Financial Statements
Statement of Net Assets - Component Units
12
32
Statement of Activities - Component Units
13
33
CITY OF ALLEN, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
EXHIBIT
Notes To Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Deposits, Investments and Investment Policies
Note 3. Receivables
Note 4. Capital Assets
Note 5. Long -Term Debt
Note 6. Interfund Receivables and Payables
Note 7. Interfund Transfers
Note 8. Retirement Plan
Nate 9. Water and Sewer Contracts
Note 10. Deferred Compensation Plan
Note 11. Risk Management
Note 12. Commitments and Contingent Liabilities
C. REQUIRED SUPPLEMENTARY INFORMATION
General Fund Schedule of Revenues, Expenditures
And Changes in Fund Balances — Budget and Actual
Notes to Required Supplementary Information
D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES
Major Governmental Funds
Comparative Balance Sheets - General Fund
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances — General Fund
Comparative Balance Sheets — Debt Service Fund
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances — Debt Service Fund
Budgetary Comparison Schedule — Debt Service Fund
Comparative Balance Sheets — Facilities Agreement Fund
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances - Facilities Agreement Fund
Comparative Balance Sheets — General Capital Projects Fund
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances — General Capital Projects Fund
A-1
B-1
B-2
B-3
B-4
B-5
B-6
B-7
B-8
B-9
Page
35
42
44
45
49
56
57
58
60
60
60
61
63
64
68
69
70
71
72
73
74
75
76
CITY OF ALLEN, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
EXHIBIT
Page
Comparative Balance Sheets — Street Improvements Fund
B-10
77
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances — Street Improvements Fund
B-11
78
Comparative Balance Sheets — Park Improvements Fund
B-12
79
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances — Park Improvements Fund
B-13
80
Comparative Balance Sheets — Library Fund
B-14
81
Comparative Statements of Revenues, Expenditures and
Changes in Fund Balances — Library Fund
B-15
82
Balance Sheet — General Obligation Bond Fund
B-16
83
Statement of Revenues, Expenditures and Changes
in Fund Balance — General Obligation Bond Fund
8-17
84
Non -major Governmental Funds
Combining Balance Sheet
C-1
86
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances
C-2
88
Major Enterprise Funds
Comparative Statements of Net Assets — Water and Sewer
D-1
92
Comparative Statements of Revenues, Expenses and
Changes in Fund Net Assets — Water and Sewer
D-2
93
Comparative Statements of Cash Flows — Water and Sewer
D-3
94
Comparative Statements of Net Assets — Solid Waste
D-4
95
Comparative Statements of Revenues, Expenses and
Changes in Fund Net Assets — Solid Waste
D-5
96
Comparative Statements of Cash Flows — Solid Waste
D-6
97
Comparative Statements of Net Assets — Drainage
D-7
98
Comparative Statements of Revenues, Expenses and
Changes in Fund Net Assets — Drainage
D-8
99
Comparative Statements of Cash Flows — Drainage
D-9
100
Internal Service Funds
Combining Statement of Net Assets
E-1
102
Combining Statement of Revenues, Expenses and
Changes in Fund Net Assets
E-2
103
Combining Statement of Cash Flows
E-3
104
E. CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS
Comparative Schedules by Source
F-1
105
Schedule by Function and Activity
F-2
106
Schedule of Changes by Function and Activity
F-3
108
CITY OF ALLEN, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
TABLE
Page
III. STATISTICAL SECTION
General Governmental Expenditures by Function
1
110
General Governmental Revenues by Source
2
112
Ad Valorem Tax Levies and Collections
3
114
Assessed and Estimated Actual Value of
Taxable Property
4
116
Property Tax Rates — Direct and
Overlapping Governments
5
117
Ratio of Net General Bonded Debt to Assessed
Value and Net Bonded Debt Per Capita
6
118
Ratio of Annual Debt Service Expenditures for General Obligation
Bonded Debt to General Governmental Expenditures
7
120
Computation of Legal Debt Margin
8
121
Computation of Direct and Overlapping Debt
9
122
Property Values and Construction
10
123
Principal Taxpayers
11
124
Miscellaneous Statistical Facts
12
125
Demographic Statistics
13
126
k_
CITY OF ALLEN
March 23, 2005
Honorable Mayor, Members of the City
Council, City Manager and Citizens of the
City of Allen, Texas
The Comprehensive Annual Financial
Report (CAFR) of the City of Allen, Texas
(the "City'), for the fiscal year ended
September 30, 2004, is hereby submitted.
The report was prepared by the Finance
Department and our independent auditors,
Weaver and Tidwell, L.L.P. This report is
prepared to provide the City Council, City
staff, our citizens, our bondholders, and
other interested parties with detailed
information concerning the financial
condition and activities of the City
government. Responsibility
for both the accuracy of the
presented data and the
completeness and fairness
of the presentation,
including all disclosures,
rests with the City.
To the best of our
knowledge and belief the
enclosed data, as
presented, is accurate and
presented in a manner
designed to fairly set forth,
in all material respects, the financial position
and results of operations of the City with all
disclosures necessary to enable the reader
to gain an understanding of the City's
financial affairs.
Discussion and Analysis (MD&A),
government -wide and major fund
presentations, required supplementary
information, combining and individual fund
statements, as well as the independent
auditor's report on the financial statements
and schedules. This letter of transmittal is
designed to complement and should be read
in conjunction with the MD&A. The
statistical section includes selected financial
and demographic information, generally
presented on a multi-year basis.
The Report is presented in three sections:
Introductory, Financial and Statistical. The
introductory section includes this transmittal
letter, the City's organizational chart, and a
list of principal officials. The financial
section includes the Management's
The Financial Section
described above is
prepared in accordance
with generally accepted
accounting principles for
governments as
prescribed by the
Government Accounting
Standards Board
(GASB).
CITY OF ALLEN PROFILE
Allen is 25 miles north of downtown Dallas
on U.S. 75. It is in the midst of the growth
emanating from Dallas and its northern
suburbs. The City has established a
reputation in the Dallas/Fort Worth
Metroplex and in the state of Texas for being
at the forefront of development and is
promoting commercial and residential
growth in ways that will aid in having a
balanced community.
ALLEN CIVIC PLAZA • 305 CENTURY PARKWAY • ALLEN, TEXAS 75013-8042
214.509.4100
EMAIL: coa@cnyofallen.org
The relocation of high technology
companies to the north Dallas and
Richardson areas in the 1960's significantly
increased employment opportunities for
Allen citizens, and the population rose to
1,940. The Citys population continued to
increase to 8,324 in 1980, 19,198 in 1990,
and 67,147 in 2004, and it is estimated to
surpass 89,000 by the year 2010. The City
estimates the current population (January
31, 2005) is 68,625.
Allen was settled in the early 1850s from
land grants given by the Republic of Texas
as an inducement for settlers to come to the
frontier. The City is a home rule city
operating under the Council -Manager form
of government and was incorporated in
1953. The City Council is comprised of the
Mayor and six Council members, who enact
local laws, determine policies and adopt the
annual budget. The City
Council appoints the City
Manager, who has full
responsibility for carrying
out Council policies and
administering CRY
operations. City service
departments provide a
full range of services
including police and fire
protection,
sanitation/solid waste
service, water and sewer services,
construction and maintenance of streets,
recreational activities and cultural events.
amounts; however, such revisions may not
result in total expenditures exceeding
budgeted expenditures without approval of
the City Council.
Formal budgetary integration is not
employed for Special Revenue Funds,
Proprietary Funds or Capital Project Funds.
However, the City does adopt an annual
budget for those funds for managerial
control.
FACTORS AFFECTING THE CITY'S
FINANCIAL CONDITION
Economic Development - As development
expanded outward from Dallas and growth
spread northward, the City Council created
the Allen Economic Development
Corporation (AEDC) to receive and disperse
_ the one-half cent
r sales tax approved
Allen Station by voters for
Business Park economic
development. Since
Mal!=
The annual budget serves as the foundation
for Allen's financial planning and control.
Annual budgets are legally adopted for the
General Fund and Debt Service Fund.
Each year the City Manager is required to
submit to the City Council a proposed
budget for the fiscal year beginning on the
following October 1. The operating budget
includes proposed expenditures and the
means of financing them. Public hearings
are conducted to obtain taxpayers'
comments. Prior to October 1, the budget is
legally enacted by the City Council through
passage of an ordinance, setting the limit for
expenditures during the fiscal year.
Expenditure appropriations in the adopted
budget are by department and may be
amended during the year. The City
Manager is authorized to adjust budgeted
its inception in 1992,
the AEDC has
dedicated its
resources to
developing first-class
technology parks
and recruiting quality
industries to the community.
In 2004, development activity in Allen
continued at a brisk pace. State Farm
Insurance opened a regional operations
center in Allen Station Business Park. With
almost 300 employees, this is the largest
State Farm claims center in Texas. J.
Suzette & Company, a wholesale designer
and manufacturer of women's apparel
expanded their operation in Allen Station
Business Park and Nextel is moving into the
park in March 2005.
These projects, combined with the
recruitment of Contemporary Title Solutions,
Stacy Furniture and Gary Riggs Interiors in
2004, added more than 450 new jobs in
Allen.
The corporate growth that fuels residential
growth is now creating an increased need
for professional services and office space
I
I
and a demand for more retail, restaurant,
entertainment and health care options.
Major medical office developments are
underway in Allen to meet the needs of the
growing region:
• Presbyterian Hospital of Allen is
adding approximately 35,000 square
feet to accommodate new
emergency rooms, imaging space,
additional medical/surgical beds,
labor/delivery/recovery rooms and
other services.
Cambridge Holdings is building a
three-story, 60,000 square foot
medical office building adjacent to
Presbyterian Hospital of Allen.
JaRyCo Development completed
the first of three
medical office
buildings just south
.F
of the hospital and it
e
is fully leased. The
_
second building is
scheduled for
groundbreaking in
spring 2005. When
"t.
complete, Twin
ecd.6_
Creeks Medical
_
Center will contain
over 100,000 square
feet of medical office
space.
building at The Village at Alma is
already sold.
The AEDC works closely with commercial
brokers to market anchor retail space in
Allen. Allen's continued population growth
and excellent demographics have attracted
new retail, restaurants and services to the
city. New mixed-use developments
announced in 2004 will offer tremendous
opportunity to diversity choices in shopping
and dining and boost property and sales tax
revenues for the City.
Star Creek, a project of Blue Star
Investments, encompasses 529
acres on the south side of SH 121,
west of US 75 and on the north side
of Stacy Road. The retail
development includes a 16 -screen
Cinemark theater, Lifetime Fitness,
restaurants,
..,�
a hotel and
-
conference
'
center and
e
an office
complex.
The
development
also includes
900 single-
"t.
family
ecd.6_
homes.
Moatga.,c, y M t
JaRyCo's master plan for the
Woods at Watters Road recently
received zoning approval by City
Council. Located on the northwest
comer of Bethany Drive and Watters
Road, the project is designed to
allow lease or ownership
opportunities as well as custom
build -to -suits.
• Huffman Builders has completed
construction on the first of three
6,000 square feet, single -story
condominium buildings on the east
side of Alma Drive, one block south
of McDermott Drive. The first
• on gomery
Farm, a 500 -
acre development, is located along
Bethany Drive running west
between US 75 and Alma Drive. It
includes a 50 -acre urban style retail
and restaurant development on the
southwest comer of US 75 and
Bethany Drive, targeted to upscale
retailers. This development will
include 1,200 to 1,400 homes in a
.conservation -style" development.
General Growth Properties has
taken control of approximately 220
acres on the southwest corner of SH
121 and US 75. The properties have
been rezoned to allow for
development of a master planned
"lifestyle center" that includes high-
density, high-rise lofts, ground -level
Professional
office
developments in
'
progress are:
JaRyCo's master plan for the
Woods at Watters Road recently
received zoning approval by City
Council. Located on the northwest
comer of Bethany Drive and Watters
Road, the project is designed to
allow lease or ownership
opportunities as well as custom
build -to -suits.
• Huffman Builders has completed
construction on the first of three
6,000 square feet, single -story
condominium buildings on the east
side of Alma Drive, one block south
of McDermott Drive. The first
• on gomery
Farm, a 500 -
acre development, is located along
Bethany Drive running west
between US 75 and Alma Drive. It
includes a 50 -acre urban style retail
and restaurant development on the
southwest comer of US 75 and
Bethany Drive, targeted to upscale
retailers. This development will
include 1,200 to 1,400 homes in a
.conservation -style" development.
General Growth Properties has
taken control of approximately 220
acres on the southwest corner of SH
121 and US 75. The properties have
been rezoned to allow for
development of a master planned
"lifestyle center" that includes high-
density, high-rise lofts, ground -level
restaurant and retail, entertainment
components and office space.
Redevelopment activity continuing in Allen's
Central Business District (CDB) are:
City -owned property on the
southeast corner of Butler and Main
was purchased by architect Steve
Meier. In 2004, he completed
renovation of a 1,200 square foot
building, restoring the fagade with
brick and awnings to resemble the
original.
Marcon Construction has purchased
a three -acre site on the southwest
comer of Ash and McDermott
Drives, adjacent to the CBD. The
developer has tom down the old
metal buildings and will build a four
building, 30,000 square foot office
park.
• Finally, in 2004, the business
retention efforts of the AEDC have
kept Timberwolf Press, a publishing
and production services company,
located in Allen's CBD.
Property Values — Assessed property
values increased $356 million (89/6) from the
preceding year. The increase is accounted
for by $306 million in new property and a
$50 million increase in the value of existing
property. Assessed property value has
increased 93% over the past five years and
accounts for 37% of the General Fund
revenue. Increases in assessed property
value along with continued economic growth
have allowed the City Council to lower the
property tax rate for the eleventh
consecutive year while improving quality
services to its citizens.
Retail Sales - Similar to other communities
in Texas and the United States, Allen's retail
economy has faced significant challenges
since September 11, 2001. The slow down
in the economy continued to affect the City's
2003-2004 fiscal year sales tax receipts
which were 4.8% above the previous year.
A growth rate of 7.5 % had originally been
budgeted. Although sales tax revenue was
less than expected, expenditure savings
were far greater and the General Fund
balance increased by $994,289.
Long -Term Financial Planning — The
City's annual budget process involved
incorporating the goals and strategies
identified by the City Council's three-year
Strategic Plan to provide for the
community's highest priority needs. The goal
statements developed by the City Council
are:
• Enhance neighborhood livability
and safety.
• Cultivate alliances and
partnerships with agencies and
governmental units that affect
Allen.
• Continue to provide first-rate
emergency services.
• Manage growth and development
to preserve Allen's character.
• Improve regional mobility through
transportation initiatives.
• Promote the continued
development of recreational
opportunities.
• Systematically invest in public
infrastructure.
• Achieve operational excellence in
City government services.
• Signify City of Allen's identity
through beautification efforts.
• Ensure good fiscal management.
Individual departments develop their goals
and objectives in terms of these all-
encompassing organizational goals.
Strategic Financial Plan — An appropriate
financial plan for the City of Allen requires
many elements all working in concert with
one another. Current expectations are for
modest sales tax revenue growth, potential
reductions of state revenue sharing, and
additional demands for "essential' City
services such as police, fire, water, sewer,
drainage and street improvement. The
Finance Department's management role will
be to maintain and enhance financial plan
elements and ensure the continued financial
stability for the City of Allen.
Financial Resource Planning — Strategic
planning begins with determining the City's
fiscal capacity based upon long-term
financial forecasts of recurring available
revenues. Financial forecasts coupled with
financial trend analysis techniques and
careful reserve analysis will preserve the
fiscal well being of Allen. Strategic planning
is a critical element not only to meet long.
term financial stability goals but also to
determine City Council objectives that will
require special financial planning to achieve
success.
Strategic Capital
Improvement Program
Planning — The City of
Allen's Capital
Improvement Program
(CIP) is a mufti -year
financial plan for the
acquisition, expansion,
or rehabilitation of
infrastructure, capital
assets, or productive
capacity of City services.
The City's operating and
budgets are closely linked.
budget, project budgets are used as a guide
for project, debt and other related budget
planning. As such, future years are subject
to change; in addition, debt issuance for
many future projects is subject to voter
approval.
Throughout the year projects are monitored
and repriontized as needed. The City
utilizes the project accounting and budgeting
components of the financial software to
assist with the monitoring aspect of the
process. Monthly reports are provided to
Council to keep them informed of the status
of projects.
Debt Management — All debt issuances are
for the purposes of financing capital
infrastructure or long-lived costly assets.
Each debt issuance is evaluated against
multiple policies addressing: debt service as
a percent of operating expenditures, tax and
revenue bases for the repayment of debt,
the overall debt burden on the community,
statutory limitations and market factors
affecting tax-exempt interest costs. Sizing
of the City's Capital Improvement Program
based on debt capacity in conjunction with
conservatively estimated pay-as-you-go
revenues will help stabilize per capita debt
and lower annual debt service costs to the
City over the long-term.
To take advantage of
lower interest rates, in
June, 2004 the City
refunded $3,310,000 in
Water & Sewer Revenue
Bonds to obtain an
economic gain of
$81,420.
capital projects
Revenues for the capital budget come
primarily from bond sales, supplemented by
development fees and some current
revenues. The capital improvement program
unlike the operating budget is a five-year
plan and is reviewed and projects are
repriodtized on an ongoing basis. Although
not formally adopted as part of the annual
Cash Management
Policies and Practices
— The City of Allen's
investment policy is to
invest all City funds at the highest available
interest rate, assuring that all monies are
fully secured with emphasis on safety of
principal, liquidity, yield, diversification, and
public trust. State statutes authorize the
City to invest in U.S. Government
obligations, obligations of Texas and its
agencies and fully collateralized repurchase
agreements. The City utilizes a pooled cash
concept in order to invest greater amounts
of cash at one time and therefore receives
more favorable interest rates.
Insurance and Risk Management - The
City has a comprehensive risk management
program, including property, liability, safety,
workers' compensation, health, dental and
wellness. Administration of these functions
requires participation from the Human
Resources department, outside legal
counsel and consultants.
The City has established a self-insurance
plan for City employees and their covered
dependents for medical and dental care. A
third -party insurance company re -insured
the City for individual claims in excess of
$75,000. The City participates in the Texas
Municipal League Intergovernmental Risk
Pool (TMLIRP), which provides the City with
risk financing and loss prevention services.
TMLIRP carries the Citys general liability,
property and casualty insurance and
workers compensation. Each category of
coverage has a specific deductible per
occurrence. The Texas Tort Claims Act
limits the liability of a municipality to a
maximum of $250,000 for each person and
$500,000 for each occurrence for bodily
injury or death and $100,000 for each
occurrence or injury to or destruction of
property.
Allen has an aggressive
safety incentive program that
promotes employee safety
on the job and focuses on
risk control techniques
designed to minimize
accident -related losses. In
addition to the safety
Program's preventive
measure, claims are closely
monitored in order to
minimize the City's liability
exposure.
with generally accepted purchasing
procedures and legally mandated
procurement standards. The City has
contracted with DemandStar.com for the
maintenance of an automated vendor list
which categorizes each vendor by
commodity codes for the specific goods or
services offered by the vendor.
FISCAL YEAR 2004 HIGHLIGHTS
Fiscal 2003-2004 reflected a very
conservative approach to City operations
considering the country's economic
conditions while carefully balancing the
expansion of services and amenities that
define the special character of the City.
These programs and amenities will assist in
maintaining Allen as a "livable' community
for future generations. Key projects
completed during the year included:
. Historic Villaoe.desion onese. As
part of the redevelopment of the
Central Business District, this area
is designed to preserve some of
the City's significant structures.
. Celebration Park Phase 2
Additional baseball fields,
restrooms, concession building,
signage, parking and
trails. (Phase 1,
completed in fiscal
year 2003, included
approximately 80 to
85 percent of the
total 103 acres this
park will cover.)
Procurement Planning- Under the Finance
Department, the Purchasing division is
responsible for the procurement of items
required to operate and maintain the City.
This division assists all departments in
planning and maintaining the City's financial
health, by establishing a uniform procedure
for obtaining goods and services in an
effective and timely manner in accordance
• U. .75
Intersection
Landscaoina.
Joint project
between the City and TXDOT,
which includes material and
annual maintenance costs.
. Twin Creeks Drainage.
Correction of stone water flows to
reduce stream erosion.
• Ola Lift Station. Replacement
project.
'
• West Side Water Main. 36" and
• Allen Drive Phase I. McDermott
mains extending from Custer
Road Pump Station to Twin
Drive to new Library and Allen
Drive to Butler Drive.
Creeks Phase VIII and from Twin
Creeks Phase VI to Alma/Bel Air
• Performing Ars Complex. A
'
intersection.
regional performing arts center in
conjunction with the cities of
Plano, and Frisco.
•Construction and extension of
'
several roads. St. Mary Drive
• Neighborhood Preservation
Extension, Ash Drive to Cedar
Activities. Community
Drive; Coats Drive, Allen Drive to
Development Block Grant funding
'
Butler Drive
for improvements to specified
neighborhoods includes additional
street lighting, sidewalk
The City has numerous capital projects and
reconstruction, landscaping and
'
economic development initiatives underway
maintenance.
or in the planning stage that will increase the
City's property tax base, generate additional
. Senior Citizen Center. Design
revenues, and improve services in meeting
and construction of a 20,000
'
the needs of its citizens. Such initiatives
square foot facility at St. Mary and
include:
Cedar Drive.
• Main Library / Auditorium.
Construction of a 60,000 square -
foot facility for a library/auditorium
-
to replace the present library
facility, located on Allen Drive at
St. Mary Drive was completed in
February 2005.
_
- --'
Senior Citizen Center --'
• Adaptive re -use of former library.
Convert former library to municipal
court and county offices.
'
• Allen Station Park, Phase 2.
• Central Business District (CBD).
Design and construction of a teen
Redevelopment of the CBD in the
center, skate -park, hockey courts,
historic area of Allen surrounding
plaza, trails, orchard, parking and
Main Street; covering
pedestrian bridges.
approximately 200 acres will be
home to the City's new library, the
. Daysoring Nature Preserve.
'
Historic Village, and an expanded
Design and development of
Allen Station Park.
former camp vrith interpretive
center and day camp facilities.
• Civic Center Plaza. Plaza
'
landscape, public art, and water
• Construction and extension of
feature to be completed in Spring,
several roads. 6 -lanes from Allen
2005.
Heights to F.M. 2551 in
conjunction with the Texas
• Star Fountain Entry. Entry to
Department of Transportation
CBD at Allen Drive and
(TXDOT), Bethany Drive Far East
McDermott Drive and streetscape
Expansion, Allen Drive Phase II
'
from Main Street to the new
and Chaparral Road Extension.
Library/Auditorium.
Vii
• Traffic Signal Shoo. In-house
signal maintenance and
installation.
• Prestioe Elevated Storage.
Improves the rapacity and
pressure of the water system.
• Custer Road Pump Station and
Ground Storage. Expansion to
meet system demand.
• Sewer Main Replacement.
Replacement of deteriorated clay
pipe with PVC in various
locations.
w '•� A,
AWARDS AND ACKNOWLEDGEMENTS
The Government Finance Off !care
Association of the United States and
Canada (GFOA) awarded a Certificate of
Achievement for Excellence in Financial
Reporting to the City of Allen for Its
comprehensive annual financial report for
the fiscal year ended September 30, 2003.
This was the sixth consecutive year that the
government has achieved this prestigious
award. In order to be awarded a Certificate
of Achievement, a government must publish
an easily readable and efficiently organized
comprehensive annual financial report. This
report must satisfy both generally accepted
accounting principles and applicable legal
requirements.
A Certificate of Achievement is valid for a
period of one year only. We believe that our
current comprehensive annual financial
report continues to meet the Certificate of
Achievement Program's requirements, and
we are submitting it to the GFOA to
determine its eligibility for another certificate.
The City received numerous other awards
throughout the year. Among them were:
• Achievement for Excellence in
Procurement Award
• Certificate of Achievement for
Planning Excellence for 2004
• 2004 National Association of
Telecommunications Officers
and Advisors Award
• 2004 Texas Association of
Telecommunications Officers
and Advisors Award
• Keep Texas Beautiful
Excellence Award
• Linda B. Smith Memorial
Recycling Leadership Award
• 2004 Preservation Texas award
for "Old Stone Dam"
• Certificate of Appreciation for
National Drug Intelligence
Center continuing our support of
the National Drug Threat
Assessment
• Fire Department awarded grant
funds for homeland security
equipment and specialized
rescue training.
• Allen was proud to host a
parade to honor Allen's most
famous resident, Carly
Patterson, 2004 Olympic Gold
Metal Champion shown here
with the Mayor, Council
members and City Manager.
AcknowWaments
The preparation of this report on a timely
basis could not have been accomplished
without the efficient and dedicated services
Of the entire staff of the Finance
Department. Appreciation is expressed to
those employees and other City employees
throughout the organization, especially
Vivian Leverington and Dana Murray, Senior
Accountants, Trish Featherston, Budget
Analyst, Joyce Blankenship, Accountant and
Debbie Sumrow, Senior Administrative
Assistant, who were instrumental in the
successful completion of this report. These
individuals worked many hours and
exhibited extraordinary effort in ensuring the
accuracy and timeliness of this report, and
their contribution to this effort is greatly
appreciated.
We would also like to thank the City
Manager's office and the members of the
City Council for their interest and support in
planning and conducting the financial
operations of the City in a responsible and
progressive manner.
Acknowledgment is also given to the
representatives of Weaver and Tidwell,
L.L.P. for their invaluable assistance in
producing the final document.
Mayor and Allen City Council
Respectfully submitted,
' ev�z
ke JoanneStoehr
Director of Finance Assistant Finance Director
1
I
' ix
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Allen,
Texas
For its Comprehensive Annual
Financial Report
for the Fiscal Yew Ended
September 30, 2003
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Government Finance Officers
Association of the United States and Canada to
government units and public employee retirement
systems whose comprehensive annual financial
reports (CAFRs) achieve the highest
standards in government accounting
and financial reporting.
� mPresident
6 Executive Director
CS
City of Allen
Organizational Chart
Citizens of Allen
City Council
Boards and Commissions I
...................................................e
Building and Code Compliance
Fire
Human Resources
Parks and Recreation
Golf Course
Planning and Developmi
xi
011
FFF CITY OF ALLEN, TEXAS
CITY OFFICIALS
CITY OF ALLEN
Council Members
Mayor Stephen Terrell
Mayor Pro Tem, Place 5 Kenneth Fulk
Place 1 Council Member Debbie Stout
Place 2 Council Member Ross Obermeyer
Place 3 Council Member Mark Pacheco
Place 4 Council Member Susan Bartlemay
Place 6 Council Member Jeff McGregor
Management Staff
City Manager Peter H. Vargas
Finance Director Kevin Hammeke
Assistant Finance Director Joanne Stoehr
011
' III
'
INDEPENDENT AUDITOR'S REPORT
WEAVER
TIDWELL
L.L P
CE11IE HER PDBLIC
NCCOE
AND CONSHSULTATTANT
Honorable Mayor and Members of
'
the City Council
CITY OF ALLEN, TEXAS
We have audited the accompanying financial statements of the governmental activities,
'
the business -type activities, the aggregate discreetly presented component units, each
major fund and the aggregate remaining fund information of the City of Allen (the "City')
as of and for the year ended September 30, 2004, which collectively comprise the City's
'
basic financial statements, as listed in the table of contents. These basic financial
statements are the responsibility of the City's management. Our responsibility is to
express an opinion on these basic financial statements based on our audit.
'
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we plan and perform the audit
'
to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
'
evaluating the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinions.
'
In our opinion the basic financial statements referred to above present fairly, in all material
respects, the financial position of the governmental activities, the business -type activities,
the aggregate discreetly presented component units, each major fund, and the aggregate
remaining fund information of the City of Allen at September 30, 2064, and the respective
'
changes in financial position and cash flows, where applicable, thereof, for the year then
ended in conformity with accounting principles generally accepted in the United States of
America.
The accompanying management's discussion and analysis and budgetary comparison
Th— I,,—, Ph—
information on pages 3 through 14 and 63 through 64, respectively, are not a required part
12221 ^m„ 11—
of the basic financial statements but are supplementary information
' 11111
ILIA,, r 1zlxo
required
by the
GASB.s,,,,
We have applied certain limitedprocedures, which consisted principally of inquiriesof
9' 0901910
management regarding the methods of measurement and presentation of the required
r 9, ]0] 1121
supplementary information. However, we did not audit the information and express no
opinion on it.
FORT WORTH
16111 wo, S—,D ,1—R
xnn
Fun WonA, leen -61112 '511
N1:1 :905
h HI J42 429 5936
ERE F
'
nx INDEPENDENT MEET,I
SANE RRTxLY
1
City of Allen, Texas
Page Two
Our audit was made for the purpose of forming opinions on the basic financial statements
taken as a whole. The introductory section, combining and individual major and non -major
fund financial statements and statistical tables listed in the table of contents are presented
for purposes of additional analysis and are not a required part of the basic financial
statements of the City. The combining and individual major and non -major fund financial
statements have been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated, in all material respects in relation
to the basic financial statements taken as a whole. The introductory section and statistical
tables have not been subjected to the auditing procedures applied in the audit of the basic
financial statements and, accordingly, we express no opinion on such data.
WEAVER AND TIDWELL, L.L.P.
Dallas, Tens
February 1, 2005
f[Y48
2
1
1
1
1
1 MANAGEMENT'S DISCUSSION
1 AND ANALYSIS
1
1
1
i
1
1
1
i
1
1
*0SPECT * INTEO i
Rr
CITY OF ALL"
1
1
1
1
CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
As management of the City of Allen, Texas, we offer readers of the City's financial statements
this narrative overview and analysis of the financial activities of the City for the fiscal year ended
September 30, 2004. We encourage readers to consider the information presented here in
conjunction with additional information that we have furnished in the letter of transmittal found
on pages i to ix of this report.
FINANCIAL HIGHLIGHTS
• The assets of the City exceeded its liabilities (net assets) at September 30, 2004
by $363,400,492. Of this amount, $43,601,475 may be used to meet the
government's ongoing obligations to citizens and creditors (unrestricted net
assets).
• The City's net assets increased by $10,678,843.
• The City's governmental funds reported combined ending fund balances of
$51,048,856 at September 30, 2004, an increase of $418,424 from the prior year.
The increase was largely due to county funds received for street construction
projects.
• Unreserved fund balance for the General Fund was $8,421,863 at year end or 28%
of total general fund expenditures for the reported fiscal year.
• The City's total non-current liabilities of $106,392,283 increased by $8,432,645.
• During the reported fiscal year $11,700,000 of General Obligation (GO) Bonds and
$6,710,000 in Water and Sewer Refunding and Improvement Revenue bonds were
sold.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the City's basic financial
statements. The City's basic financial statements are comprised of three components: 1)
government -wide financial statements, 2) fund financial statements and 3) notes to the financial
statements. This report also contains other supplementary information in addition to the basic
financial statements.
Government -wide financial statements - The government -wide financial statements are
designed to provide readers with a broad overview of the City's finances, in a manner similar to
that of a private -sector business.
The Statement of Net Assets presents information on all of the City's assets and liabilities, with
the difference between the two reported as net assets. Over time, increases or decreases in
net assets may serve as a useful indicator of whether the financial position of the City is
improving or deteriorating. To assess the overall health of the City, other non-financial factors
should also be taken into consideration, such as changes in the City's property tax base and the
condition of the City's infrastructure.
The Statement of Activities presents information showing how the City's net assets changed
during the fiscal year. All changes in net assets are reported when the underlying event giving
rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and
expenses are reported in this statement for some items that will only result in cash flows in
future fiscal periods (e.g. uncollected taxes and earned but unused compensated absences).
CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Both the Statement of Net Assets and the Statement of Activities are prepared utilizing the
accrual basis of accounting as opposed to the modified accrual basis used in prior reporting
models.
In the government -wide financial statements, pages 17 through 19, the City is divided into three
kinds of activities:
• Governmental activities - Most of the City's basic services are reported here,
including the police, fire, library, community development, parks and recreation,
municipal court, and general administration. Property and sales taxes, charges for
services, franchise fees, and state and federal grants finance most of these
activities.
• Business -type activities - The City's water, sewer, solid waste and drainage
operations are reported here. These are functions intended to recover all or a
significant portion of their costs through user fees and charges.
• Component units - The City includes two separate legal entities in this report- the
Allen Economic Development Corporation and the Community Development
Corporation. Although legally separate, these component units are important
because the City is financially accountable for them.
Fund financial statements - A fund is a grouping of related accounts used to maintain control
over resources that have been segregated for specific activities or objectives. The City, like
other state and local governments, uses fund accounting to ensure and demonstrate
compliance with finance -related legal requirements. All of the funds of the City can be divided
into two categories: governmental and proprietary.
Governmental Funds - These funds are used to account for the majority of the City's activities,
which are essentially the same functions as governmental activities in the government -wide
statements. However, unlike the government -wide financial statements, governmental fund
financial statements focus on near-term inflows and outflows of spendable resources, as well as
resources available for future spending at fiscal year end. These funds are reported using the
modified accrual basis of accounting, which measures cash and all other financial assets that
can be readily converted to cash. When compared with similar information in the broader
government -wide financial statements, readers may better understand the long-term impact of
the government's near-term financing decisions. Reconciliation is provided that details the
relationships or differences between governmental activities and governmental funds;
reconciliation follows the fund financial statements.
The City maintains several individual governmental funds. Information is presented separately
in the governmental fund balance sheet and in the governmental fund statement of revenues,
expenditures, and changes in fund balance for the General Fund, Debt Service Fund, Facilities
Agreement Fund, General Capital Projects Fund, Street Improvements Fund, Park
Improvements Fund, Library Fund and General Obligation Bond Fund all of which are
considered to be major funds. Data for the other governmental funds are combined into a
single, aggregated presentation. Individual fund data for each of the non -major governmental
funds is provided in the form of combining statements elsewhere in this report.
' CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITED)
' The basic governmental fund financial statements can be found on pages 20 through 26 of this
report.
' Proprietary Funds - The City maintains two different types of proprietary funds: enterprise
funds and internal service funds. Enterprise funds are used to report the same functions
presented as business -type activities in the government -wide financial statements. The City
' uses enterprise funds to account for its water and sewer operations, solid waste collection and
disposal services, and drainage operations. Internal service funds are an accounting device
used to accumulate and allocate costs internally among the City's various functions. The City
t uses its internal service funds to account for vehicle replacements and costs associated with
workers compensation, liability and property insurance and employee medical and dental
insurance programs. These services have been included within governmental activities in the
' government -wide financial statements as they predominantly benefit governmental rather than
business -type functions.
' Proprietary funds provide the same type of information as the government -wide financial
statements, only in more detail. The proprietary fund financial statements provide separate
information for the water and sewer operations, solid waste collection and disposal services
' since they are considered to be major funds of the City. The Drainage Fund is the only
remaining enterprise fund, so it is being presented as a major fund even though it does not meet
the criteria of a major fund established in Governmental Accounting Standards Board Statement
No. 34. All internal service funds are combined into a single aggregated presentation in the
' proprietary fund financial statements. Individual fund data for the internal service funds is
provided in the form of combining statements elsewhere in this report.
The basic proprietary fund financial statements can be found on pages 27 through 31 of this
report.
' Notes to the Financial Statements - The notes provide additional information that is essential
to a full understanding of the data provided in the government -wide and fund financial
statements. The notes to the financial statements can be found on pages 35 through 61 of this
' report.
Other Information - In addition to the basic financial statements and accompanying notes, this
report also presents required supplementary information highlighting budgetary information for
the General Fund found on pages 62 through 64 of this report.
The combining statements referred to earlier in connection with non -major governmental funds
' and internal service funds are presented following the required supplementary information.
Comparative schedules of capital assets used in the operation of governmental funds are found
on pages 105 through 108.
' GOVERNMENT -WIDE FINANCIAL ANALYSIS
As noted earlier, over time net assets may serve as a useful indicator of the financial position of
' a government. The assets of the City of Allen exceed the liabilities by $363,400,492 as of
September 30, 2004.
CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITED)
T.61.1
Net A.cels
Governmental ActivlOes Buslneee-"CBA fles 10
2004 2003 2004 2003 242 2993
Cuoentendotheresseet
6 0,294.257
04,59$584 $
17,505,797
14,485,457 $
83,711,822
79,059,041
Capital assets
325829077
307,047,535
74532209
78940.363
400181280
989999899
Thal Meets
991,923.334
971,841,119
92098000
91.411,820
483,873,102
483052938
Long -ten liabiliBet
89,834935
03,544,848
18,757,948
14,414,790
108,392,283
97,859,630
Other liabilities
10948268
9805107
3,819,291
2.768,485
14,168,559
12.371,652
Total Liablli5es
98983803
93150015
20577239
17,181,275
120500042
1101331129!1
Net Assets
Invested in Capital
aaeets, net d related
debt
258.382,043
2",859,181
00,714,331
82,682,202
319,130,374
307,521,383
Reethcled
862,643
23,048
082,643
23,040
Unrestn t
335,4688
39631.923
10023787
11545297
43,601,475
45177220
Total Net Aaeeb
E 291,939731
278,491,104 $
71.480,781
74,230.545 $
353,400,492
352,721.649
The largest portion of the City's net assets is its investment in capital assets: $400,161,280, (i.e.
land, buildings, infrastructure, vehicles, machinery, and equipment), less any related debt used
to acquire those assets that is still outstanding; see Table 1 above. The City uses these capital
assets to provide services to its citizens; consequently, they are not available for future
spending. Although the City reports its capital assets net of related debt, it should be noted that
the resources needed to repay this debt must be provided from other sources, since the capital
assets themselves cannot be used to liquidate these liabilities.
The restricted net asset amount of $662,643 represents resources that are subject to external
restrictions on how they may be used; the remaining balance of $43,601,475 may be used to
meet the government's ongoing obligations to citizens and creditors.
Analysis of the City's Operations - As of September 30, 2004, the City had an overall
increase in net assets for the government as a whole with an increase in the net assets of the
governmental activities that offsets the decrease in net assets for business -type activities.
Table 2, provides a summary of the City's operations for the year ended September 30, 2004.
Governmental activities increased the City's net assets by $13,448,627. Business -type
activities decreased the City's net assets by $2,769,784 due to self-financing of water and
sewer capital projects and operational transfers to the General Fund.
0
' CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITED)
1
Table 2
Changes In Net Aust
gindeminermilActlya
9usine.aNee
Activities
Istel
790_4
2003
2004
2003
20"
20_03
Revenues.
Pmgmm Revenues:
'
Charges tr servi,xn
$ 5,301,520
3,952,613
$ 20,721,816
19,300,503 $
28,023,336
23,258,116
Opening Imide and
contdbutiorm
82,913
1,181,048
829,913
1,181,048
Capital grant and
contribution.
8,018,005
5,343,]1]
2,139,123
1.874,803
11,155,200
7,318,520
General Revenue.:
Property taxes
25,15],]25
23,033,50
25,15],]25
23,033,583
Sale. tax
7,004,601
6,]40,2]0
7,084,601
6,]40,2]0
F2nchise taxes
3,880558
3,349.730
3,860,558
3,349,730
Hptl motel taxes
282,392
221,282
282,3W
221262
Othertaxes
1,58],3]8
1,428,274
1,517,378
1,428,2]4
Interest eammg.
1,271,209
1,148,016
92,984
205,505
1,444,173
1,354,521
'
Miscellaneous
1,1]64]3
800]4]
1,1]6,4]3
800.]4]
Totl Revenues
55.307.852
47.20.240
23,033,903
21,488811
]8.341.]55
8888]051
'
Exgenass:
General government
5,084,015
5,127,438
5,064045
5,127,438
'
Public satty
15,082,018
14,184,981
15,082,018
14,11 1
Public works
10,709,180
8,81],]90
10,709,100
0,61],]90
Cullum and recreation
10,305,972
7,868,118
10,805,972
7,088,110
'
Communitydevtlopment
1,52],010
1,475,116
1,527,010
1,475,116
Grant administration
34,381
340,030
341861
340,030
Ofher301,19]
301,197
'
Intrest on long-temdebt
4,327,605
4,284,053
4,327,605
4,284,053
Water and sewer
18,097,999
13,098,955
16,097,999
13,088,955
Enwmnme+tl waste
'
uivicea
3,370,034
3,052,961
3,370,834
3,054,981
Drainage
643,300
915.020
043.383
615020
'
Total Expense.
47,550,691
39,978721
20.112.221
16.736 9W
37.662.912
56.713657
Increase In net assets bMOR
"maxis
7,757,101
7,223,519
2,921,082
4,749,175
10,8]8,843
11,973,394
'
Tmn.fers
5,691486
5,854.264
(5,691,488)
(8654264)
Increau in net asset
17,"8,827
14,0]])83
(2,]0,]84)
(2,104389)
10,6711
11,973,394
Net assets, beginning of year
2]0.491104
284413321
74.230.545
76,334934
352]21.849
340,748.255
Net assets, and of year
E 281930,]31
2]8,491.101
$ 71,490761
74,230,545 E
363.400.492
352,]21,849
t
1
CITY OF ALLEN, TEXAS ,
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004 '
(UNAUDITED)
FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS '
Governmental Funds - The focus of the City of Allen's governmental funds is to provide '
information on near-term inflows, outflows and balances of spendable resources. Such
information is useful in assessing the City's financing requirements. In particular, unreserved
fund balance may serve as a useful measure of a government's net resources available for
spending at the end of the fiscal year. t
As of the end of the current fiscal year, the City's governmental funds reported combined fund
balances of $51,048,856. Approximately 87% or $44,446,274 constitutes unreserved fund '
balances, which are available for spending at the government's discretion. The remaining fund
balances are reserved to indicate that they are not available for new spending because the
funds have already been committed to pay for encumbrances ($5,056,612) and debt service '
($1,541,257) and to provide for prepaid items ($4,713). The following charts show the
governmental funds' sources of revenue and expenditure by percentage.
2
■ Nat bond proceeds
Governmental Funds
Sources of Revenue
■Franchise fees
,
■ galas taxes
■ ifNk
a Property taxes
■ 18%
'
a Services, tees Mines
o htergovernrrental &
■ 8%
Grants '
Nat transfers in & Other
❑3]% ■11
o 377%pm 11❑
0 Geis, interest, & A%c.
Governmental Funds
aGeneral governn,ent ,
Expenditures
■Public safety '
0 15ao 09-.
■ Public woft
■ 23%
• Culture & recreation
o Comrunity developrrent
o33%
■4%
'
a Capital outlay
1
■ 4%
u2%
• Debt service '
2
' CITY OF ALLEN, TEXAS
' MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITED)
General Fund and Buddetary Highlights - The General Fund is the chief operating fund of the
City. At September 30, 2004, the General Fund unreserved fund balance was $8,421,863 while
total fund balance reached $8,426,576. As a measure of the General Fund's liquidity, it may be
useful to compare both unreserved fund balance and total fund balance to total fund
expenditures. Unreserved fund balance represents 27.6% of total general fund expenditures,
while total fund balance represents 27.6% of that same amount.
Debt Service Fund - The Debt Service Fund has a fund balance of $1,541,257, all of which is
reserved for the payment of debt service. The net increase in fund balance during the current
' fiscal year was $163,587.
Special Revenue Fund - The Facilities Agreement Fund records the use of funds received from
' builders and developers on specific facility agreements. There was little activity this year as the
projects are still in development stages. The net increase in fund balance during the current
fiscal year was $103,238.
' General Capital Projects Fund - The Capital Project funds provide information on non -bonded
capital projects. These funds cover multi-year budgeted capital projects. The General Capital
t Projects fund balance increased by $3,487,167. This fund received $5,615,105 transferred from
other funds to finance capital expenditures.
acreet improvements, rant improvements uprary Fund and GO Bond Funds - These funds
' record the use of bond funds for capital projects. These funds collectively received $10,895,000
from the spring, 2004 GO bond sale. Fiscal year 2004 highlights can be found in the transmittal
letter starting on page vi.
' Other Governmental Funds - Special revenue funds that are legally restricted to expenditures
for specific purposes and capital project funds that do not qualify as major funds are aggregated
' here. One of those funds, Parks and Recreation Special Revenue Fund, records the City's
recreation services. Membership and user fees are insufficient to cover all expenses; therefore,
the General Fund transferred $1,125,000 to supplement citizens' recreation activities.
' Proprietary Funds - The City's proprietary funds provide the same type of information found in
the government -wide financial statements, but in more detail.
' Unrestricted net assets in the Water and Sewer Fund, the Solid Waste Fund, and the Drainage
Fund at the end of the current fiscal year amounted to $8,182,381, $930,508, and $628,622,
respectively. All three funds had a decrease in net assets totaling $2,945,800, a result of
' transfers to other funds. The Water and Sewer fund contributed $1,839,094 towards the
Prestige Water Tower, waterline replacements and other various water and sewer capital
projects.
' The 2003-2004 fiscal year represents the second year of the implementation of a water and
sewer rate study resulting in an overall rate increase of 6%. An increase in the City's cost to
' purchase water and wastewater treatment from North Texas Municipal Water District resulted in
an increase in rates to the customer. The rate structure continues to reflect the shift to
conservation water rates, which is a year-round inclined block rate system based on increasing
' charges for increasing water usage levels. The following two charts show the proprietary funds'
sources of revenue and expenditure by percentage.
CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Proprietary Funds
Revenue by Activity
06%
oIC
■4%
49%
■Watersales -�
■ Sewer charges
■ Serdce fees, Interest &
Msc.
❑ Solid waste
■ Drainage
oCapital contributions
■ Development fees ��II
i I
Proprietary Funds
■Personal seneces
Expenses by Activity
■ Contractual serdces
■ 22% 1111W.
o Supplies & Maintenance
■ 3%
■ Depreciation &
4
Arno rtlmtion
■ Interest E)yense&Other
■ 19%
''..
■ 43%
■ Transfers
02%
CAPITAL ASSETS
The City's investment in capital assets for its governmental and business -type activities as of
September 30, 2004, amounts to $400,161,280 (net of accumulated depreciation.) This
investment in capital assets includes land and their improvements, buildings, vehicles,
machinery and equipment, park land and facilities, roads and bridges. A 3% decrease in the
business -type activities investment in capital assets was related to disposals and transfers to
other funds. The increase in capital assets in the governmental activities is primarily attributed
to the completion of several street projects including East Exchange and Alma Drive.
ILLr,
' CITY OF ALLEN, TEXAS
' MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITEDI
tTable
3
Capital Assets at Yearend Nat of Accumulated Depreciation
'
Governmental Activities
Business -type
Activilias
Total
3004
302
3024
'Si
YQD4
2&03
'
Land s
61,662,118
57,215,397
s 622,643
822,643 s
62,484,762
$8,038,040
Buildings
32,777,620
33,625,797
32,777,620
33,625,797
Towers, tanks and pump
stations
69,624,454
73,980,157
69,624,454
73,980,157
'
Other Improvements
201,813,645
200,141,510
1,830,792
203,444,437
200,141,510
tVehicles
Furniture and fixtures
477,232
2,539,766
586,467
2,984,773
4,093
209,712
60,073
481,326
646,540
319,614
2,749,478
3,304,387
Machinery and
equipment
824,408
1,138,988
1,405,393
1,220,192
2,229,801
2,359,180
Construction in progress
25,534288
11,364,604
835.114
543.684
26,369402
11,898,288
Total s
325,629,077
307,047,536
$ 74,532,203
76,94!1,363 s
400,161,280
383,993,899
'
Major capital asset events during
the current
fiscal year included
the following:
' • Drainage projects were completed at a total cost of $252,944.
• Various water and sewer projects were completed at a total cost of $1,410,553;
water and sewer construction in progress at the dose of fiscal year amounted to
$835,114. Developers contributed water and sewer lines valued at $1,408,145.
• A variety of street construction projects in new residential developments and
widening of existing streets began; construction in progress at the end of the fiscal
' year reached $25,534,288.
• Land was purchased for current and eventual use in the amount of $1,059,452.
Developers contributed right of way valued at $3,403,558.
' • Public safety buildings and improvements were completed during the fiscal year at
a cost of $236,221.
• Construction work began on the new central library; a grand opening is scheduled
t for February, 2005.
• Park and recreation facilities and land improvements were completed during the
fiscal year at a cost of $290,029.
tAdditional information on the City's capital assets can be found in Note 4 on pages 45-49 of this
report.
' DEBT ADMINISTRATION
' At September 30, 2004, the City had long-term debt shown in Table 4 below. General
Obligation Bonds totaling $85,833,921 comprises debt backed by the full faith and credit of the
government, $16,775,000 represents bonds secured solely by water and sewer revenue, and
' $8,475,000 represents bonds secured by 4A and 4B sales tax revenue.
I
11
CITY OF ALLEN, TEXAS
'
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
'
(I1NAUDITEDI
LmnlosnwW Ab. 1,585382 1,620,293 85053 B5.B29 1950,4.G 1,708.121
.... Pryeme B0.33d 200.261 - 00334 205254
ReNMin, - 191.591 191,55 -
AmeW b,lereet8
Dlewnee 1"690 1696748 110552) 1188030 2134146 1700,7.
Tole) Deter Long Term
Debt 3,800 44 4300921 110521 (110210 578634 3703382 4789351
Tow f Kgg.4335 83.5"848 W767 .8 14.414783 SAM= 9453634 6 1H,N7M 100413212
The 2003 contractual obligation pertains to an agreement between the City of Allen, the 4A and
4B component units and a developer for the construction of Stacy Road; that obligation was
satisfied prior to fiscal year end 2004. The remaining other long-term debt relates to capital
leases, compensating absences, interest, discounts and leases payable.
Governmental activities' total debt increased by 7.29%, business -type activities' debt increased
by 16.26% and component unit's debt decreased by 10.35%. The City had authorized but un-
issued direct general obligation bonds totaling $20,285,000 at fiscal year end. The City's
indebtedness increased $7,454,011 during the fiscal year. The increase was primarily due to
the following:
• The City issued $11,700,000 General Obligation Bonds to be used to pay for capital
improvement projects including street and drainage improvements, park and recreation
projects, a senior citizens center and a performing arts center.
• The City issued $6,710,000 Water and Sewer Refunding and Improvement Revenue
Bonds of which $3,400,000 is to be used to pay for improvements and extensions to the
water and sewer system and $3,310,000 to advance refund outstanding bonds resulting
in obtaining an economic gain of $81,420.
The City's General Obligation Bond, Community Development Corporation's Sales Tax Bond
and Water and Sewer Revenue Bond ratings are listed in Table 5 below. The City's bonds are
insured thus holding a Triple A credit rating from both Moody's Investors Service and Standard
and Poor's. Additional information on the City's long-term debt can be found in Note 5.
12
able a
Ogd..rn ln9... a ren..na
Bonds end Other Long Term Debi
mm,m MWb.d Busn...".''lbe.
component Unit
Togs
�qm
2� 1441 2Al
200e
iaa
2ffiS
�1
Gress BonMa Dem
'
General obupbon
Bonds S
85833,921
79,243,921
f
&5,833,821
79.243,01
Rewnm Banda P.,do.
10,775,600 14,525,030
18,775,000
14,525.000
Use Tu Revenue
Byye
84750.03
8875,=
847540
8.875400
'
TOW G,ou Bended
Dem
&5.021
79.243,921 18775003 1405,M
8475.003
8,875030
111083921
102.00.1921
OMer Laq-Tnm DeM
CaM¢mai Dmi9Non
-
678.M
-
578,634
-
1,157,287
'
LmnlosnwW Ab. 1,585382 1,620,293 85053 B5.B29 1950,4.G 1,708.121
.... Pryeme B0.33d 200.261 - 00334 205254
ReNMin, - 191.591 191,55 -
AmeW b,lereet8
Dlewnee 1"690 1696748 110552) 1188030 2134146 1700,7.
Tole) Deter Long Term
Debt 3,800 44 4300921 110521 (110210 578634 3703382 4789351
Tow f Kgg.4335 83.5"848 W767 .8 14.414783 SAM= 9453634 6 1H,N7M 100413212
The 2003 contractual obligation pertains to an agreement between the City of Allen, the 4A and
4B component units and a developer for the construction of Stacy Road; that obligation was
satisfied prior to fiscal year end 2004. The remaining other long-term debt relates to capital
leases, compensating absences, interest, discounts and leases payable.
Governmental activities' total debt increased by 7.29%, business -type activities' debt increased
by 16.26% and component unit's debt decreased by 10.35%. The City had authorized but un-
issued direct general obligation bonds totaling $20,285,000 at fiscal year end. The City's
indebtedness increased $7,454,011 during the fiscal year. The increase was primarily due to
the following:
• The City issued $11,700,000 General Obligation Bonds to be used to pay for capital
improvement projects including street and drainage improvements, park and recreation
projects, a senior citizens center and a performing arts center.
• The City issued $6,710,000 Water and Sewer Refunding and Improvement Revenue
Bonds of which $3,400,000 is to be used to pay for improvements and extensions to the
water and sewer system and $3,310,000 to advance refund outstanding bonds resulting
in obtaining an economic gain of $81,420.
The City's General Obligation Bond, Community Development Corporation's Sales Tax Bond
and Water and Sewer Revenue Bond ratings are listed in Table 5 below. The City's bonds are
insured thus holding a Triple A credit rating from both Moody's Investors Service and Standard
and Poor's. Additional information on the City's long-term debt can be found in Note 5.
12
CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(UNAUDITED)
' General Obligation Bonds
Revenue Bonds
Table 5
Bond Ratings
Moody's Investors
Service
Aa3
A3
Standard & Poor's
AA-
A+
' ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES
The slow down in the economy continued to affect the City's sales tax receipts. Sales tax growth
for 2003-2004 was 4.8% above the previous year. A growth rate of 7.5% had originally been
budgeted for sales tax. Sales tax for fiscal year 2004-2005 was projected to increase
approximately 10% above the revised 2003-2004 budget, due to the additional commercial
development that was anticipated. However, this development is delayed approximately one
year, and so the estimate will be revised downward.
Revenue was also down for commercial and multi -family building permits and franchise fees;
however, property valuations continued to increase since residential construction continued to
be strong due to low mortgage interest rates that make housing affordable. The City saw an
' increase of about 9% in the total assessed value for the 2004 budget. For the 2004-2005
budget, the total valuation increased by 7.9% to $4.78 billion. The City issued 1,075 single
family building permits; it's population increased by approximately 3,500 residents during the
year. The City anticipates issuing approximately 1,400 single family building permits in the
coming year.
The City's property tax rate was reduced to $.561 per $100 valuation for the 2003-2004 budget
' and was reduced to $.560 per $100 valuation for fiscal year 2004-2005. The City has reduced
its tax rate for the twelfth straight year. The portion of the tax rate contributed to debt service
was 35.96%, keeping within the City's policy of maintaining the proportion below 40%.
The City's financial policy requires 60 days reserve for General Fund operational expenses. The
2003-2004 reserve was approximately 93 days, and the projected 2004-2005 budget reflects a
reserve of approximately 81 days.
Although there was a slow down in the economy, the City continued with capital improvement
' projects being funded from several sources. The City issued $11.7 million of GO bonds for
various projects. The City has issued $65.715 million of the $86 million authorized by election.
During fiscal year 2005, the City plans to take advantage of lower interest rates by refunding
bonds valued at $32.17 million.
Even with the additional debt, the tax rate for Debt Service is expected to remain constant for
the next few years as valuation increases help generate additional property taxes dedicated to
' Debt Service. Cash financing from the General Fund for Capital Improvement Program (CIP)
projects totaled $901,240 in 2003-2004. This amount represented year end available resources
that were unrestricted or unallocated for other purposes. The 20042005 Budget contains
' General Fund cash financing for one project; however, 'If unallocated resources are available at
year end, the City may direct funds to CIP projects that need additional funding.
13
CITY OF ALLEN, TEXAS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
An overall rate increase of 6% was implemented for water and sewer in 2003-2004. The long
range plan expects annual 6% increases to continue in the future as 1) North Texas Municipal
Water District (NTMWD) proceeds with their water and sewer capital expansion plans and 2) the
City implements conservation water rates. The City cash financed CIP water and sewer
projects of approximately $1.839 million in 2003-2004 and anticipates $1.35 million cash
financing in fiscal year 2005. Cash financing of water and sewer projects has reduced working
capital; however, the City will meet bond coverage requirements necessary to maintain a
working capital minimum of 1.2 times the annual debt service obligation.
In fiscal year 2003-2004, the City issued $6,710,000 in Water and Sewer Revenue Refunding
and Improvement bonds. The refunding portion was $3,310,000 and the new improvement
portion of $3,400,000 was for the Prestige Circle water tower and the Westside waterline. A
Water and Sewer revenue bond issue of $4,250,000 is planned in fiscal year 2004-2005 for the
Custer Road Pump Station.
North Texas Municipal Water District provides landfill services for several cities including the
City of Allen. NTMWD is in the process of constructing a new landfill on Highway 121 in
Melissa. Disposal costs are expected to increase at the new landfill in the future. Future rate
increases will be associated with disposal costs relative to the McKinney landfill. The City's $.33
monthly increase in solid waste fees in 20032004 contributed to a successful Household
Hazardous Waste program partnership with the City of Plano.
The 2004-2005 fiscal year budget provides for a maximum 4% merit increase for its employees
based upon performance; however, the budget was prepared with an average merit increase of
3% for non-public safety employees and 4% for public safety employees on a step pay grade
system.
Request for Information
The financial report is designed to provide our citizens, customers, investors, and creditors with
a general overview of the City's finances. If you have questions about this report or need any
additional information, contact the Finance Department at 305 Century Parkway, Allen, Texas,
75013, or call (214)509-4626.
14
BASIC FINANCIAL STATEMENTS
15
a*Sp ECT * INTFG
f
A
m
k
n
m
CITY OF A%-Ut'
16
'
CITY OF ALLEN, TEXAS
EXHIBIT 1
STATEMENT OF NET ASSETS
'
AS OF SEPTEMBER 30, 2004
PRIMARY GOVERNMENT
GOVERNMENTAL
BUSINESS -TYPE
COMPONENT
ACTIVITIES
ACTIVITIES
TOTAL
UNITS
'
ASSETS
Cash and wsh equivalents $
32,734,119
S 4,725,629 S
37,459,748 S
7,314,474
Investments
31,127,596
5,975,346
37,102,942
1,050,000
'
Receivables (net of allowance for uncollectibles)
2,602,509
2,906,362
5,508,871
1,284,450
Internal balances
(282,276)
282,276
Prepaid and other assets
4,713
4,713
Inventories
85,069
85,069
'
Restricted cash and cash equivalents
3,400,883
3,400,883
Capital assets:
Non -depreciable
87,196,406
1,657,757
88,854,163
4,968,568
Depreciable (net of depreciation)
238,432,671
72,874,446
311,307,117
2,140,787
'
Deferred charges
107,598
130,232
237,828
'
TOTALASSETS
391,923,334
92,038,000
483,961,334
16,758,279
LIABILITIES
Accounts payable
2,658,834
2,284,578
4,943,412
607,491
Accrued liabilities
1,781,506
136,473
1,917,979
8,287
Accrued interest payable
454,731
265,383
720,114
35,252
Utility deposits
1,132,857
1,132,857
Deferred revenue
4,572,906
4,572,906
'
Retainage payable
881,291
881,291
79,268
Non-current liabilities:
Due within one year
6,270,293
1,373,882
7,644,155
420,000
'
Due in mare than one year
83,364,042
15,384,086
98,748,128
81055,000
TOTAL LIABILITIES
99,983,603
20,577,239
120,560,842
9,205,298
NET ASSETS
'
Invested in wpdal assets (net of related debt)
258,362,043
60,774,331
319,136,374
(1,365,645)
Restricted for.
Debt service
662,643
662,643
Unrestricted
33,577,688
10,023,787
43,601,475
8,918,628
TOTAL NET ASSETS $
291,939,731
$ 71,480,781 $
363,400,492 $
7,552,981
'
The Notes to Financial Statements
are an integral part of this statement,
'
17
CITY OF ALLEN, TEXAS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED SEPTEMBER 30 2004
Program Revenues
Charges for
Operating Grants
Capital Grants
Expenses
Services
and Contributions
and Contributions
Functions/Program Activities
PRIMARY GOVERNMENT:
Governmental Activities:
General government
$ 5,064,045 $
95,368
§
$
Public safety
15,082,018
657,601
358,000
9,016,085
Public works
10,709,180
268,680
Culture and recreation
10,805,972
1,912,010
285,179
Community development
1,527,010
2,367,861
186,734
Grants administration
34.861
Interest on long-term debt
4,327,605
Total governmental activities
47.550,691
6,301,520
829.913
9.016,085
Business -type Activities:
16,097,999
16,565,544
2,139,123
Water and sewer
Environmental waste services
3,370,834
3,289,839
Drainage
643,388
866,433
Total business -type activities
20,112,221
20.721.816
2139.123
TOTAL PRIMARY GOVERNMENT
$ 67.662.912 E
26.023.336
$ 829,913
$ 11.155.208
COMPONENT UNITS:
$
$
Allen Economic Development Corporation
$ 1,738,853 $
Allen Community Development Corporation
2,896,831
TOTAL COMPONENT UNITS
$ 4.635.684 $
$
$
The Notes to Financial Statements
are an integral part of this statement.
General revenues:
Taxes:
Property taxes, levied for general purposes
Sales taxes
Franchise lazes
Hotel/motel taxes
Othertaxes
Interest on investments
Miscellaneous
Transfers
Total general revenues and transfers
CHANGE IN NET ASSETS
NET ASSETS, beginning of year
NET ASSETS, end of year
18
EXHIBIT 2
Not (Expense) Revenue and
Changes in Net Assets
Primary Government
Governmental Business - Type COMPONENT
Ac9vities Activities TOTAL UNITS
$ (4,968,677) $
$ (4,968,677) $
(14,066,417)
(14,066,417)
(1,424,415)
(1,424,415)
(8,608,783)
(8,608,783)
1,027,585
1,027,585
(34,861)
(34,861)
(4,327.605)
(4,327,605)
(32,403,173) (32,403,173)
2,606,668
2,606,668
(80,995)
(80,995)
223.045
223.045
2,748,718
2,748.718
$ (32.403.173) $ 2.748.718 $ (29.654.455) $
$ E $ $ (1,738,853)
(2,896,831)
$ $ E $ (4.635.664)
$ 25,157,725
$ $
25,157,725 $
7,064,601
7,064,601
7,064,601
3,660,556
3,660,556
262,392
262,392
1,567,378
1,667,378
1,271,209
172,964
1,444,173
137,289
1,176,473
1,176,473
184,080
5.691,466
(5,691,466)
45,851,800
(5,518.502)
40,333,298
7.385,970
13,448,627
(2,769,784)
10,678,843
2,750,286
278,491,104
74,230.545
352,721,649
4.802,695
$ 291.939.731
$ 71.460.761 $.
363.400.492 $
7.552.981
19
CIN OF ALLEN, TEXAS
BALANCE SHEET
GOVERNMENTALFUNDS
SEPTEMBER 30, 2004
The Notes to Financial Statements
are an integral part of this statement,
20
GENERAL
DEBT
FACILITIES
CAPITAL
GENERAL
SERVICE
AGREEMENT
PROJECTS
ASSETS
Cash and cash equivalents
It
2,841,150 $
147,139 $
2,779,495
$
9,951,632
Investments
6,265,000
1,381
3,991,923
7,030.673
Receivables, net of allowances for
unwlkc5bles:
Ad valorem taxes
201,622
112,461
Sales taxes
1.277,546
Accounts receivable
Accrued interest
27,492
7,613
12,722
22,406
Other
801.506
1,505
Special assessments
208,798
Due ft. other funds
1.000.000
Prepaid items
4,713
TOTAL ASSETS
$
11,219,029 It
1,653,718 $
6,784,140
$
18,213,507
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable
$
1,180,470 $
$
5
107.927
Accrued liabilities
910,361
385,915
Retainage payable
76,504
Due to other funds
500,000
Defamed! revenue
201,622
112.461
4,564,035
TOTAL LIABILITIES
2,792,453
112,461
4,564.035
570,346
FUND BALANCES
Reserved far.
Encumbrances
90,811
Prepaid hems
4,713
Debt service
1.541,257
Unreserved reported in:
General NM
8,421,863
Facilities agreement
2,129,294
Street improvements
Park improvements
Library fund
General obligation bond fual
Speual revenue funds
Capital projects funds
17,643,161
TOTAL FUND BALANCES
8,426,576
1,541257
2,220,105
17,643,161
TOTAL LIABILITIES AND FUND BALANCES
$
11,219,029 $
1,653.716E
6784,140
S
16,213,50]
The Notes to Financial Statements
are an integral part of this statement,
20
M4.11:1W
314,083
1,277,546
1,980 54,849 58,829
6,374 15,294 15,934 107,835
603,011
208,796
1,000,000
4,713
$ _085 668 $ 5,599,945 $ 2,869,292 $ 6,391,525 $ 1,633,501 S __S1750,325
$ 269,884 $ 455,055 $ 407,270 $ E 155,693 $ 2,576,299
00,614 1,356,890
77,341 207,942 515,854 3,650 881,291
500,000 1,000,000
8,871 4,886,989
W,225 662,997 923,124 728,828 10.701,469
1,016,872
1,215,557
1,822,719
GENERAL
OTHER
TOTAL
STREET
PARK
LIBRARY
OBLIGATION
GOVERNMENTAL
GOVERNMENTAL
IMPROVEMENTS
IMPROVEMENTS
FUND
BOND
FUNDS
FUNDS
8,421,863
$ 2,379,294 $
2,227,671 $
2,869,292 S
1,375,591
S 4,578,662
$ 29.149,916
2,000,000
3,355,000
5,000,000
29,027,596
314,083
1,277,546
1,980 54,849 58,829
6,374 15,294 15,934 107,835
603,011
208,796
1,000,000
4,713
$ _085 668 $ 5,599,945 $ 2,869,292 $ 6,391,525 $ 1,633,501 S __S1750,325
$ 269,884 $ 455,055 $ 407,270 $ E 155,693 $ 2,576,299
00,614 1,356,890
77,341 207,942 515,854 3,650 881,291
500,000 1,000,000
8,871 4,886,989
W,225 662,997 923,124 728,828 10.701,469
1,016,872
1,215,557
1,822,719
910,653
5,056,612
4,713
1,561,257
8,421,863
2,129,294
3,021,571
3,021,571
3,721,391
3,721,391
123,"9
123,449
6,391,525
6.391,525
2,668,122
2,668,122
325,898
17,969,059
4,038,"3
4,936948
1,946168
6,391,525
3,904,673
51,048,866
S 4,385,668E __S599$
2,Bfi9,292 $_6391,525E
4,633,501 $ __B1750
21
CITY OF ALLEN, TEXAS
RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS
TO THE STATEMENT OF NET ASSETS
SEPTEMBER 30, 2004
I
EXHIBIT 4 ad
Total fund balances - governmental funds
$ 51,048,856
Amounts reported for governmental activities in the statement of net assets
are different because:
Capital assets used in governmental activities are not current financial resources
and therefore are not reported in the governmental funds balance sheet.
325,629,077
Costs associated with the issuance of governmental long term debt are expensed
when incurred in the fund statements and capitalized and amortized over the
life of the debt in the government -wide financial statements.
107,596
Interest payable on long term debt does not require current financial resources,
therefore interest payable is not reported as a liability in the governmental
funds balance sheet.
(454,731)
Internal service funds are used by management to charge the cost of certain
activities, such as insurance and fleet management, to individual funds. The
assets and liabilities of the internal service funds are net of the amount allocated
to business -type activities ($282,276) and capital assets ($1,025,168).
4,929,185
Revenues earned but not available within sixty days of the year end are not
recognized as revenue on the fund financial statements.
314,083
Long-term liabilities, including bonds payable are not due and payable in the
current period and therefore are not reported in the fund financial statements.
(89,634,335)
Net assets of governmental activities
$ 291,939,731
The Notes to Financial Statements
are an integral part of this statement. 22
* VeSVEcr ♦ 1NTFCR
it
m
A
m
k
A
'A
CITY OF P``E�
23
CITY OF ALLEN, TEXAS ,
STATEMENT OF REVENUES, FXPENDITU RES AND
CHANGES IN FUND BALANCES '
GOVERNMENTALFUNDS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
The Notes to Financial Statements
are an Integral part of INS statement 24
GENERAL
DEBT
FACILITIES
'
CAPITAL
GENERAL
SERVICE
AGREEMENT
PROJECTS
REVENUES
Ad valorem lazes, penalties and interest
$ 16,058,364 $
9,023,530 $
$
Franchise taxes
3,620,703
,
Municipal sales IM
7,064,601
Licenses, permits and fees
1,334,767
818,873
Charges for services
1,254,012
Fines
1'42,473
069
186.734
120,000
'
Gifts and contributions
Hotel / motel texas
Recreation fees
2,030,971
,
Intergwemmental
252,841
60.423
103,238
317,018
Interest earned
691.736
Miscellaneous
37 619,586
9103,953
289,972
3,376,491
'
Total revenues
EXPENDITURES
Current
5,203,277
323,635
General government
14.692.587
'
Public safety
2•m' 589
Public vrodts
5,487,172
Culture and recreation
1,559.050
Community development
186,734
5,179,894
Capital outlay
Debt service:
m
Principal rameent
587,209
5,110,000
Interest and fiscal charges
147.107
3.830,366
'
30.453,651
8,940,366
186.734
5.503,429
Total expenditures
Excess (deficiency) of revenues'
1365 935
183,587
103.238
(2.127938)
over (under) expenditures
OTHER FINANCING SOURCES (USES)
Proceeds from sale of bands
5,615,105
Transfers from otor finds
2,214,073
'
Transfers to otter funds
(2.555.719)
Total other financing sources (uses)
(371.646)
5615,105
NET CHANGE IN FUND BALANCES
994,269
163,587
103,236
'
3,487,167
FUND BALANCES, BEGINNING OF YEAR
7432.287
1377.670
2116'867
14'155994
FUND BALANCES, END OF YEAR
$ 8,426.576 $
1,541.257
$ 2.220.105
'
$ 17.643.161
The Notes to Financial Statements
are an Integral part of INS statement 24
fl
1
1
EXHIBIT 5
25
GENERAL
OTHER
TOTAL
STREET
PARK
LIBRARY
OBLIGATION
GOVERNMENTAL
GOVERNMENTAL
IMPROVEMENTS
IMPROVEMENTS
FUND
BOND
FUNDS
FUNDS
S $
$
$
$ $
25,081,914
39,853
3,660,556
7,064,601
159,315
1,494,082
2,072,885
96,905
1,567,378
63,327
442,130
262,392
262,392
1,734,553
1,734,553
507,783
2,538,754
118,312
125,169
79,728
31,294
57,958
1,165,979
364,366
1,164,731
118,312
125,169
79,728
31,294
3,306,450
48249,955
26,269
89,209
5,642,290
489,887
15,182,134
13.773
25,876
2,817,238
14,827
3,584,649
9,086,648
4,046
1,563,096
4,648,150
4,474,390
5,302,416
1,465,325
21,256,909
5,697,209
3,977,473
4,661,923
4,489217
5,302,416
26,269
5,658,992
65,222,997
(4,543,611)
(4,364,048)
(5,222,688)
5,025
(2,352,542)
(16,973,042)
2,549,500
1,559,000
6,786,500
805,000
11,700,000
1,839,479
9,668,657
(54,000)
(400,000)
(937,472)
(3,977,191)
2,549,500
1,50.5,000
6,386,500
1,707,007
17,391,466
(1,994,111)
(2,859,048)
(5,222,688)
6,391,525
(545,535)
418,424
6,032,554
7,795,996
7,168,856
4.550,208
50,630,432
$ 4,038,443 $
4,936,948
$ 1,946,168
6,391,525
$ 3,904,673 $
51,048,856
25
CITY OF ALLEN, TEXAS
RECONCILIATION OF THE STATEMENT OF REVENUES,
EXPENDITURES AND CHANGES IN FUND BALANCES OF
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
YEAR ENDED SEPTEMBER 30, 2004
EXHIBIT 6
Net change in fund balances -total governmental funds
$ 418,424
Amounts reported for governmental activities in the statement of activities
are different because:
Governmental funds report Capital outlays as expenditures. However,
677,664
in the statement of activities the cost of those assets is allocated over
their estimated useful lives and reported as depreciation expense. This is
the amount of capital assets recorded in the current period.
23,856,842
Governmental funds do not recognize assets contributed by developers. However,
in the statement of activities the fair market value of those assets is
(247,950)
recognized as revenue, then allocated over their estimated useful lives and
reported as depreciation expense.
6,865,114
Depreciation expense on Capital assets is reported in the statement of activities but
75.811
does not require the use of current financial resources. Therefore, depreciation
$ 13,448,627
expense is not reported as expenditures in the governmental funds.
(12,262,035)
The proceeds from issuance of long -ten debt (e.g. bonds) provides current financial
resources to governmental funds ($11,700,000), while the repayment of the principal of
long-term debt Consumes the current financial resources of governmental funds
($ 5,812,129). Neither transaction, however, has any effect on net assets.
Also, governmental funds report the effect of issuance Costs, premiums, discounts,
and similar items when debt is first issued, whereas the amounts are deferred and
amortized in the statement of achvifies ($35,665). This amount is the net effect of these
differences in the treatment of long-term debt and related items.
(5,852,206)
Current year changes in long-term liability for Compensated absences do not require
the use of current financial resources; therefore, are not reported as expenditures
in governmental funds.
54,910
Cuff ant year changes in accrued interest payable do not require the use of current
financial resources; therefore, are not reported as expenditures in governmental funds.
(137,847)
Internal service funds are used by management to charge the Costs of Certain
activities, such as insurance and fleet management, to individual funds. The
net revenue of the internal service funds is reported with governmental activities
net of amount allocated to businesstype activities.
677,664
Current year accretion on capital appreciation bonds is not refiected in the fund financial
statements, but is shown as an increase in the accreted interest on the government -wide
financial statements. Payments of accreted interest on Capital appreciation bonds are
expenditures in the fund financial statements, but are shown as reductions in long-term
debt in the government -wide financial statements.
(247,950)
Certain revenues in the government -wide statement of activities that do not
provide current financial resources are not reported as revenue in the
governmental funds.
75.811
Change in net assets of governmental activities
$ 13,448,627
The Notes to Financial Statements
are an integral part of this statement. 26
I
I ' CITY OF ALLEN, TEXAS
STATEMENT OF NET AB
EXHIBIT 7
The Notes to Financial Statements
are an integral pan of this statement.
27
BUSINESS -TYPE ACTIVITIES
ENTERPRISE FUNDS
GOVERNMENTAL
WATER AND
SOLIDINTERNAL
SERVICE ACTIVITIES
ASSETS
SEWER
WASTE
DRAINAGE
TOTAL
FUNDS
CURRENTASSETS
Cash est cash spuivalenls
ImoaVnents
S 3,10.5,857 $
988,803 $
613,169
$ 4,725,828
E 3,584,203
Receivables, wt of allowance for uncollectlblas:
5,975,348
5,875,346
2,100,000
Accounts
Accinterest
rued
2,572,331
136,278
39.650
2,748.257
27,487
Ontorles
19the,,502
19,502
6,922
65.1)69
65,089
138,603
138.603
Restriestripetl cash and cash eq
equivalents
85,089
3.400.883
Total arrent assets
15.198988
1.241,462
652.819
17.083.289
5.718.812
CAPITALASSETS
Lan
Otherimprovemenis
822,843
822,813
M.6,13
Towers, tanks, and pump stations
98,183,493
498,132
32
Vehicles
acuipment
Machinerymeres
700,302M,448
115,179
98,183,493
859,929
2,157,525
FumiWre andfifixtu
1,738,559
8.187
9,819
373,734
2,120,112
284,807
D011siNttian in DrWrass
835.114
8,187
635.114
Total capital assets
102,288,298
54287
965,045
108305,610
2,442,132
Less: emrmulated depreciation
(28,495743) (20.137)
(257.527)
(28.773.407)
11.418.9641
Capital assets, net of eccumulatetl depreciation
M770.555
34.130
727.518
74.532203
1.025188
DEFERRED CHARGES
Unamortixed bond isswnce coals
an deNrred amount on re(unin9
130.232
130.232
TOTAL ASSETS
S 89.098.775 $
1.275812E
1.300337 $
91.755.724 S
8.743780
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
AccounN payable
Aci uliabilities
etl
$ 1,988,074 $
283,928 $
12.576 $
2.284578 $
82,535
Inanetl but not reporad claims
109,028
19,405
am
136,473
Payable from resbicled asset:
024818
Revenue bonds1
1.340000
Acauatl Interest payable
265,383
265,383
Utility deposits
1.132.857
1.132.857
Total cuaent liabllifisa
4.835.342
303.333
20.818
5.159.291
507.151
NON-CURRENT LIABILITIES
Revem»bonds amiable
15,332,895
15,332,895
Acci compensated absences
73.831
7.841 _
3.581
$5.053
Total rwnarrent liabllite
15.406728
7.841
3.551
15.417948
TOTAL LIABILITIES
$ 20.242.068 $
310.974 S
24.197 $
20.577,238 $
507.151
NET ASSETS
Invested in capital assets, net of related debt
84012,883
34,130
727,518
60,774,331
1,025,168
Restricted for revenue bon piinopel and interest
682,643
682843
Un�MCNtl
8.182.381
930.508
828.822
8.741.511
5.211481
TOTAL NET ASSETS
$ 68857.707 $
984.638 $
1,356.100 S_
71.178.465E
8.238.829
The Notes to Financial Statements
are an integral pan of this statement.
27
CITY OF ALLEN, TEXAS EXHIBIT 8
RECONCILIATION OF THE STATEMENT OF NET ASSETS
OF PROPRIETARY FUNDS TO THE
GOVERNMENT -WIDE STATEMENT OF NET ASSETS
AS OF SEPTEMBER 30, 2004
Amounts reported for business -type activities in the statement of net
assets are different because:
Total net assets per statement of net assets $ 71,178,485
Internal service funds are used by management to charge the costs of fleet
management, property liability loss, medical and dental insurance, and health claims
to individual funds.
The assets and liabilities of internal service funds are included in the governmental
activities in the government -wide statement of net assets. The amount shown
represents the net receivable from internal service funds allocated to business -type 282,276
activities since the adoption of GASB 34.
Total net assets of business -type activities $ 71,460,761
The Notes to Financial Statements
are an integral part of this statement.
I
'
' CITY OF ALLEN, TEXAS
STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET ASSETS
PROPRIETARY FUNDS
FOR THE YEAR ENDED SEPTEMBER 30.2004
EXHIBIT 9
BUSINESS -TYPE ACTIVITIES
ENTERPRISE FUNDS
GOVERNMENTAL
ACTIVITIES
WATER AND
SOLID
INTERNAL SERVICE
SEWER
WASTE
DRAINAGE
TOTAL
FUNDS
OPERATING REVENUES
Charges for sales and serdces:
'
Water sales
E 10,981,255
$
E
$ 10,981,255
$
Sewercharges
4,858,352
4,858,352
Connection teas
246,349
246,349
Garbage collections
3,288,339
3,288,339
'
Service charges
402,945
94,577
497,522
4,789,329
Drainage hes
771,866
771,856
Miscellaneous
76.643
1.500
78.143
50,892
' Total operating revenues
16,565544
3.289.839
$66.433
20,721.816
4.840.221
OPERATING EXPENSES:
services
2,368,074
211,882
255,300
2,835,256
55,214
iPersonal
Contractual services
8,083,840
3,082,614
75,590
11,242,041
3,827,089
Maintenance
168,237
159,160
327,397
Supplies
122,100
6,136
12,252
140,487
Depredation and amortization
4,734,302
12,874
92,963
4,840,139
221,310
'
Other
66.671
57.329
48.123
172.123
Total operating expenses
15,543,224
3,370,834
643.388
19.557,446
4.103813
OPERATING INCOME (LOSS)
1.022,320
(60.995)
223,045
1,164 370
736.608
NON-OPERATING REVENUES (EXPENSES)
Interest income
157,904
9,362
5,698
172,964
105,230
Interest expanse
(730,791)
(730,791)
Gain on disposal of cep8al assets
'
Development fees
730.978
730.978
11,742
Total non-operating revenues
158.091
9,362
5,698
173.151
116.972
'
INCOME BEFORE CAPITAL CONTRIBUTIONS
AND TRANSFERS
1.180,411
(71.633)
228.743
1,337,521
853.680
CAPITAL CONTRIBUTIONS AND TRANSFERS
Capital contributions
Transfers from funds
1,408,145
1,408,145
other
13,644
13,644
Transfers to other funds
(5,399,866)
(51,972)
(253,272)
(5.705,110)
'
Total capital contributions and transfers
(3,978,077)
(51,972)
(253,272)
(4,283,321)
CHANGE IN NET ASSETS
(2,797,666)
(123,605)
(24,529)
(2,945,800)
653,580
'
NET ASSETS, BEGINNING OF YEAR
71.655,373
1.088,243
1,380.669
74,124.285
5.383,049
NET ASSETS, END OF YEAR $
68.857,707
$ 964.638 $_
1,358,140 E
71,178.485
$ 6236.629
' The Notes to Financial Statements
are an integral part of this statement.
29
CITY OF ALLEN, TEXAS EXHIBIT 10
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET ASSETS OF PROPRIETARY FUNDS
TO THE STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Amounts reported for business -type activities in the statement of activities
are different because:
Net change in fund net assets- total proprietary funds $ (2,945,800)
Internal service funds are used by management to charge the costs of fleet
management, property liability loss, medical and dental insurance, and health claims
to individual funds.
The net expenses of certain activities of internal service funds is allocated to 176,016
business -type activities.
Change in net assets of business -type activities $ (2,769'784)
The Notes to Financial Statements
are an integral part of this statement.
30
'
CITY OF ALLEN, TEXAS
ENTERPRISE FUNDS
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
EXHIBIT 11
BUSINESS -TYPE AS
ENTERPRISE FUNDS
GOVERNMENTAL
ACTIVITIES
WATER AND
SOLID
INTERNALNAL SERVICE
SEWER
WASTE
DRAINAGE
TOTAL
FUNDS
CASH FLOWS FROM OPERATING ACTIVITIES
Cash rewivad I. amernio
S 18,448.941 S 4,596,028 i BM,MB S 20.814,388 3
Cash t ee Imm with other hands
4,832,441
Paid esda or8oes
CeshwiditamployeesMwlss
(2,8]0,894)
(210,012)
(255,123)
(2,895,032)
(68,494)
'
Cmeh Paid far ndwrtow
(],883,582)
(9.OID,818)
(95,168)
(11,195,08)
(4,222,454)
Cesh pttl IIX alma
claims
(184.054)
Net wM p.. by oPartin9 acuumsee
8.193.615
273.498
315.38,1
8.]82.39]
1057.558
CASH FLOWS FROM NON -CAPITAL
FINANCING ACTIVITIES
TsnsfiN Iron otherlwge
13,644
13,844
'
TmNxa to other funds
Nt cash used in rmnaprtal finanoW wOWtles
15.399.8681
05.388.2221
(51.0]2)
(61972)
f253,2Y11
(5,70.6,110)
(253.28)
(5.881.408)
CASH FLOWS FROM CAPITAL AND
'
RELATED FINANCING ACTIVITIES
PdnopY paw, on menus bond matunbea
(4.480,000)
(4,460,000)
Intent and fees paid On loop -tams dsN
(Seems)
(604,296)
Ac0oortion and construction of wptlal uses
(1,005,518)
(8,950)
(1,013,817)
(mice
Proceeds fond sale tpit
casuist meats
11113
'
Bond p,oreede
Cone from
aMdNm tlavalo
6,895{352
80 OTB
8,882,352
1]0.8]0
Net cash pstded by (IMnd In) past
and nlabE financed ac9vmw
1,459.573
16369)
1,451,204
(331188)
CASH FLOWS FROM INVESTING ACTIVITIES
Punch. t imetmanh wcuties
(5,915,346)
(5,915,346)
(2,100,000)
Plnroeds fnsocob and hlatutles t imetmale securities
4,004,822
4,094.822
119".M
Inherent on inveetmwte
154.168
8.382
5680
10.826
108,898
'Net
man prondnd by (used in) Invetin9 aunties
(1,725,758)
9,382
6.eM
0,710.6981
ow
NET INCREASE IN CASH AND CASH EQUIVALENTS
541,208
233,419
67,810
831,437
]2],284
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
5.918.141
744.184
545.359
7.205.684
2.856.939
CASH AND CASH EQUIVALENTS, END OF YEAR
S 0.457.340 i
MB.M3 Is
613.169 S
8.037.121 S
3.584.203
RECONCILIATION OF OPERATING INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
'
Not open6ng inmme (loes)
i 1022.320 i
f80.995) S
29.045 S
1.164,370 Is
756.608
Ad)uabnensto raaMb [pertly Income (loss)
W col cash provided by opal ilp status.
Depetletlm and amIXtiwtion ease.
4,844,853
12,874
82,963
4,]50,]90
331,310
CMya in send. and law%.
(Incase) deVasw in accouts receivable
(11],4]0)
1M,eI5
(184)
811238
(7.796)
Decrease in other wcelvablea
11,314
11,314
(Increase) In InwMonme
(96,984)
(96,684)
Increaw(daaraaw) in accounts payable
765,482
1261278
(3,649)
888104
107.418
Increase ina .W liabilities
53,]18
3,184
3,015
50,875
'
crse
Inw (aecteese) in wmPonsted absences
(2,823)
1.870
1F
(110)
Increase in Nilhy depoaib
]5.95]5
75.276
Talal adiutmgne
5.352.238
351.30
04.339
5,]04,9]1
320.918
'Nest
cmeh provided by operelinB adivilies
i 0.374559 S
273.398 $
315.384 S
6.043.341 S
1.047.558
NON-CASH FINANCING ACTIVITIES:
ComribWMa of fixatl aesab frons devtOpers
S 1.404.145 $_$_$
1,408.145 3
RaoJMYwon of tonal cash to ON ablement 0 net meats:
Cash and cash c,avalents -wmmt
11 3,145,857 S
963,643 S
613.169 B
4.725,629 3
3584,203
Restricted! cash and cosh puivabnLL
3,400,883
4400884
'
CASH AND CASH EQUIVALENTS, ENO OF YEAR
S 6.548,740 $
968.603 i
613.189 S
8.128.512 4
3,584,20
The Nates to Financial Statements
are an integral Part 6f this statement.
'
31
CITY OF ALLEN, TEXAS
EXHIBIT 12
COMPONENT UNITS
STATEMENT OF NET ASSETS
SEPTEMBER 30, 2004
ALLEN
ALLEN
ECONOMIC
COMMUNITY
DEVELOPMENT
DEVELOPMENT
CORPORATION
CORPORATION
TOTALS
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 3,491,958
$ 3,822,516
E 7,314,474
Investments
550,000
500,000
1,050,000
Sales tax receivable
635,773
638,773
1,277,546
Accounts receivable
1,145
1,145
2,290
Accrued interest receivable
3,021
1,593
4,614
Total current assets
4,684,897
4,964,027
9,648,924
CAPITALASSETS
Land
4,574,600
4,574,800
Land improvements
207,278
207,278
Furniture and fixtures
74,028
74,028
Improvements other than buildings
2,942,599
2,942.599
Construction in program
186,690
186,690
Total capital assets
7,985,195
7,985,195
Less: accumulated depreciation
(875,840)
(875,840)
Capital assets, net of accumulated depreciation
7,108,355
7,109,355
TOTAL ASSETS
11,794,252
4,984,027
16,758,279
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable
62,698
544,595
607,491
Accrued and other liabilities
8,287
8,267
Accrued interest payable
35,252
35,252
Retainage payable
9,149
70,119
79,268
Revenue bonds payable
420,000
420,000
Total current liabilities
80,332
1,069,988
1,160,298
NON-CURRENT LIABILITIES
Revenue bonds payable
8,055,000
8,055,000
Total non-current liabilities
8,055,000
8,065,000
TOTAL LIABILITIES
80,332
9,124,966
9,205,298
NET ASSETS (ACCUMULATED DEFICIT)
Invested in capital assets,
net of related debt
7,109,355
(8,475,000)
(1,365,645)
Unrestricted
4,604,565
4,314,081
8,918,626
TOTAL NET ASSETS
(ACCUMULATED DEFICIT)
$ 11,713,920
$ (4,160239)
$ 7,552,981
The Notes to Financial Statements
are an integral part of this statement.
32
The Notes to Financial Statements are
' an integral part of this statement 33
CITY OF ALLEN, TEXAS
EXHIBIT 13
STATEMENT OF ACTIVITIES
COMPONENT UNITS
FOR THE YEAR ENDED SEPTEMBER 30.2004
Net (Expense) Revenue and
'
Program Revenues
Changes In Not Assets
COMPONENT UNITS
ALLEN
ALLEN
Operating
ECONOMIC
COMMUNITY
Charges far Ghanta and
DEVELOPMENT
DEVELOPMENT
Expenses Services Contributions
CORPORATION
CORPORATION
TOTALS
Function/Program AotivNes
COMPONENT UNITS
Allen Economic
Development Corporation
$ 1,738,853 $ $
$ (1,738,853)
S $
(1,738,853)
'
Allan Community
Development Corporation
2,898,831
(2,898,831)
(2,896,831)
TOTAL COMPONENT UNITS
$0835.684 E $
$ (1,738.8531
E 896,8.311$ (0.835,684)
General revenues:
Sales taxes
$ 3,532,301
$ 3,532,300 $
7,084,801
Interest on investments
63,558
73,731
137,289
Miscellaneous
184,080
184,080
'
Total general revenues and transfers
3,779,939
3,808,031
7,385,970
Change in Net Assets
2,041,086
709,200
2,750,286
'
NET ASSETS, beginning of year
9,672,834
(4,870,139)
4,802,695
NET ASSETS, antl of year
$_ 11.713.920
$ (4.160.939) $7552.981
se
The Notes to Financial Statements are
' an integral part of this statement 33
S,ESVECT * INr,
34
1
1
1
1
NOTES TO
1 FINANCIAL STATEMENTS
1
1
i
1
1
i
1
1
1
1
PESP ECT * INTpG
gt r R�rY
*
r
CITY OF
' CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
' YEAR ENDED SEPTEMBER 30 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Statement
' The City of Allen (the 'City') was incorporated in 1953, under the provisions of Chapter 11, Title 28,
Texas Revised Civil Statutes of 1925. In 1979, the City adopted a charter making it a home rule city
operating under a Council -Manager form of government. The City provides such services as are
authorized by its charter to advance the welfare, health, comfort, safety and convenience of its
' inhabitants.
The accounting and reporting policies of the City relating to the funds included in the accompanying
' basic financial statements conform to accounting principles generally accepted in the United States of
America applicable to state and local governments. Generally accepted accounting principles for local
governments include those principles prescribed by the Governmental Accounting Standards Board
(GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State
and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). As
allowed by Governmental Accounting and Financial Reporting Standards, the City has elected not to
apply Financial Accounting Standards Board Statements and Interpretations, Accounting Principles
' Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued
after November 30, 1989. The more significant accounting policies of the City are described below.
Financial Reporting Entity
As required by accounfing principles generally accepted in the United States of America the financial
statements of the City include the primary government and organizations for which the primary
'
government is financially accountable and other organizations for which the nature and significance of
their relationship with the primary government are such that exclusion would cause the reporting
enfitys financial statements to be misleading or incomplete.
' The City is financially accountable for legally separate organizations if its officials appoint a voting
majority of an organization's governing body and either it is able to impose its will on that organization
or there is a potential for the organization to provide specific financial benefits to, or to impose specific
' financial burdens on, the primary government. A primary government may also be financially
accountable for governmental organizations that are fiscally dependent on it.
A primary government has the ability to impose its will on an organization if it can significantly influence
' the programs, projects, or activities of, or the level of services performed or provided by, the
organization. A financial benefit or burden relationship exists if the primary government (a) is entitled to
the organization's resources; (b) is legally obligated or has otherwise assumed the obligation to finance
' the deficits of, or provide financial support to, the organization; or (c) is obligated in some manner for
the debt of the organization.
Some organizations are included as component units because of their fiscal dependency on the
primary government. An organization is fiscally dependent on the primary government if it is unable to
adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the primary
government.
35
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Financial Reporting Entity - continued
The following entities were found to be component units of the City and are included in the basic
financial statements:
Allen Economic Development Corporation (AEDC) -The AEDC is responsible for aiding, promoting
and furthering economic development within the City.
Allen Community Development Corporation (ACDC) - The ACDC is responsible for supporting the
improvements in community parks and recreation, streets and sidewalks, public safety and the
community library.
The members of both the AEDC's and ACDC's Boards of Directors are appointed by the City
Council. Both the AEDC and ACDC are fiscally dependent upon the City as the City Council
approves their budgets and must approve any debt issuance. However, the component units do
not qualify for blending because the component services directly benefit the community rather than
the City itself. The AEDC and ACDC are discreetly presented as governmental fund types and do
not issue separate financial statements.
Basis of Presentation
The government -wide financial statements (the statement of net assets and the statement of activities)
report information on all of the activities of the City, except for fiduciary funds. The effect of interfund
activity, within the governmental and business -type activities columns, has been removed from these
statements. Governmental activities, which normally are supported by taxes and intergovernmental
revenues, are reported separately from business -type activities, which rely to a significant extent on
fees and charges for support.
The statement of activities demonstrates the degree to which the direct expenses of a given program
are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific
program. Program revenues include 1) charges to customers or applicants who purchase, use, or
directly benefit from goods, services, or privileges provided by a given program and 2) operating or
capital grants and contributions that are restricted to meeting the operational or capital requirements of
a particular program. Taxes and other items not properly included among program revenues are
reported instead as general revenues.
Fund Financial Statements:
The City segregates transactions related to certain functions or activities in separate funds in order
to aid financial management and to demonstrate legal compliance. Separate statements are
presented for governmental funds and proprietary funds. These statements present each major
fund as a separate column on the fund financial statements; all non -major funds are aggregated
and presented in a single column.
Governmental funds are those funds through which most governmental functions typically are
financed. The measurement focus of governmental funds is on the sources, uses and balances of
current financial resources. The City has presented the following major governmental funds:
■
r
6
L
i
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of Presentation — continued
General Fund -
The General Fund is the general operating fund of the City. It is used to account for all financial
resources not accounted for in other funds. All general tax revenues and other receipts that are not
restricted by law or contractual agreement to some other fund are accounted for in this fund.
General operating expenditures, fixed charges and capital improvement costs that are not paid
through other funds are paid from the General Fund.
Debt Service Fund -
The Debt Service Fund is used to account for the accumulation of financial resources for the
payment of principal, interest and related costs on general long-term debt paid primarily from taxes
levied by the City. The fund balance of the Debt Service Fund is reserved to signify the amounts
that are restricted exclusively for debt service expenditures.
Facilities Agreement Special Revenue Fund -
The Facilities Agreement Special Revenue Fund is used to account for funds received from
builders and developers used on specific facility agreements such as neighborhood parks, paving
and assessments in new developments.
General Capital Projects Fund -
The General Capital Projects Fund is used to account for resources used for the acquisition and/or
construction of capital facilities by the City, except those financed by proprietary funds and not
accounted for by another capital projects fund.
Street Improvements Capital Projects Fund -
The Street Improvements Capital Projects Fund is used to account for funds received and
expended for construction of and improvements to the City's streets. The construction is financed
by the proceeds of general obligation bonds and interest on investments.
Park Improvements Capital Projects Fund -
The Park Improvements Capital Projects Fund is used to account for the financing, improvements,
and enlargements of the City's parks. These improvements and enlargements are funded by
general obligation bond proceeds and interest on investments.
Library Capital Projects Fund -
The Library Capital Projects Fund is used to account for the financing, construction and furnishing
of library facilities with the proceeds of general obligation bonds and interest on investments.
37
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of Presentation - continued
General Obligation Bond Capital Projects Fund -
To account for financing, acquisitions, and construction of improvements to City facilities and
infrastructure not accounted for by other bond funds.
Proprietary Funds are accounted for using the economic resources measurement focus and the
accrual basis of accounting. The accounting objectives are determinations of net income, financial
position and cash flow. All assets and liabilities are included on the Statement of Net Assets. The City
has presented the following major proprietary funds:
Water and Sewer Fund -
The Water and Sewer Fund is used to account for the provision of water and sewer services to the
residents of the City. Activities for the fund include administration, operations and maintenance of
the water and sewer system and billing and collection activities. The fund also accounts for the
accumulation of resources for, and the payment of, long-term debt principal and interest for water
and sewer debt. All costs are financed through charges to utility customers with rates reviewed
regularly and adjusted if necessary to ensure integrity of the fund.
Solid Waste Fund -
The Solid Waste Fund is used to account for the provision of solid waste services to residents of
the City.
Drainage Fund -
The Drainage Fund is used to account for the provision of developing and maintaining proper
drainage services to the residents of the City.
Vehicle Replacement Internal Service Fund -
The Vehicle Replacement Internal Service Fund accounts for the costs associated with the
acquisition of vehicles through the rental of such vehicles to other departments.
Risk Management Fund -
The Risk Management Fund accounts for the costs associated workers compensation, liability and
property insurance and medical and dental programs established for City employees and their
covered dependents.
Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating
revenues and expenses generally result from providing services and producing and delivering goods in
connection with a proprietary fund's principal ongoing operations. Operating expenses for the
proprietary funds include the cost of personnel and contractual services, supplies and depreciation on
capital assets. All revenues and expenses not meeting this definition are reported as non-operating
revenues and expenses.
kI;
11
ail ' CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Measurement Focus and Basis of Accounting
' Measurement focus refers to what is being measured. Basis of accounting refers to when revenues
and expenditures are recognized in the accounts and reported in the financial statements. Basis of
accounting relates to the timing of the measurement made, regardless of the measurement focus
applied.
The government -wide statements and fund financial statements for proprietary funds are reported
using the economic resources measurement focus and the accrual basis of accounting. The economic
1 resources measurement focus means all assets and liabilities (whether current or noncurrent) are
included on the statement of net assets and the operating statements present increases (revenues)
and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are
' recognized when earned, including unbilled water and sewer services which are accrued. Expenses
are recognized at the time the liabilities are incurred.
Governmental fund financial statements are reported using the current financial resources
' measurement focus and are accounted for using the modified accrual basis of accounting. Under the
modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when
they become both measurable and available. °Measurable" means the amount of the transaction can
' be determined and "available" means collectible within the current period or soon enough thereafter to
be used to pay liabilities of the current period. The City considers all revenues as available if they are
collected within 60 days after year end. Expenditures are recorded when the related fund liability is
incurred, except for unmatured interest on general long-term debt which is recognized when due, and
' certain compensated absences and claims and judgments which are recognized when the obligations
are expected to be liquidated with expendable available financial resources.
The revenues susceptible to accrual are property and sales taxes, franchise taxes and interest income.
Other receipts (special assessments) become measurable and available when cash is received by the
City and are recognized as revenue at that time.
Cash, Cash Equivalents and Investments
State statutes and policy as established by the City Council authorize the City to invest in certificates
' of deposit, direct obligations of the U.S. Treasury, investment pools consisting of such U.S. Treasury
obligations, repurchase agreements, commercial paper and mutual funds. Substantially all operating
cash and cash equivalents are maintained in pooled cash and time deposit accounts. Interest income
relating to pooled deposits is allocated to the individual funds based on each fund's pro rata share of
' total pooled deposits.
For purposes of the statement of cash flows, the proprietary funds consider all highly liquid
' investments (including restricted assets) with an original maturity of three months or less when
purchased to be cash equivalents, as they are available for withdrawal on demand.
Investments are accounted for in accordance with GASB No. 31 —Accounting for Financial reporting
for Certain Investments and for External Investment Pools. Investments are recorded at amortized
cost when original maturity at the time of purchase is less than one year or at market if greater than
one year.
39
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
I
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Encumbrances
Encumbrance accounting, under which purchase orders, contracts, and other commitments for the
expenditure of funds are recorded in order to reserve that portion of the applicable appropriation, is
utilized in the governmental funds. Under the City's budgetary process, appropriations lapse at fiscal
year end. Encumbrances are reported as reservations of fund balances because they do not
constitute expenditures or liabilities.
Property Taxes
The City's property tax is levied each October i on the assessed value listed as of the prior January 1
for all real and certain personal property located within the City. Appraised values are established by
the Central Appraisal District of Collin County at 100% of estimated market value and certified by the
Appraisal Review Board. The assessed value upon which the 2003 levy was based is
$4,432,999,647. Taxes are due on October 1 and are delinquent after the following January 31.
The City is permitted by Article XI, Section 5 of the State of Texas Constitution to levy taxes up to
$2.50 per $100 of assessed valuation for general governmental services, including the payment of
principal and interest on general obligation long-term debt. The combined tax rate to finance general
governmental services including the payment of principal and interest on long-term debt for the year
ended September 30, 2004 was $0.561 per $100 of assessed valuation. In Texas, countywide central
appraisal districts are required to assess all property within the appraisal district on the basis of 100%
of its appraised value and are prohibited from applying any assessment ratios. The value of property
within the appraisal district must be reviewed every five years; however, the City may, at its own
expense, require annual reviews of appraised values.
The City may challenge appraised values established by the appraisal district through various appeals
and, if necessary, legal action. Under this legislation, the City continues to set tax rates on City
property. However, If the effective tax rale, excluding tax rates for bonds and other contractual
obligations, adjusted for new improvements, exceeds the rale for the previous year by more than 8%,
qualified voters of the City may petition for an election to determine whether to limit the tax rate to no
more than 8% above the tax rale of the previous year.
Interfund Receivables and Payables
Activity between funds that are representative of lendingiborrowing arrangements outstanding at the
end of the fiscal year are reported as 'due to/from other funds' Any residual balances outstanding
between the governmental activities and business -type activities are reported in the govemmenl-wide
financial statements as "internal balances'.
Transactions Between Funds and Between Funds and Component Units
Interfund services provided and used are accounted for as revenues, expenditures or expenses.
Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it
that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing
fund and as a reduction of expenditures/expenses in the fund reimbursed. All other interfund
transactions, except transactions between the component units and the primary government are
recorded as transfers.
0
i
CITY OF ALLEN, TEXAS
iNOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
iNOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
iTransactions Between Funds and Between Funds and Component Units -continued
Transactions between the component units and the primary government are accounted for as external
i transactions (revenues and expenses). During the year ended September 30, 2004, the AEDC
contributed $30,000 to the general fund and the ACDC contributed $36,000 to the general fund. The
revenues were reflected as grants and contributions for the primary government in the statement of
activities.
iInventories and Prepaid Items
Inventories, which are expended when consumed, are recorded using the average cost method, and
iare valued at cost.
Prepaid items are for payments made by the City in the current year to provide services occurring in
i the subsequent fiscal year. A reserve for prepaid Nems is recognized in the governmental funds in the
fund level financial statements to signify that a portion of fund balance is not available for other
subsequent expenditures.
iSpecial Assessments
The City has the authority to make special assessments to property owners as part of the financing of
i capital improvements. Such assessments are recorded in the capital projects fund as receivables when
assessed and are recognized as revenue when both the measurable and available criteria have been
met (generally when collected).
^� Capital Assets
r
Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the
> applicable governmental or business -type activities columns in the government -wide financial
k statements and in the fund financial statements for proprietary funds. All capital assets are valued at
■ historical cost or estimated historical cost if actual historical cost is not available. Donated assets are
valued at fair market value on the date donated. The costs of normal repairs and maintenance that do
i not add to the value of the asset or materially extend the asset lives are not capitalized. Renewals and
betterments are capitalized. Interest has not been capitalized during the construction period on
property, plant and equipment.
i Assets capitalized have an original cost of $5,000 or more and over one year of useful life.
Depreciation has been calculated on each class of depreciable property using the straight-line method.
Estimated useful lives are as follows:
iBuildings 15-40 Years
Towers, tanks, and pump stations 30 Years
i Infrastructure 10-50Years
Machinery and equipment 3 -15 Years
Vehicles 2 -15 years
Library books 5 Years
i Furniture and fixture 5 Years
Other improvements 2 - 30 Years
1
41
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES— continued
Capital Assets - continued
The City has established the Vehicle Replacement Internal Service Fund to amount for replacement of
the City -owned vehicles. Charges for use of the vehicle in the form of user payments are made by City
departments to the Vehicle Replacement Internal Service Fund to provide for future acquisitions and
replacement of City -owned vehicles.
Vacation and Sick Leave (Compensated Absences)
City employees earn vacation and sick leave, which may either be taken or accumulated, up to certain
amounts, until paid upon retirement or termination. Upon termination or retirement, an employee is
reimbursed up to a maximum number of hours of vacation pay and sick leave based upon the years of
service. Accumulated vacation and sick leave is accrued when incurred in the government -wide,
proprietary, and fiduciary fund financial statements.
Net Assets
Net assets represent the difference between assets and liabilities. Net assets invested in capital
assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the
outstanding balances of any borrowing used for the acquisition, construction or improvements of those
assets, and adding back unspent proceeds. Net assets are reported as restricted when there are
limitations imposed on their use either through the enabling legislations adopted by the City or through
external restrictions imposed by creditors, grantors or laws or regulations of other governments.
NOTE 2. DEPOSITS, INVESTMENTS AND INVESTMENT POLICIES
Deposits — State statutes require that all deposits be fully collateralized by U.S. Government obligations or
obligations of Texas and its agencies that have a market value of not less than the principal amount of the
deposits.
The City's demand deposits and certificates of deposit were fully insured or collateralized at September 30,
2004, with collateral required by state statutes. Al year-end, the carrying amount of the City's deposits was
$2,035,906 and the bank balance was $2,324,386. Of the bank balance, federal depository insurance
covered $200,000 and the remainder was covered by collateral held by the pledging financial institution's
agent in the City's name. The City's petty cash balance at September 30, 2004 was $7,400.
The carrying amount of deposits for ACDC and AEDC, discretely presented component units, were $4,104
and $5,798, respectively, with no corresponding bank balances as they are pooled with the City's deposits.
Investments — State statutes authorize the City to invest in U.S. Government obligations, obligations of
Texas and its agencies and fully collateralized repurchase agreements.
42
I
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
' YEAR ENDED SEPTEMBER 30 2004
NOTE 2. DEPOSITS, INVESTMENTS AND INVESTMENT POLICIES -continued
' Investments—continued
Investments are categorized into three categories as defined by GASB Statement No. 3 to give an
indication of the level of risk assumed by the entity at year-end: Category 1 includes investments that are
insured or registered or for which the securities are held by the City or its agents in the City's name.
Category 2 includes uninsured and unregistered investments for which the securities are held by the
counterparty's trust department or agent in the Citys name. Category 3 includes uninsured and
unregistered investments for which the securities are held by the counterparty, or by its trust department or
agent but not in the City's name. At September 30, 2004, the City had no Category 2 or 3 investments.
The City, AEDC and ACDC invest in Texpool which is an investment fund authorized by the Texas
Legislature and administered by the Texas State Treasury. The Texas Treasury Safekeeping Trust
Company is trustee of Texpool and is a limited purpose trust company authorized pursuant to Texas
Government Code. The purpose of Texpool is to allow for the pooling of public funds to provide a higher
yield on the pooled investment than would be possible with the investment of the individual public entity's
funds. Texpool investments are subject to the same investment policies maintained by the State Treasury
for all state funds. The Legislature has authorized only certain investment instruments for public funds,
including repurchase agreements, U.S. Treasury bills and bonds, securities of other U.S. government
agencies, commercial paper and other safe instruments. The investment in Texpool and any accrued
interest may be redeemed at the City's discretion. The City's position in the pool is not materially different
from the value of the pool shares.
Amounts invested in Texpool, by the City, AEDC and ACDC, respectively, are not categorized in
accordance with GASB No. 3 because they are not evidenced by securities that exist in physical or book
entry form. At September 30, 2004, the City's investment balances were as follows:
43
II
Carrying
Fair
Category
Amount
Value
Other Government Agency Securities
1
$ 30,152,942
$ 30,152,942
Certificates of Deposit
Texpool
Deposits
N/A
7,000,000
38.767.325
7,000,000
38.767.325
aAt
year-end, AEDC's investment balances were as follows:
$ 75.920 267
Maim
Carrying
Fair
'
Category
Amount
Value
Certificates of Deposit
Deposits
$ 550,ODO
$ 550,000
'
Texpool
N/A
3.488.160
$ 4.038160
3.486.160
$ 4.038160
43
II
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 2. DEPOSITS, INVESTMENTS AND INVESTMENT POLICIES -continued
Investments - wntinued
At year-end, ACDC's investment balances were as follows:
Carrying Fair
Category Amount Value
Other Government Agency Securities 1 $ 500,000 $ 500,000
Texpool N/A 3.818.412 3.818.412
4.316.51 $ 4.318.412
NOTE 3. RECEIVABLES
Receivables at September 30, 2004 for the government's individual major funds and non -major, and
internal service funds in the aggregate, including the applicable allowances for uncollectible accounts,
consist of the following:
Property
Sales
AGGUar
Tax
Taxes
Acmunis
Interest
Assessments
Other
Total
Coarsest Fund $ 335.401
$1,277,546
$
$ 27,492
$
$ 801,505
$ 2,241,945
Debt Service 194,611
7,613
1,505
203,729
Facilites
Agreement
12,722
12,722
General Capital
plojscis
22,406
208,796
231,202
Street
Improvements
6,374
6,374
Park
Impmvements
1,980
15,294
17,274
G.O. Bond Fund
15,934
15,934
Nonansjor
Governmental Funds
54.849
54,849
Water and Sewer
2,586,912
19,502
2.608,414
Solid Waste
136,276
138,803
274,879
Drainage
39,650
39,650
Internal Service
Funds
27.487
8.822
-34,�
Cross Receivables 530,012
1,277,546
2,847,154
134,259
208.796
741,614
5,739,381
Less: Allowance for
Uncollectibles2(1929)
1 14581)
f 230.5101
Total Net Receivables,
Primary Government $ 314,083
$ 1,277,546
$ 2,832,573
$ 134,259
$ 208,796
$ 741,614
$ 5,608.871
Component Units
1.277.548
2.290
6.614
1.284.450
Total Net Receivables,
Reporting Entity$-31�LQ83
•a 52� s n92n92
`- ] 11MM-138
7
8 2nR ]m
E ]4, 1�atd
$g(
The Water and Sewer Fund accounts receivable include unbilled
charges for services rendered through
September 30, 2004.
44
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 4. CAPITAL ASSETS
Capital asset activity for the
year ended September 30, 2004 was as follows:
Governmental Activities
Balance
September 30,
Capital
Sales or
Other
Adjustments/
Balance
September 30,
2003
Amuisibons
Dispositions
Transfers
2004
Governmental Funds:
General capital assets
not being depreciated
Lan an Ian Impmvemants
Construction in progress
$ 57,215,397
$ 4,446,721
$
$
S 61,662,118
11 .354 604
21,797.67
( 7.617.980)
25.539.288
Total capital assets
not being depreciated
68.570001
26.244395
f 7.617990)
87.196408
General capital assets
being depreciated
Buildings
Improvements
36,873,389
329,899
37,203,288
other than buildings
Furniture an fixtures
256,579.671
1,561,257
3,505,081
33,247
( 130,773)
7,179,721
267,133,760
Vehicles
Library books
3,422,606
231,579
( 537,355
1594509
Machinery am equipment
2,562,331
2.000.999
143,107
564.547
( 131,913)
( 15.750)
108370
2,573,525
2.658.166
Total capital assets being
depreciated
303.000.253
4.477561
( 815.731)
7.817990
314.280073
Less accumulated
depreciation for.
muildingsprovemen(s
( 3,247,592)
( 1,778,077)
( 4,425,6179)
Omer than buildings
Furniture and fixtures
( 56,795,619)
( 974,789)
( 9,338,064)
( 142.483)
420,133
65,713,550
( )
Vehicles
Bnery
( 1,273,234)
( 2,209,873)
( 454,874)
( 107,729)
251,913
731,873
( 1,117,272)
( 7.477,683
Mao
Machiy a equipment
( 930 1591
( 1.091.886)
7.500
2.180 ,089)
( )
( 1.984 32])
tai aac m
Total accumulated
depreciation
( 65.428266)
( 12262035)
815731
( ]8.872.570)
Total general capital assets
being depreciated, net
237.573987
( 7,784.4741
7.617990
237407503
General capital assets, net
$306,143, 989
$18.459.921
$
$
1324,603.90
45
CRY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 4. CAPITAL ASSETS - continued
GDvemmantal ad NitieS a n] 04] 5 e 1a s 1541
capital asset, net
Business -Type Activities
Water and Sewer Activities:
Capital assets not being depredated
Lark $ 822,643 $
Construction In progress 543.684 291.430
Total capital assets not
being deprecated 1.368.327 291.430
Capital Asset Being depredated:
S S 3 5�2waa n77
$ $ $ 822.643
835.114
1,657.75
Towers. tanks, 8 pumps stations
Balance
1,772,633
Sales or
Furniture and 6dures
Balanrs
September 30,
Capital
Other
Adjustments/
September 30,
Vehicles
2003
Acquisitions
Disoo,rdons
Transfers
2004
Internal Service Funds:
( 95.375)
Less accumulated
Capital assets being depredated
Towers, tanks, 8 pumps stations
( 22.907,694)
Vehicles
$ 1,963,345
$ 258.524
($ 54,344),
$
$ 2,157,525
Machinery and equipment
200.201
84.408
31,034
Vehicles
284.607
Total internal service
assets being depreciated
2,153,546
342,930
( 54,344)
2442132
Less accumulated
( 23823475)
( 4130.3851
58.117
Total capital assets
being depreciated. net
74720.920
depreciation for.
Vehicles
( 1,117,945)
( 199,326)
54.344
1,262,92r)
Machinery and equipment
( 132,0531
( 21.984)
is 37258) S
( 154.037)
Total accumulated
depredation
( 1,249,99B )
( 221.310)
54.344
( 1 418.964)
Internal service funks
capital assets, net
$ 903.548
$ 121 820
$
S
$ 1,025,168
GDvemmantal ad NitieS a n] 04] 5 e 1a s 1541
capital asset, net
Business -Type Activities
Water and Sewer Activities:
Capital assets not being depredated
Lark $ 822,643 $
Construction In progress 543.684 291.430
Total capital assets not
being deprecated 1.368.327 291.430
Capital Asset Being depredated:
S S 3 5�2waa n77
$ $ $ 822.643
835.114
1,657.75
Towers. tanks, 8 pumps stations
96,35070
1,772,633
40.690
Furniture and 6dures
69,174
( 60,987)
Machinery and equipment
1,342,942
386,668
6,729
Vehicles
782.109
( 81.807)
Total capital asset
being depreciated
98.544.395
2.159.521
( 95.375)
Less accumulated
depreciation for.
Towers, tanks, 8 pumps stations
( 22.907,694)
( 4,403,352)
( 74,937)
Furniture and 6ztures
( 9,101)
( 1,637)
6,645
Machinery and equipment
( 384,588)
( 210,081)
31,034
Vehicles
( 5220921
( 115315)
95.375
Total accumulated
depreciation
( 23823475)
( 4130.3851
58.117
Total capital assets
being depreciated. net
74720.920
( 2570.8641
L_37.258)
Water and sewer activities
capital assets, net
$ 76087.247
is 2279434)
is 37258) S
0
98,163,493
8.187
1,736,559
700.302
100 608.541
( 27,385,983)
( 4,093)
563,635)
542.032)
( 28495.743)
72.112.795
E
73,T70,55
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 4. CAPITAL ASSETS -continued
47
Balance
Sales ar
Balance
September 30,
Capital
Other Adjustments/
September 30,
2003
Acquisitions
Disocsitions Transfers
2004
Solid Waste Activities:
Capital assets being depredated
Machinery and equipment
$ 1,450
$ 8,369
$ $
$ 9,819
Vehicles
44.448
44 448
Total capital assets
being depredated
45.898
8.389
54267
Less accumulated
depreciation for.
Machinery and equipment
(
Vehicles
6.958)
( 11.476) ( 18432)
Total accumulated
depreciation
( 7.2631
( 12.874)
( 20.1371
Solid waste activities
capital assets, net
$ 38,635
4 4.505)
$
$ 34130
Drainage Activities:
Capital assets being depreciated
Other improvements
566,038
( 69,908)
496,132
Vehicles
54,353
60,828
115,179
Machinery and equipment
419.007
( 45.2731
373,
Total capital assets
being depredated
1.039398
( 54.353/
985.045
Less accumulated
depredation for.
Other improvement
( 28,356)
( 19,771)
29,731
( 18,396)
Vehicles
( 32,250)
( 20,229)
( 37,274)
( 89,753)
Machinery and equipment
( 158.3111
( 52.963)
61.896
( 149.378)
Total accumulated
depredation
( 218.917)
( 92.9631
54.353
( 257.527)
Total capital assets
being depredated, net
820.481
( 92.963)
727.518
Drainage activities
capital asset, net
$ 820,481
($ 92963)
$
$ 727.518
Business -type activities
capital asset, net
Component Units
Capital asset not being depredated:
Land
$ 4,569,624
$ 4,976
$ $
$ 4,574,600
Land improvements
207,278
207,278
Construction in progress
168 578
225.390
( 207.278)
186.690
Total capital asset
not being depredated
$ 4.738.202
$ 230.368
$ $
$ 4.968.568
47
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE4. CAPITAL ASSETS - continued
Component Units - continued:
( 11.341
Balance
( 363.678)
September 30.
2003
Capital assets being depredated:
2.140.787
E e 71nG aS5
Improvements other
32,460
than buildings
2,942,599
Fumiture and fbdures
74.028
Total capital assets being
221.310
depreciated
3.016.627
Less accumulated
depredation for.
$ 4,730,385
Buildings
( 456,W
Furniture and fixtures
( 55.265
Total accumulated
depredation
( 512.162
Total capital assets
$ 363.678
being depredated net
2.504A65
Componenlunits
capital assets, net
E ] 242 8fi]
Sales or Balance
Capital Other Adjusbnents/ September 30,
A cutsibons Dispositions Transfers 2004
2,942,599
74.028
3.016.627
( 352,337)
( 809,214)
( 11.341
( 66 ,626
( 363.678)
( 875.8401
( 363.878)
tt 1��'1412) g
2.140.787
E e 71nG aS5
Depreciation expense was charged as direct expense to programs of the primary government as follows
Governmental activities:
General government
$ 702,257
Public safety
786,561
Public works
8,120,760
Culture and recreation
2,585,136
Community development
32,460
Grant administration
34.861
Total depreciation expense - General capital assets
12,262,035
Internal Service Funds
221.310
Total depreciation expense - Governmental activities
E 12.483.345
Business -type activities:
Water and sewer
$ 4,730,385
Solid waste
12,874
Drainage utility
92.963
Total depreciation expense - Business -type activities
Component units:
Allen Economic Development Corporation
$ 363.678
Total depreciation expense - Component units
S 363.67
48
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 4. CAPITAL ASSETS - continued
Outstanding commitments at September 30, 2004, under authorized construction wntracts were
$9,952,327. These outstanding commitments for capital projects will be funded from unexpended bond
proceeds and additional general obligation bonds. Authorization to issue additional bonds may be
requested from the qualified voters of the City.
NOTE 5. LONG-TERM DEBT
At September 30, 2004, bonds payable consisted of the following individual issues:
General Obligation Bonds:
Governmental Business-tvce
$100,000 Series 1966 Bonds due in annual installments
of $5,000 to $15,000 beginning November 1, 1995 through
November 1, 2004; interest at 5.75%.
$ 15,000 $
$1,978,921 Series 1992 Capital Appreciation Bonds with
prindpal and interest due upon maturity on September 1,
2005 and September 1, 2006; interest at 6.25% to 6.35%.
1,978,921
$7,100,000 Series 1996 Bonds due in annual installments
of $130,000 to $585,000 through September 1, 2016;
interest at 5.0% to 7.0%.
5,220,000
$10,000,000 Series 1998 Bonds due in annual installments
of $95,000 to $795,000 through September 1, 2008;
interest at 4.5% to 6.5%.
8,145,000
$13,340,000 Series 1999 Bonds due in annual installments
of $320,000 to $1,055,000 through September 1, 2019;
interest at 4.875% to 6.375%.
11,270,000
$11,100,000 Series 2000 Bonds due in annual installments
Of $115,000 to $915,000 through September 1, 2020;
interest at 5.0% to 6.5%.
9,920,000
$20,715,000 Series 2001 Bonds due in annual installments
of $160,000 to $2,110,000 through September 1, 2021;
interest at 4.0% to 5.25%.
17,165,000
$13,000,000 Series 2002 Bonds due in annual installments
of $175,000 to 1,020,000 through September 1, 2022;
interest at 4.2% to 5.5%.
12,415,000
$2,705,000 Series 2003 Bonds due in annual installments
of $25,000 to $955,000 through September 1, 2007;
interest at 2.0% to 3.0%.
970,000
49
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTES. LONG-TERM DEBT—Continued
General Obligation Bonds - continued:
$7,210,000 Series 2003 Bonds due in annual installments
of $175,000 to $515,000 through September 1, 2023;
interest at 2.75% to 4.25%.
$11,700,000 Series 2004 Bonds due in annual installments
of $395,000 to $790,000 through September 1, 2024;
interest at 4.0% to 5.25%.
Water and Sewer Revenue Bonds
$4,100,000 Series 1995 Bonds due in annual installments
of $115,000 to $335,000 through June 1, 2015; interest
at 5.125% to 7.125%.
$12,545,000 Series 1999 Bonds due in annual installments
of $330,000 to $950,000 through June 1, 2019; interest
at 3.55% to 5.0%.
$6 710,000 Series 2004 Bonds due in annual installments
of $175,000 to $490,000 through June 1, 2024; interest
at 4.75% to 5.0%.
Governmental Business -type
$ 7,035,000 $
11.700.000
$ 85�. 835.921 I====-
$ $ 190,000
9,875,000
8.710.000
�� $ 18 775.000
ACDC
Sales Tax Revenue Bonds:
$5,350,000 Series 1997 Bonds due in annual installments
of $125,000 to $435,000 through September 1, 2017;
interest at 4.625% to 6.625%. $ 4,120,000 $
$5,125,000 Series 1999 Bonds due in annual installments
of $55,000 to $400,000 through September 1, 2017; interest
at 4.5% to 6.0%. 4,355,000
$ 8 475 000 $
50
r
cj
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 5. LONG-TERM DEBT - continued
The following is a summary of long-term debt transactions, including current portion, of the City for the year
ended September 30, 2004:
Balance
Balance
Due
Beginning
End
Within
of Year Increases
Decreases
of Year
One Year
Governmental Activities
General Obligation Bonds $ 79,243,921 $11,700,000
($5,110,000)
$ 85,833,921
$ 4,433,251
Capital lease payable 205,254
( 114,920)
90,334
79,443
Contracts payable 578,633
( 576,833)
Compensated absences 1,620,292 2,853
( 57,763)
1,565,382
525,850
Accreted interest 1.896.748 247,950
2.144.698
1.231.749
Governmental activity
Long-term debt $ A3.54; B".R $71 A6n.M3
($ 5 BR1 316)
a 6 " 43
6.979.993
Business Type Activities
Water and Sewer Revenue
Bonds $14,525,000 $ 6,710,000
($ 4,400,000)
$16,775,000
$ 1,340,000
Compensated absences 85,829 2,046
( 2,822)
85,053
26,091
Less deferred amounts:
For refundings ( 92,712)
1,159
( 91,553)
4,636
For issuance discounts l premiums ( 196.039)
185.487
( 10.552)
3135
Business -type activity
Long-term debt $ id 414 74m LAAaa4
($ 4 278.1761
Ligzaom
c 1 373 862
Component Units
Sales Tax Revenue Bonds $ 8,875,000 $
($ 400,000)
$ 8,475,000
$ 420,000
Contractual obligations 578,634
( 578.6341
Component units
Long-term debt S o 45.3 634 $
($ 97�A R'{4)
B47S n9
$ 41n.nn9
The City intends to retire all of its general long-term liabilities, plus accrued interest, from ad valorem taxes and
other current revenues. The proprietary fund type long-term debt will be repaid, plus accrued
interest, from
operating revenues of the Water and Sewer Fund.
51
NOTE 5. LONG-TERM DEBT — continued
Annual Requirements to Retire Debt Obligations
The annual aggregate maturities for each bond type for the years subsequent to September 30, 2004, are as
follows:
General Obligation Bonds
Annual debt service requirements to maturity for general obligation bonds, including interest of $41,766,982
are as follows:
CITY OF ALLEN, TEXAS
'
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
Governmental Activities
'
Fiscal Year Ending
NOTE 5. LONG-TERM DEBT — continued
Annual Requirements to Retire Debt Obligations
The annual aggregate maturities for each bond type for the years subsequent to September 30, 2004, are as
follows:
General Obligation Bonds
Annual debt service requirements to maturity for general obligation bonds, including interest of $41,766,982
are as follows:
Business -type Activities
Fiscal Year Ending
Governmental Activities
,
Fiscal Year Ending
Interest
Total
2005
September 30
Principal
Interest
Total
2005
$ 4,433,251
$ 5,428,892
$ 9,862,143 ,
2006
4,650,670
5,191,863
9,842,533
2007
6,010,000
3,687,489
9,697,489
2008
4,050,000
3,391,096
7,441,096
,
2009
4,250,000
3,204,666
7,454,666
2010-2014
24,665,000
12,927,616
32,787,247
2015-2019
26,250,000
6,634,215
30,165,035
2020-2024
11.525.000
1.301.145
12.826.145
Total
$ 85 833.921
$ 41 768 982
$ 127 600.903 '
Water and Sewer Revenue Bonds
Revenue bond debt service requirements to maturity, including interest of $6,478,272 are as follows
lh
Business -type Activities
Fiscal Year Ending
September 30
Principal
Interest
Total
2005
$ 1,340,000
$ 796,150
$ 2,136,150
2006
1,380,000
733,345
2,113,345
2007
1,440,000
672,827
2,112,827
2008
1,425,000
608,702
2,033,702
2009
880,000
538,690
1,418,690
2010-2014
4,855,000
2,040,970
6,895,970 '
2015-2019
4,275,000
905,088
5,180,088
2020-2024
1.180.000
182,500
1.362.500
Total
3 18.775.000
L&ELM
AU 52_3 3 '
lh
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTES. LONG-TERM DEBT—continued
Annual Requirements to Retire Debt Obligations - continued
Component Units
Sales Tax Revenue bond debt service requirements to maturity, including interest of $3,435,930 are as
follows:
General Oblioation Bonds
The City issues general obligation bonds to provide funds for the acquisition and construction of major
capital facilities and infrastructure. During the year, $11,700,000 of general obligation bonds were issued
to finance construction projects. The City is required by ordinance to create from ad valorem tax revenues
a sinking fund sufficient to pay the current interest and principal installments as they become due. The
Debt Service Fund has $1,541,257 available to service the general obligation debt at September 30, 2004.
There are a number of limitations and restrictions contained in the various general obligation bond
indentures. The City is in compliance with all significant limitations and restrictions at September 30, 2004.
A schedule of authorized but unissued direct General Obligation Bonds as of September 30, 2004, is as
follows:
Date of Amount Previously 2004
T"no BOM A"rineon Purpose AUftrized Issuers Issue Unissued
city of Allen M12-99 Fire Son & Equip $ 4.900.000 $ 3.585,000 $ $1,335,000
M12-99 Steels 20.500.000 17.760,000 2.549.500 190,500
08-12-M Drainage 1,500,000 580,000 805,000 135.000
08-12-99 Parks 22,000,000 18.530,000 1,559,ODO 1,911,000
11-05-02 Perform Arts Center 19,500,000 2,788,500 16,713.500
11-05-02 Senior Center 4,000,00p 4.000000
Total luda= $ dn.41c poll $ 11 Inn pnn zzu&=
53
Governmental Activities
Fiscal Year Ending
September 30
Principal
Interest
Total
2005
$ 420,000
$ 423,020
$ 843,025
2006
445,000
395,451
841,451
2007
470,000
372,983
842,983
2008
495,000
348,220
843,220
2009
520,000
321,900
841,900
2010-2014
3,075,000
1,192,450
4,267,450
2016-2019
3.050.000
_ 383.900
3.433 900
Total
$ 8.475.000
1 3,438239
Lam=
General Oblioation Bonds
The City issues general obligation bonds to provide funds for the acquisition and construction of major
capital facilities and infrastructure. During the year, $11,700,000 of general obligation bonds were issued
to finance construction projects. The City is required by ordinance to create from ad valorem tax revenues
a sinking fund sufficient to pay the current interest and principal installments as they become due. The
Debt Service Fund has $1,541,257 available to service the general obligation debt at September 30, 2004.
There are a number of limitations and restrictions contained in the various general obligation bond
indentures. The City is in compliance with all significant limitations and restrictions at September 30, 2004.
A schedule of authorized but unissued direct General Obligation Bonds as of September 30, 2004, is as
follows:
Date of Amount Previously 2004
T"no BOM A"rineon Purpose AUftrized Issuers Issue Unissued
city of Allen M12-99 Fire Son & Equip $ 4.900.000 $ 3.585,000 $ $1,335,000
M12-99 Steels 20.500.000 17.760,000 2.549.500 190,500
08-12-M Drainage 1,500,000 580,000 805,000 135.000
08-12-99 Parks 22,000,000 18.530,000 1,559,ODO 1,911,000
11-05-02 Perform Arts Center 19,500,000 2,788,500 16,713.500
11-05-02 Senior Center 4,000,00p 4.000000
Total luda= $ dn.41c poll $ 11 Inn pnn zzu&=
53
CITY OF ALLEN, TEXAS
I
I
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004 1
NOTES. LONG-TERM DEBT—continued
Water and Sewer Revenue Bonds
The City is required by the applicable revenue bond indentures to pledge the net revenues of the Water
and Sewer Enterprise Fund for the retirement of its outstanding revenue bonds, including interest thereon,
and is required to maintain debt service funds and bond reserve funds for all such bonds outstanding.
Funds aggregating $662,642 at September 30, 2004 are restricted within the Water and Sewer Enterprise
Fund for servicing of the debt. The respective bond indentures require the City to make equal monthly
payments to the restricted accounts to accumulate the annual principal and interest requirements as they
become due.
Water and Sewer Revenue Bonds and Refunding Bonds are payable solely from and, equally secured by,
a first lien on and pledge of the net revenue of the City's combined waterworks and sanitary sewer
systems.
The ordinances authorizing the Revenue Bonds stipulate that the City will deposit, in addition to principal
and interest requirements, certain amounts in a reserve fund. Amounts in the reserve fund are to be used
to pay principal and interest on outstanding bonds at any time sufficient funds are not available in the bond
interest and redemption fund. The bond indentures require that the City accumulate reserves to an amount
equal to the average annual principal and interest requirements of all outstanding bonds secured by the net
revenues of the system. Such reserves are funded up to the required level in equal monthly installments
over a maximum five-year period, as defined in the indentures. Amounts in the reserve fund at September
30, 2004 of $2,268,025 are adequate to meet the reserve requirements.
Debt Defeasance
On June 1, 2004, the City issued $6,710,000 in Waterworks and Sewer System Refunding and Improving
Bonds with an average interest rate of 4.90 percent, $3,400,000 for various improvements, and $3,310,000
to advance refund $3,310,000 of combined and outstanding 1995 and 1992 Series bonds with an average
interest rate of 5.26 percent. The net proceeds were used to purchase U.S. securities that were deposited
in an irrevocable trust with an escrow agent in sufficient amounts to provide for all future payments of the
refunded debt. As a result, the refunded debt is considered defeased and the liability for those bonds has
been removed from the Governmental Statement of Net Assets.
The City completed the advance refunding to reduce its total debt service payments over the next 4 years
by $3,449,698 and to obtain an economic gain (difference between the present values of the old and new
debt service payments) of $81,420.
In prior years, the City legally defeased certain outstanding general obligation and revenue bonds by
placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on
the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not
included in the City's financial statements.
6*1
' CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
' YEAR ENDED SEPTEMBER 30.2004
NOTES. LONG-TERM DEBT—continued
Water and Sewer Revenue Bonds- continued
At September 30, 2004, restricted assets, which include Water and Sewer Revenue Bond Debt Service
r
and Reserve Funds, were as follows:
Revenue bond debt service $ 1,070,744
Revenue bond reserve fund 1,197,282
o Utility deposits 1.132.857
3.400.88
The amount of retained earnings reserved for Water and Sewer revenue bond retirement is detailed as
follows:
' Restricted assets, revenue bond debt
Service and reserve funds $ 2,266,026
Accrued interest, payable from restricted assets ( 265,383)
Current maturities of revenue bonds,
payable from restricted assets ( 1,340.000)
Reserved for revenue bond principal and interest $S
' The City is in compliance with the various requirements of the bond ordinances. This covenant requires
that operating revenues, as defined, cover the current debt requirement including principal and interest by a
minimum of 1.2 times. Such coverage at September 30, 2004 was 2.7 times.
L"anftal Leases
The City acquired office equipment under various leases accounted for as capital leases. These leases
meet the criteria of a capital lease as defined by Statement of Financial Accounting Standards No. 13,
"Accounting for Leases", which defines a capital lease generally as one which transfers benefits and risks
of ownership to the lessee. As of September 30, 2004, the capitalized cost of the leased property under
capital leases was $425,948.
55
CITY OF ALLEN, TEXAS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 5. LONG-TERM DEBT—continued
Capital Leases - continued
The terms of the leases range from 3 - 5 years and call for monthly and annual payments over the life of the
leases. The future minimum lease payments under the capitalized leases and
the net present value of the
future minimum lease payments at September 30, 2004 are as follows:
Years Ending
Annual Lease
September 30,
Payments
2004
$ 83,970
2005
6,730
2006
3,621
2007
814
Future minimum lease payments
95,335
Amount representing interest
( 5,001)
Present value of future minimum lease payments
$UM
NOTE 6. INTERFUND RECEIVABLES AND PAYABLES
Due to/Due from other funds at September 30, 2004 consisted of the following individual fund receivables and
payables:
Fund Receivable Payable
General Capital Projects
General Fund $ 500,000 $
Grants and Special Revenue 500,000
Grants and Special Revenue
General Capital Projects 500,000
General Fund
General Capital Projects 500.000
$ 1 000 000 1 1 000 000
The purpose of interfund receivables and payables is to loan rash between funds. All balances are
expected to be settled within one year.
-ag
I
' CITY OF ALLEN, TEXAS
NOTES TO FINANCIAL STATEMENTS
' YEAR ENDED SEPTEMBER 30 2004
57
NOTE 7. INTERFUND TRANSFERS
All interfund transfers between the various funds are
approved supplements to the operations of
those funds. Individual fund operating
transfers for fiscal year 2004 were as follows:
Fund
Transfers
Transfers
In
Out
Puroose of Transfer
General Fund:
Water and Sewer
$2,040,772
$
Operational
Solid Waste Services
33,528
Operational
Drainage Utility Fund
133,272
Operational
Non -Bond Capital Projects
901,240
Capital Pmjects
Park 8 Rec Special Revenue
1,125,000
Operational
Grants 8 Special Revenue
6,501
559,479
Operational
Water and Sewer Fund:
'
General Fund
Solid Waste Fund
13,844
2,040,772
Operational
Operational
Non -Bond Capital Pmjects
1,839,094
Capital Projects
Non -Bond Capital Projects-Dev Fees
1,520,000
Capital Pmjects
Solid Waste Services:
General Fund
33,528
Operational
Water and Sewer Fund
13,644
Operational
'
Non -Bond Capital Projects
Drainage Utility Fund:
4,800
Capital Projects
General Fund
133,272
Operational and Capital Projects
Non -Bond Capital Projects
120,000
Capital Projects
Special Assessment
Non -Bond Capital Projects
609,971
Capital Projects
Parks Bonds:
General Capital Projects
54,000
Operational
G.O. Bonds
400,000
Capital Projects
Non -Bond Capital Projects:
General Fund
901,240
Capital Projects
Water and Sewer
3,359,094
Capital Projects
Solid Waste
4,800
Capital Projects
Drainage
120,000
Capital Projects
'
Park Bonds
54,000
Operational
GO Bonds
400,000
Capital Projects
Antenna Rental
166,000
Capital Projects
Special Assessment
609,971
Capital Projects
Antenna Rental Fund
Park & Rec Enterprise
155,000
Operational
Non -Bond Capital Projects
166,000
Capital Projects
Park Special Revenue Fund
General Fund
1,125,000
Operational
Antenna Rental
155,000
Operational
Grants 8 Special Revenue
'
General Fund
559.479
6,501
Operational
57
CITY OF ALLEN, TEXAS '
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30.2004
NOTE 8. RETIREMENT PLAN
Plan Descriotion
The City provides pension benefits for all of its full-time employees through a non-traditional, joint
contributory, hybrid defined benefit plan in the stale -wide Texas Municipal Retirement System (TMRS),
one of 794 administered by TMRS, an agent multiple -employer public employee retirement system.
Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City -
financed monetary credits, with interest. At the date the plan began, the City granted monetary credits
for service rendered before the plan began of a theoretical amount equal to two times what would have
been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for
service since the plan began are a percentage (100%, 150%, or 200%) of the employee's accumulated
contributions. In addition, the City can grant, as often as annually, another type of monetary credit
referred to as an updated service credit which is a theoretical amount which, when added to the
employee's accumulated contributions and the monetary credits for service since the plan began, would
be the total monetary credits and employee contributions accumulated with interest if the current
employee contribution rate and City matching percent had always been in existence and if the
employee's salary had always been the average of his salary in the last three years that are one year
before the effective date. At retirement, the benefit is calculated as if the sum of the employee's
accumulated contributions with interest and the employer -financed monetary credits with interest were
used to purchase an annuity.
Members can refire at ages 60 and above with 5 or more years of service or with 20 years of service
regardless of age. A member is vested after 5 years. The plan provisions are adopted by the governing
body of the City, within the options available in the state statutes governing TMRS and within the
actuarial constraints also in the statutes.
The pension plan does not issue separate reports on the pension plan. However, TMRS does issue a
publicly available report that includes financial statements and supplementary information for the plan as
a whole, but not for individual employers. That report can be obtained by writing to: Texas Municipal
Retirement System, P.O. Box 149153, Austin, Texas 78714-9153.
Contributions
The contribution rate for the employees is 7%, and the City matching ratio is currently 2 to 1, both as
adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually
determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior
service contribution rate, both of which are calculated to be a level percent of payroll from year to year.
The normal cost contribution rate finances the currently accruing monetary credits due to the City
matching percent, which are the obligation of the City as of an employee's retirement date, not at the time
the employee's contributions are made. The normal cost contribution rate is the actuarially determined
percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her
retirement becomes effective. The prior service contribution rate amortizes the unfunded (over funded)
actuarial liability (asset) over the remainder of the plan's 25 -year amortization period. The unit credit
actuarial cost method is used for determining the City contribution rate. Both the employees and the City
make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary
purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the
calendar year when the rate goes into effect. (i.e. December 31, 2003 valuation is effective for rates
beginning January 2005).
58
CITY OF ALLEN, TEXAS
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTES. RETIREMENT PLAN -continued
Contributions - continued
Schedule of Actuarial Liabilities and Funding Progress
Actuarial Valuation Date 2003
2002
2001 2000
1999
1998
Actuarial value of assets(1) $26,378,242
$23,100,250
$19,247,568
$16,375,900
$14,193,181
$11,599,541
Actuarial accrued liability(1) 33,315,146
28,115,656
24,411,638
22,396,483
17,723,052
15,743,031
Percentage funded 79%
82%
79%
73%
80%
74%
Unfunded (Over -forged) Actuarial
the requirements of
the requirements of
the requirements of
Acuued Liability (UAAL) 6,93,904
5,015,400
5,164,070
6,020.583
3,529,871
4,143,490
Annual covered Payroll (2) 18,963,356
17,651,515
14,778,443
11,938,005
10,994,145
8,986,968
UAAL as a percentage of
covered payroll 37%
28%
35%
50%
32%
46%
Net Pension Obligation (NPO)
at the beginning of period
Annual pension cost (1):
Annual Required Contribution (ARC) 1,943,352
1,868,305
1,756,583
1,315,729
1,218,421
1,040,079
(merest on NPO
Adjustrner4 ro ARC
Contributions made (2) 1,943,352
1,868,305
1,756,583
1,315.729
1,218,421
1,040,079
Increase in NPO
NPO at Ma end of Me period I_
Annual City TMR pension cost and related information for the last three years is as follows:
2004
2003
2002
Annual required contribution (ARC)
$ 1,943,352
$ 1,868,305
$
1,756,583
Actual contribution
1.943.352
1,868.3
1.756 583
Net pension obligation
Actuarial cost method
Unit Credit
Unit Credit
Unit Credit
Amortization method
Level Percent
Level Percent
Level Percent
Includes Inflation At
of Payroll
of Payroll
of Payroll
Remaining amortization period
25 Years — Open Period
25 Years—Open Period
25 Years — Open Period
Asset valuation method
Amortized Cost
Amortized Cost
Amortized Cost
(to accurately reflect
(to accurately reflect
(to acoumtey reflect
the requirements of
the requirements of
the requirements of
GASB stmt, No. 25,
GASS stmt, No. 25,
GASS stint, No. 25,
Paragraphs 36e and 138)
paragraphs 36e and 138)
paragraphs 36e and 138)
Actuarial Assumptions
Investment Rate of Return
7%
8%
8%
Projected Salary Increases
None
None
None
Includes Inflation At
None
None
None
Cost of Living Adjustments
None
None
None
59
CITY OF ALLEN, TEXAS
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER $0 2004
NOTES. WATER AND SEWER CONTRACTS
In 1972, the City entered into a forty -year contract with the North Texas Municipal Water District (District) for
the purchase of water. Under the terms of this contract the City is obligated to make a minimum annual
payment (adjusted annually) in return for a minimum volume of gallons of water per year. During 1998, the
City was annexed into the North Texas Municipal Water District, which guaranteed the City a minimum
volume of water. During the year ended September 30, 2004, the cost of water purchased under this
contract was $3,841,994.
In 1978, the City entered into a contract with the District for the transportation, treatment and disposal of
sanitary sewage and other waste. The contract will continue in force at least until all bonds issued by the
District pursuant to the contract have been paid in full and will remain in force thereafter throughout the
useful life at the District's sanitary sewer system. The contract requires the City to pay varying amounts
based on the costs associated with sewage transported and/or treated and disposed of. The cost includes
the Chys proportionate share of the District's operating and maintenance expenses and related debt
service costs. During 2004, the cost for transportation, treatment and disposal of sewage and other wastes
was $3,358,833.
NOTE 10. DEFERRED COMPENSATION PLAN
As a result of legislative changes, all amounts of compensation deferred, all property and rights
purchased, and all income, property or rights are (until paid or made available to the employee or other
beneficiary) held in trust for the exclusive benefit of the participants and their beneficiaries, whereas,
prior to these legislative changes, these amounts were solely the property and rights of the City subject
only to the claims of the City's general creditors. As a result, at September 30, 2004, the deferred
compensation investments are not reported in the City's financial statements.
NOTE 11. RISK MANAGEMENT
The City self -insures its employees and their dependents for medical and dental care up to certain amounts
per insured person and in the aggregate. At September 30, 2004, the annual limitation on City health claim
expense was $75,000 per person. A third -party insurance company re -insures the City for individual claims
in excess of $75,000 up to a lifetime maximum of $2,000,000. The maximum daim for all employees, in
the aggregate, is based upon a formula. All claims and maximums are calculated for a plan year ending
each December 31.
There has been no significant reduction in insurance coverage in prior fiscal years and the amount of claim
settlements has not exceeded insurance coverage for the past four fiscal years.
Accrued liabilities include provisions for claims reported and claims incurred but not reported. The
provision for reported claims is determined by estimating the amount that will ultimately be paid to each
claimant. The provision for claims incurred but not yet reported is estimated based on the Citys
experience since the inception of the program.
Premium payments are reported as interfund services provided and used and, accordingly, are treated as
operating revenues of the Risk Management Fund and operating expenditures/expenses of the
participating funds.
I
A
CITY OF ALLEN, TEXAS
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30 2004
NOTE 11. RISK MANAGEMENT. continued
Changes in the medical and dental claims liability during fiscal years ended September 30, 2000 through
2004 were as follows:
' Current Year
Balance at Claims and Balance at
Year Ending Beginning of Changes in Claim End of
September 30, Fiscal Year Estimates Payments Fiscal Year
2000 $ $ 1,214,157 $ 941,366 $ 272,791
2001 272,791 2,414,770 2,379,796 307,765
2002 307,765 2,467,587 2,472,106 303,246
2003 303,246 3,011,365 2,952,591 362,020
2004 302,020 3,827,089 3,764,493 424,616
The City is exposed to varying degrees of risk and loss from liability claims, auto and vehicle liability,
mechanical breakdown of equipment, and loss of property due to natural disasters and vandalism. To
cover this risk, the City participates in the Texas Municipal League Joint Self -Insurance Fund (TMLIF) to
provide general liability, workers' compensation claims and property insurance. The City, along with other
' participating entities, contributes annual amounts determined by TMLIF management. As claims arise they
are submitted to and paid by TMLIF. During 2004, the City contributed $662,913 to the fund for property,
general liability, and workers compensation.
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
' Federal Grants
The City participates in a number of State and Federally assisted grant programs. Amounts received or
receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the
federal government. Any disallowed claims, including amounts already collected, may constitute a liability of
the applicable funds. The amount, d any, of expenditures which may be disallowed by the grantor cannot be
determined at this time although the City expects such amounts, If any, to be immaterial.
' Litigation
' The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently
determinable, it is the opinion of the Citys counsel that resolution of these matters will not have a material
adverse effect on the financial condition of the City.
Economic Development Grant
The City has entered into an economic development agreement whereby it has agreed to pay a gram to a
developer in return for the developer designing, constructing, operating, and managing a retail shopping
center. The grant is calculated at $22 par gross leasable square feet up to a maximum of 458,000 square
feet. The grant is payable solely from sales tax receipts imposed by the City, AEDC, and ACDC, attributed
only to sales by retailers at the retail shopping center for a period not to exceed 15 years from the date of
certificate of occupancy. If the developer has not completed a minimum of 418,000 square feet within six
years after the commencement of construction, then the City is no longer obligated to make any future grant
payments. The developer had completed construction of 346,590 square feet of the retail shopping center
as of September 30, 2004.
14l
C'TY OF P`L�.
' REQUIRED SUPPLEMENTARY
INFORMATION
�N
a�SPEGT * I NTEC
P4�
��g
* clrr of a`�gN
CITY OF ALLEN, TEXAS EXHIBIT A-1
GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL
FOR THE YEAR ENDED SEPTEMBER 30, 2004
EXPENDITURES
Current
General government
Public safety
Public works
Culture and recreation
Community development
Grants administration
Debt service:
Principal retirement
Interest and fowl charges
Total expenditures
Excess (deficiency) of revenues over expenditures
OTHER FINANCING SOURCES (USES)
Transfers from other funds
Transfers to other funds
Total other financing sources (uses)
NET CHANGE IN FUND BALANCES
FUND BALANCES, BEGINNING OF YEAR
FUND BALANCES, END OF YEAR
6,350,841
6,106,701
5,203,277
903,424
VARIANCE WITH
14,803,536
BUDGETEDAMOUNTS
111,289
FINALBUDGET-
2,866,060
2,777,589
88,471
5,611,594
POSITIVE
5,487,172
ORIGINAL
FINAL
ACTUAL
(NEGATIVE)
REVENUES
1,659,094
773,141
773,141
Ad valorem taxes, penalties and interest
$ 16,201,630 It
16,249,705 $
16,058,384
$ (191,321)
Franchise taxes
3,341,D06
3,480,861
3,620,703
139,842
Municipal sales tax
7,225,000
7,300,040
7,064,601
(235,439)
Licenses, permits and fees
1,266,350
1,308,024
1,334,767
26,743
Charge for services
1,129,200
1,130,279
1,264,012
123,733
Fines
1,378,300
1,478,800
1,470,473
(8,327)
Gilts and contributions
1,105,067
4,078
72,069
67,991
Intergovernmental
1,220,805
443,724
375,894
(443,724)
Interest
182,000
234,818
252,841
18,023
Miscellaneous
364,045
415,502
691,736
276,234
Total revenues
32,306336
32,045,831
31,819,586
(226,245)
EXPENDITURES
Current
General government
Public safety
Public works
Culture and recreation
Community development
Grants administration
Debt service:
Principal retirement
Interest and fowl charges
Total expenditures
Excess (deficiency) of revenues over expenditures
OTHER FINANCING SOURCES (USES)
Transfers from other funds
Transfers to other funds
Total other financing sources (uses)
NET CHANGE IN FUND BALANCES
FUND BALANCES, BEGINNING OF YEAR
FUND BALANCES, END OF YEAR
6,350,841
6,106,701
5,203,277
903,424
14,343,630
14,803,536
14,692,247
111,289
2,974,148
2,866,060
2,777,589
88,471
5,611,594
5,591,121
5,487,172
103,949
1,564,841
1,557,992
1,659,050
(1,058)
1,659,094
773,141
773,141
631,760
586,685
587,209
(524)
157,940
247,067
147,107
99,960
33,293,848
32,532,303
30,453,651
2,078,652
(985,512)
(486,472)
1,365,935
1,852,407
2,272,566
2,280,067
2,214,073
(65,994)
(1,125,000)
(1,175,00D)
(2,585,719)
(1,410,719)
1,147,566
1,105,067
(371,646)
(1,476,713)
162,054
618,595
994,289
375,894
7,432,287
7,432,287
7,432,287
$ 7,594,341 $
6050,882 E
8,426,576 It
375,694
0
CITY OF ALLEN, TEXAS
I
I
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED SEPTEMBER 30 2004
BUDGETARY INFORMATION
The City Council adheres to the following procedures in establishing the budgets reflected in the
financial statements:
1. Each year the City Manager is required to submit to the City Council a proposed budget for the
fiscal year beginning on the following October 1. The operating budget includes proposed
expenditures and the means of financing them.
2. Public hearings are conducted to obtain taxpayers' comments.
3. Prior to October 1, the budget is legally enacted by the City Council through passage of an
ordinance.
4. Annual budgets are legally adopted for the General Fund and Debt Service Fund on a basis
consistent with accounting principles generally accepted in the United States of America. Formal
budgetary integration is not employed for proprietary funds. However, the City does adopt an
annual budget for those funds for managerial control.
5. The City Manager is authorized to adjust budgeted amounts; however, such revisions may not
result in total expenditures (appropriations) in excess of budgeted expenditures without approval of
the City Council. Therefore, the legal level of budgetary control is total budgeted expenditures.
6. Formal budgetary integration is not employed for Special Revenue Funds, Proprietary Funds or
Capital Projects Funds. However, the City does adopt an annual budget for those funds for
managerial control.
7. Budgetary data for the Special Revenue Funds and Capital Projects Funds has not been presented
in the accompanying basic financial statements as such funds are budgeted over the fife of the
respective grant or project and not on an annual basis. Budgetary information for the Proprietary
Funds has not been presented since reporting on such budgets is not legally required.
The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual —
General Fund presents a comparison of budgetary data to actual results. The General Fund utilizes
the same basis of accounting for both budgetary purposes and actual results.
64
Ili
COMBINING AND INDIVIDUAL FUND
1 STATEMENTS AND SCHEDULES
1
1
1
i
i
1
1
1
1
1
65
",SSpEGT *INTpC
CITY OF 011-Ue-
m
MAJOR GOVERNMENTAL FUNDS
GENERALFUND
The General Fund is used to account for resources associated with traditional governmental functions that
are not required legally or by sound financial management to be accounted for in another fund.
DEBT SERVICE FUND
The Debt Service Fund is used to account for the accumulation of resources for and the payment of general
obligation bonds and interest from governmental resources.
SPECIAL REVENUE FUND
The Special Revenue Funds account for the proceeds of specific revenue sources (other than expendable
trust or capital projects) that are legally restricted to expenditures for specific purposes. The City classifies
the following Special Revenue Fund as a major fund:
Facilities Agreement Fund — To account for funds received from builders and developers used on
specific facility agreements such as neighborhood parks, paving and assessments in new developments.
CAPITAL PROJECTS FUNDS
The Capital Projects Funds account for all resources used for the acquisition and/or construction of major
capital facilities by the City, except those financed by proprietary funds and trust funds. The following Capital
Projects Funds are Gassed as major funds:
General Capital Projects Fund — To account for resources used for the acquisition and/or construction
of capital facilities by the City, except those financed by proprietary and trust funds and not accounted for
by the other capital project funds.
Street Improvements Fund —To account for the financing and construction of improvements to and the
extension of the City's streets. The construction is financed primarily by the proceeds of general
obligation bonds and interest on investments.
Park Improvements Fund — To account for the financing, improvements, and enlargements of the Citys
parks. These improvements and enlargements are funded by general obligation bond proceeds and
interest on investments.
Library Fund — To account for the financing, construction and furnishing of library facilities with the
proceeds of general obligation bonds and interest on investments.
General Obligation Bond Fund — To account for financing, acquisitions, and construction of
improvements to City facilities and infrastructure not accounted for by other bond funds. This fund is
new in 2004.
13A
CITY OF ALLEN, TEXAS
EXHIBIT B-1
GENERALFUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
2004 2003
ASSETS
Cash and cash equivalents
Investments
Receivables:
Ad valorem taxes (net of allowances for uncollectibles
of $133,779 in 2004 and $143,204 in 2003)
Sales taxes
Accrued interest
Other
Due from other funds
Prepaid items
Total assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable
Accrued liabilities
Due to other funds
Deferred revenue
Total liabilities
FUND BALANCES
Reserved for encumbrances
Reserved for prepaid items
Unreserved, designated
Unreserved, undesignated
Total fund balances
Total liabilities and fund balances
ao
$ 2,841,150 111
3,215,201
6,265,000
5,000,000
201,622
149,776
1,277,546
1,213,740
27,492
29,882
601,506
426,787
400,487
4,713
2,353
4,713
2,353
11,219,029
10,438,228
$ 1,180,470 $
875,117
910,361
1,530,559
500,000
450,487
201,622
149,776
2,792,453
3,005,939
110,553
4,713
2,353
199,683
8,421,863
7,119,698
8,426,576
7,432,287
$ 11,219,029 $
10,438,226
n
' CITY OF ALLEN, TEXAS
GENERALFUND
' COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
REVENUES
Ad valorem taxes, penalties and interest
Franchise taxes
Municipal sales tax
Licenses, permits and fees
Charges for services
Fines
Gifts and contributions
Intergovernmental
Interest
Miscellaneous
Total revenues
EXPENDITURES
Current:
General government
Public safety
Public works
Culture and recreation
Community development
Grants administration
Debt service:
Principal retirement
Interest and fiscal charges
Total current expenditures
Excess of revenues over expenditures
OTHER FINANCING SOURCES AND (USES)
Proceeds from capital lease obligation
Transfers from other funds
Transfers to other funds
Total other financing uses
NET CHANGE IN FUND BALANCES
FUND BALANCES, BEGINNING OF YEAR
FUND BALANCES, END OF YEAR
1.19
EXHIBIT B-2
2004 2003
$ 16,058,384 $
14,682,974
3,620,703
3,349,730
7,064,601
6,740,270
1,334,767
1,364,939
1,254,012
988,076
1,470,473
1,428,274
72,069
137,207
147,107
794,840
252,641
200,947
691,736
478,377
31,819,586
30,165,634
5,203,277
5,184,152
14, 692, 247
13, 551, 576
2,777,589
2,444,021
5,487,172
5,026,395
1,559,050
1,492,952
1,025,141
587,209
660,771
147,107
94,050
30,453,651
29,479,058
1,365,935
686,576
6,789
2,214,073
2,127,685
(2,585,719)
(2,399,842)
(371,646)
(265,368)
994,289
421,208
7,432,287
7,011,079
$ 8,426 576 $
71432,287
CITY OF ALLEN, TEXAS EXHIBIT B-3
DEBT SERVICE FUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
ASSETS
Cash and cash equivalents
Investments
Receivables:
Ad valorem taxes (net of allowances for uncollectibles
of $82,150 in 2004 and $87,949 in 2003)
Accrued interest receivable
Other receivables
Total assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Deferred revenue
Interest payable
Total liabilities
FUND BALANCES
Reserved for debt service
Total liabilities and fund balances
70
2004 2003
$ 147,139 $ 380,685
1,385,000 1,000,000
112,461 88,496
7,613 1,867
1,505 2,374
$ 1,653,718 $ 1,473,422
$ 112,461 $
88,496
7,256
112,461
95,752
1,541,257
1,377,670
$ 1,653,718 $
1,473,422
'
CITY OF ALLEN, TEXAS
EXHIBIT B4
DEBT SERVICE FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES
'
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
'
2004
2003
REVENUES
Ad valorem taxes $
9,023,530
$ 8,598,834
Interest
80,423
67,398
Total revenues
9,103,953
8,666,232
EXPENDITURES
Principal retirement
51110,000
4,370,000
Interest and fiscal charges
3,830,366
4,018,210
Total expenditures
8,940,366
8,388,210
'
Excess of revenues over expenditures
163,587
278,022
OTHER FINANCING SOURCES AND (USES)
Proceeds from refunding bonds
2,712,759
Payment to refund bond escrow agent
(2,653,846)
'
Total other financing sources
58,913
NET CHANGE IN FUND BALANCES
163,587
336,935
FUND BALANCES, BEGINNING OF YEAR
1,377,670
1,040,735
FUND BALANCES, END OF YEAR $
1,541,257
$ 1,377,670
71
CITY OF ALLEN, TEXAS EXHIBIT B-5
DEBT SERVICE FUND
BUDGETARY COMPARISON SCHEDULE
FOR THE YEAR ENDED SEPTEMBER 30, 2004
72
'
VARIANCE WITH
BUDGETED AMOUNTS
FINAL BUDGET
POSITIVE
ORIGINAL
FINAL
ACTUAL
(NEGATIVE)
REVENUES
Ad valorem taxes
$ 9,111,115 $
9,111,115 $
9,023,530
$ (87,585)
Interest
101,830
101,830
80,423
(21,407)
Total revenues
9,212,945
9,212,945
9,103,953
(108,992)
EXPENDITURES
Principal retirement
5,110,000
5,110,000
5,110,000
Interest and fiscal charges
3,840,083
3,840,083
3,830,366
9,717
Total expenditures
8,950,083
8,950,083
8,940,366
9,717
EXCESS (DEFICIENCY) OF REVENUES
OVER EXPENDITURES
262,862
262,862
163,587
(99,275)
FUND BALANCES, BEGINNING OF YEAR
1,377,670
1,377,670
1,377,670
FUND BALANCES, END OF YEAR
$ 1,640,532 $
1,640,532 $
1,541,257
$ (99,275)
72
CITY OF ALLEN, TEXAS EXHIBIT B$
FACILITIES AGREEMENT FUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
ASSETS
Cash and cash equivalents
Investments
Accrued interest receivable
Due from other funds
Total assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Retainage payable
Deferred revenue
Total liabilities
FUND BALANCES
Reserved for encumbrances
Unreserved
Total fund balances
Total liabilities and fund balances
73
2004 2003
$ 2,779,495 $ 2,177,037
3,991,923 1,997,000
12,722 9,325
2,000,000
$ 6,784,140 $ 6,183,362
$ $ 606
4,564,035 4,065,889
4,564,035 4,066,495
90,811 79,749
2,129,294 2,037,118
2,220,105 2,116,867
$ 6,784,140 $ 6,183,362
CITY OF ALLEN, TEXAS
EXHIBIT B-7 '
FACILITIES AGREEMENT FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES '
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
REVENUES
Gifts and contributions
Interest
Total revenues
EXPENDITURES
Capital outlay
Total expenditures
NET CHANGE IN FUND BALANCES
FUND BALANCES, BEGINNING OF YEAR
FUND BALANCES, END OF YEAR
74
2004 2003
t
$ 186,734 $
86,892
103,238
93,208
289,972
180,100
186,734
86,892
186,734
86,892
103,238
93,208
2,116,867
2,023,659
$ 2,220,105 $
2,116,867
CITY OF ALLEN, TEXAS EXHIBIT B-8
GENERAL CAPITAL PROJECTS FUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
75
20D4
2003
ASSETS
Cash and cash equivalents
S
9,951,632
$
6,465,496
Investments
7,030,673
8,000,000
Accrued interest receivable
22,406
47,507
Special assessments receivable
208,796
Due from other funds
1,000,000
450,000
Total assets
$
18,213,507
$
14,963,003
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable
$
107,927
$
372,742
Retainage payable
76,504
34,267
Accrued liabilities
385,915
Due to other funds
400,000
Total liabilities
570,346
807,009
FUND BALANCES
Unreserved
17,643,161
14,155,994
Total fund balances
17,643,161
14,155,994
Total liabilities and fund balances
$
18,213,507
$
14,963,003
75
CITY OF ALLEN, TEXAS EXHIBIT B-9
GENERAL CAPITAL PROJECTS FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
REVENUES
Charges for services
Intergovernmental
Interest
Gifts and contributions
Miscellaneous
Total revenues
EXPENDITURES
General government
Capital outlay
Total expenditures
Deficiency of revenues over expenditures
OTHER FINANCING SOURCES
Transfers from other funds
Total other financing sources
NET CHANGE IN FUND BALANCES
FUND BALANCES, BEGINNING OF YEAR
FUND BALANCES, END OF YEAR
76
2004 2003
$ 818,873 $
6,970,569
2,030,971
2,662,487
317,018
207,184
120,000
48,100
88,629
442
3,375,491
2,918,213
323,535
194,622
5,179,894
5,730,247
5,503,429
5,924,869
(2,127,938) (3,006,656)
5,615,105
6,970,569
5,615,105
6,970,569
3,487,167
3,963,913
14,155,994
10,192,081
$ 17,643,161 $
14,155,994
CITY OF ALLEN, TEXAS EXHIBIT B-10
STREET IMPROVEMENTS FUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
ASSETS
Cash and cash equivalents
Investments
Accrued interest receivable
Total assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable
Retainage payable
Due to other funds
Total liabilities
FUND BALANCES
Reserved for encumbrances
Unreserved
Total fund balances
Total liabilities and fund balances
77
2004 2003
$ 2,379,294 $ 4,710,929
2,000,000 5,000,000
6,374 30,144
$ 4,385,668 $ 9,741,073
$ 269,884 $ 1,485,018
77,341 223,501
2,000,000
347,225 3,708,519
1,016,872 2,176,624
3,021,571 3,855,930
4,038,443 6,032,554
$ 4,385,668 $ 9,741,073
CITY OF ALLEN, TEXAS EXHIBIT B-11
STREET IMPROVEMENTS FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
REVENUES
Interest
$ 118,312
$ 184,464
Total revenues
118,312
184,464 ,
EXPENDITURES
Public works
13,773
35,347
'
Capital outlay
4,648,150
8,306,318
Total expendilures
4,661,923
8,341,665
,
Deficiency of revenues over expenditures
(4,543,611)
(8,157,201)
OTHER FINANCING SOURCES
'
Proceeds from sale of bonds
2,549,500
4,020,000
Total other financing sources
2,549,500
4,020,000
,
NET CHANGE IN FUND BALANCES
(1,994,111)
(4,137,201)
FUND BALANCES, BEGINNING OF YEAR
6,032,554
10,169,755 ,
FUND BALANCES, END OF YEAR
$ 4,038,443
$ 6,032,554 t
78
CITY OF ALLEN, TEXAS EXHIBIT B-12
PARK IMPROVEMENTS FUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
ASSETS
Cash and cash equivalents
Investments
Accounts receivable
Accrued interest receivable
Total assets
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable
Retainage payable
Total liabilities
FUND BALANCES
Reserved for encumbrances
Unreserved
Total fund balances
Total liabilities and fund balances
Y41
2004 2003
$ 2,227,671 $
4,793,523
3,355,000
3,000,000
1,980
15,294
14,105
$ 5,599,945 $
7,807,628
$ 455,055 $ 2,197
207,942 9,435
662,997 11,632
1,215,557 62,292
3,721,391 7,733,704
4,936,948 7,795,996
$ 5,599,945 $ 7,807,628
CITY OF ALLEN, TEXAS
EXHIBIT B-13
PARKIMPROVEMENTSFUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004
2003
REVENUES
Interest $
125,169 $
119,568
Total revenues
125,169
119,568 r
EXPENDITURES
Culture and recreation
14,827
'
81,019
Capital outlay
4,474,390
1,989,916
Total expenditures
4,489,217
2,070,935 ,
Deficiency of revenues over expenditures
(4,364,048)
(1,951,367)
OTHER FINANCING SOURCES (USES)
,
Transfers to other funds
(54,000)
(155,220)
Proceeds from sale of bonds
1,559,000
3,190,000 '
Total other financing sources
1,505,000
3,034,780
NET CHANGE IN FUND BALANCES
(2,859,048)
1,083,413 '
FUND BALANCES, BEGINNING OF YEAR
7,795,996
6,712,583
FUND BALANCES, END OF YEAR $
4,936,948 $
'
7,795,996
1
80 '
CITY OF ALLEN, TEXAS EXHIBIT B-14
LIBRARY FUND
COMPARATIVE BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
ASSETS
Cash and cash equivalents
Investments
Accrued interest receivable
Total assets
LIABILITIES AND FUND BALANCES
LIABILITIES
A=unts payable
Retainage payable
Total liabilities
FUND BALANCES
Reserved for encumbrances
Unreserved
Total fund balances
Total liabilities and fund balances
81
2004 2003
$ 2,869,292 $ 5,268,066
2,000,000
8,077
$ 2,669,292 $ 7,276,145
$ 407,270 $ 107,289
515,854
923,124 107,289
1,822,719 168,058
123,449 7,000,798
1,946,168 7,168,856
$ 2,869,292 $ 7,276,145
CITY OF ALLEN, TEXAS EXHIBIT B-15
LIBRARY FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
REVENUES
Interest
Total revenues
EXPENDITURES
Culture and recreation
Capital outlay
Total expenditures
Deficiency of revenues over expenditures
OTHER FINANCING USES
Transfers to other funds
Total other financing uses
NET CHANGE IN FUND BALANCES
FUND BALANCES, BEGINNING OF YEAR
FUND BALANCES, END OF YEAR
82
2004
2003
$ 79,728 $ 131,153
79,728 131,153
6,066
5,302,416 548,013
5,302,416 554,079
(5,222,688) (422,926)
(81,975)
(81,975)
(5,222,688)
(504,901)
7,168,856
7,673,757
$ 1,946,168 $
7,166,856
CITY OF ALLEN, TEXAS EXHIBIT B-16
GENERAL OBLIGATION BOND FUND
BALANCE SHEET
SEPTEMBER 30,2004
_F IZI41K
Cash and cash equivalents $ 1,375,591
Investments 5,000,000
Accrued interest receivable 15,934
Total assets $ 6,391,525
FUND BALANCE
FUND BALANCE
Unreserved $ 6,391,525
83
CITY OF ALLEN, TEXAS EXHIBIT B-17
GENERAL OBLIGATION BOND FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCE
FOR THE YEAR ENDED SEPTEMBER 30, 2004
REVENUES
Interest
Total revenues
EXPENDITURES
General government
Total expenditures
Excess of revenues over expenditures
OTHER FINANCING SOURCES (USES)
Proceeds from sale of bonds
Transfers to other funds
Total other financing sources
NET CHANGE IN FUND BALANCE
FUND BALANCE, BEGINNING OF YEAR
FUND BALANCE, END OF YEAR
84
$ 31,294
31,294
26,269
26,269
5,025
6,786,500
(400,000)
6,386,500
6,391,525
$ 6,391,525
NON -MAJOR GOVERNMENTAL FUNDS
SPECIAL REVENUE FUNDS
The Special Revenue Funds account for the proceeds of specific revenue sources (other than expendable
trust or capital projects) that are legally restricted to expenditures for specific purposes. Non -major Special
Revenue Funds are as follows:
Antenna Rental Fund —To account for funds received and expended for capital items for the City.
Hotel Occupancy Tax Fund — To account for funds received from hotel occupancy tax and expend as
allowed by state law.
Asset Forfeiture Fund — To account for activities associated with assets legally seized and forfeited.
Allen Arts Alliance Fund — To account for funds received and expended to promote, nurture and
support the arts in the City of Allen. .
Grants and Special Revenue Fund — To account for monies received from other governmental
agencies that have restricted legal requirements and multi-year budgets.
Parks and Recreation Fund — To account for the provision of recreation services to the residents of the
City, account for the operations and maintenance of the City's leisure and competitive swimming pools
and to account for funds received and expended for the City of Allen swim team activities.
Library Acquisition Fund — To account for funds received and expended for the acquisition of library
books and other resources.
Park Dedication Fund — To account for funds received and expended for the acquisition of additional
park land and for the development of neighborhood parks.
CAPITAL PROJECTS FUNDS
The Capital Projects Funds account for all resources used for the acquisition and/or construction of major
capital facilities by the City, except those financed by proprietary funds and trust funds. The following Capital
Projects Funds are classified as non -major funds:
Special Assessments Fund —To account for funds received from property owners who were assessed
for improvements the City performed which increased their property value.
Public Safety Fire Fund — To account for the financing of construction and renovation of fire stations
and the acquisition of fire fighting equipment. General fund revenues, general obligation bond proceeds
and interest on investments are the sources of financing for building renovation and equipment
purchases.
Public Safety Police Fund — To account for the financing of construction and renovation to the Police
and Court Building. The construction is financed primarily by the proceeds of general obligation bonds
and interest on investments.
Drainage Improvements Fund — To account for the financing and construction of improvements to and
the extension of the Citys drainage system. The construction is financed primarily by the proceeds of
general obligation bonds and interest on investments.
85
CITY OF ALLEN, TEXAS
'
NON -MAJOR GOVERNMENTAL FUNDS
COMBINING BALANCE SHEET
SEPTEMBER 30 2004
SPECIAL REVENUE
GRANTS
HOTEL
ALLEN
AND
PARKS
,
ANTENNA
OCCUPANCY
ASSET
ARTS
SPECIAL
AND
RENTAL
TAX
FORFEITURE
ALLIANCE
REVENUE
RECREATION
ASSETS
'
Coah arM cash e4uivaleras
$ 159,572
$ 86,824
$ 14,430 $
8,847
E
500,578
$ 288,177
Accourds receivable
1,000
4,481
41,322
8,046
TOTAL ASSETS
S 160.572
$ 91,305
$ 14,430 $
8,847
$
541,900
$ 296223
t
LIABILITIES AND FUND BALANCES
LIABILITIES
1
Accounts payable
$
$ 20,238
$ 1,080 $
$
3,644
$ 39,607
Retainage payable
Accrued liabilities
3,003
57,611
,
Due to other funds
500,000
Deferred revenue
8,871
TOTAL LIABILITIES
20,236
4,083
512,515
97,218
'
FUND BALANCES
Reserved for enwmbrences
Unreserved
160,672
71,069
10,347
8,647
29,385
199,005
TOTAL FUND BALANCES
160,572
71,089
10,347
8,647
29,385
199AOS
TOTAL LIABILITIES AND FUND BALANCES$
180,572
$ 91.305
$ 14.430 S
8.647
$
541.900
$ 296223
i
86
EXHIBIT CA
CAPITAL PROJECTS
E $
18,187 $
$ 5,000 $
$
67,959 $
TOTAL
PUBLIC
PUBLIC
3,650
NON -MAJOR
LIBRARY
PARK SPECIAL
SAFETY
SAFETY
DRAINAGE
GOVERNMENTAL
ACQUISITION
DEDICATION ASSESSMENTS
FIRE
POLICE
IMPROVEMENTS
FUNDS
$ 213,804 $
1,993,460 $ $
342,810 $
12,713 $
957,637
$ 4,578,652
5,000
71,809
728,828
54.849
§ 213,804 §
1,993,460 § $
342,810 E
12,713 $
957.637
§ 4.833.501
E $
18,187 $
$ 5,000 $
$
67,959 $
155.693
3,650
3,850
60,614
500,000
8,871
18,167
5,000
71,809
728,828
337,810
572,843
910,653
213,804
1,975,293
12,713
313,185
2994,020
213.804
1,975,293
337,810
12.713
888,028
3,904.873
$ 213,801 E
1,993,460 §
$ 342,810 $
12,713 $
957,637 E
4,633,501
07
CITY OF ALLEN, TEXAS
NON -MAJOR GOVERNMENTAL FUNDS
COMBINING STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED SEPTEMBER 30. 2004
Hotel/motel taxes
SPECIAL REVENUE
Recreation fees
GRANTS
HOTEL
ALLEN
AND
PARKS
ANTENNA OCCUPANCY
ASSET ARTS
SPECIAL
AND
56,189
RENTAL TAX
FORFEITURE ALLIANCE
REVENUE
RECREATION
REVENUES
507,783
Interest
3,538
Franchise taxes
$ $
E $ E
39,853 $
1,751
Licenses, permits, and fees
291.584
10.767
Fines
61,303
96,905
Hotel/motel taxes
262,392
Recreation fees
1,734,553
Gifts and contributions
56,189
Intergovernmental
507,783
Interest
3,538
883
74
104
192
1,751
Miscellaneous
291.584
10.767
5.962
61,303
Total revenues
295.122
263.275
10.841
104
650.695
1.853,796
EXPENDITURES
General government
88,685
Public safety
9,101
480,786
Public works
11
22,241
Culture and recreation
140,000
266,173
58,721
3,119,755
Community development
4,046
Capital outlay
519.809
Total expendeures
140,000
266.173
9.101
11
1.174,288
3.119,755
Excess (deficiency) of revenues over
expenditures
155.122
(2,898)
1,740
93
(523.593)
(1,265,959)
OTHER FINANCING SOURCES (USES)
Proceeds from sale of bonds
Transfers from other funds
559,479
1,280,000
Transfers to other funds
(321,000)
(6,501)
Total other financing sources (uses)
(321,000)
552,978
1.280,000
NET CHANGE IN FUND BALANCES
(165,878)
(2,898)
1,740
93
29,385
14,041
FUND BALANCES, BEGINNING OF YEAR
326.450
73.967
8.607
8,554
184,964
FUND BALANCES, END OF YEAR $
160,572
E 71.069 $
10,347 $
8,647 $
29,385 $
199,005
M
EXHIBIT C-2
CAPITAL PROJECTS
9,653 (290,334) 1,395 (304,252) (62,100) (71,409) (2,352,542)
805,000
TOTAL
NON -MAJOR
LIBRARY
PARK
SPECIAL
PUBLIC SAFETY
PUBLIC SAFETY
DRAINAGE
GOVERNMENTAL
ACQUISITION
DEDICATION
ASSESSMENTS
FIRE
POLICE
IMPROVEMENTS
FUNDS
9,853
(290,334)
(808,576)
(304,252)
$ $
733,591
E
$ S
2,266,627
$ $
39,853
74,813
159,315
4,550,208
8 213,804 S
1,975,293
E $
159,315
12,713 E
886,028
E 3.904.673
96,905
262,392
1,734,553
7,138
63,327
507,783
2,515
36,059
1,395
5,896
243
5,308
57,956
14,750
384.368
9,653
210,124
1,395
5,896
243
5,306
3,306,450
524
89,209
489,887
3,624
25,876
3,684,649
4,046
499,934
310,148
62,343
73,091
1,465,325
500,458
310,148
62,343
76,715
5,658,992
9,653 (290,334) 1,395 (304,252) (62,100) (71,409) (2,352,542)
99
805,000
805,000
1,839,479
(609,971)
1937,472)
(609,971)
805,000
1,707,007
9,853
(290,334)
(808,576)
(304,252)
(62,100)
733,591
(645,535)
204,151
2,266,627
608,576
642 062
74,813
152,437
4,550,208
8 213,804 S
1,975,293
E $
337,810 $
12,713 E
886,028
E 3.904.673
99
atSpECT *INTEO
m
A
m
x
n
m
C'TY OF PI%.Ew
m
MAJOR ENTERPRISE FUNDS
The Enterprise Funds are used to account for operations that are financed and operated in a manner similar
to private business enterprises where the intent is that the costs of providing goods or services to the general
public on a continuing basis be financed or recovered primarily through user charges; or where the City's
council has decided that periodic determination of net income is appropriate for accountability purposes.
Water and Sewer Fund — To account for the provision of water and sewer services to the residents of the
' City.
Solid Waste Fund —To account for the provision of solid waste services to the residents of the City.
' Drainage Fund —To account for the provision of developing and maintaining proper drainage services to the
residents of the City.
1
1
' 91
CITY OF ALLEN, TEXAS EXHIBIT DA
WATER AND SEWER ENTERPRISE FUND
COMPARATIVE STATEMENTS OF NET ASSETS
SEPTEMBER 30, 2004 AND 2003
ASSETS
2004
2003
CURRENTASSETS
Cash and cash equivalents
$ 3,145,857
$ 3,449,577
Investments
5,975,346
4,094,822
Receivables, net of allowance for uncollectibles:
Accounts
2,572,331
2,454,881
Accrued interest
19,502
16,364
Inventories
85,069
18,115
Restricted cash and cash equivalents
3.400883
2,488564
Total current assets
15,198.988
12,500,303
CAPITAL ASSETS
Land
822,643
822,643
Towers, tanks, and pump stations
98,163,493
98,350,170
Vehicles
700,302
782,109
Machinery and equipment
1,738,559
1,342,942
Furniture and fixtures
8,187
69.174
Construction in progress
835.114
543.684
Total capital assets
102,266,298
99,910,722
Less: accumulated depreciation
(28,495,743)
(23.823475)
Capital assets, net of accumulated depreciation
73.770 555
76.087,247
DEFERRED CHARGES
Unamortized bond issuance costs
and deferred amount on refunding
130,232
44,800
TOTAL ASSETS
$ 89.099,775 $
88,632.350
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable
Accrued liabilities
$ 1,988,074 $
1,222,592
Payable from restricted assets:
109,028
55,252
Revenue bonds payable
1,340,000
1 150 000
Accrued interest payable265,383
235,938
Utility deposits
1,132.857
1.057 582
Total current liabilities
4.835 342
3.721 382
NON-CURRENT LIABILITIES
Revenue bonds payable
15,332,895
13,178,981
cr
Acued compensated absences
73.831
76.654
Total non-current liabilities
15,408.728
13,255 615
TOTAL LIABILITIES
$ 20,242068 $
16.978977
NETASSETS
Invested in capital assets, net of listed debt
60,012,683
61,803,086
Restricted for revenue bond principal and Interest
862,643
23,046
Unrestricted
8,182 381
9.829 241
TOTAL NET ASSETS
$ 68.857707 $
71.655.373
92
d
1
CITY OF ALLEN, TEXAS EXHIBIT D-2
WATER AND SEWER ENTERPRISE FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN FUND NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
OPERATING REVENUES
Water sales
$ 10,981,255
$ 10,682,260
Sewer charges
4,858,352
3,939,556
Connection fees
246,349
264,240
Service charges
402,945
276,036
Miscellaneous
76,643
213,702
Total operating revenues
16,565,544
15,375,794
OPERATING EXPENSES
Personal services
2,368,074
2,090,224
Contractual and other services
8,083,840
7,363,688
Maintenance
168,237
189,671
Supplies
122,100
95,242
Depredation and amortization
4,734,302
2,676,140
Other
66,671
16,301
Total operating expenses
15 543,224
12,431266
OPERATING INCOME
1,022,320
2944,528
NON-OPERATING REVENUES (EXPENSES)
Interest income
157,904
188,009
Interest expense
(730,791)
(743,949)
Development fees
730,978
880,557
Total non-operating expense
158,091
324,617
INCOME BEFORE CAPITAL CONTRIBUTIONS
AND TRANSFERS
1,160,411
3,269,145
CAPITAL CONTRIBUTIONS AND TRANSFERS
Capital contributions
1,408,145
1,094,246
Transfers from other funds
13,644
27'536
Transfers to other funds
(5,399,866)
(8603,792)
Total capital contributions and transfers
(3978,077)
(5482,010)
CHANGE IN NET ASSETS
(2,797,666)
(2,212,865)
NET ASSETS, BEGINNING OF YEAR
71 655,373
73,868,238
NET ASSETS, END OF YEAR
$ 68,857,707
$ 71,655,373
41
CITY OF ALLEN, TEXAS
WATER AND SEWER ENTERPRISE FUNDS
COMPARATIVE STATEMENTS OF CASH FL
EXHIBIT 0-3 '
RECONCILIATION OF OPERATING INCOME TO NET CASH
2004
2003
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers
Cash paid to employees for services
5 16,448,074
$ 15,117,837
Cash paid for goods and services
(2,370,897)
(7.883562)
(2,085,090)
(8.738351)
Net cash provided by operating activities
_ 8.193 615
4.293 396
CASH FLOWS FROM NON -CAPITAL FINANCING ACTIVITIES
Transfers from other funds
13,644
27,536
Transfers to other funds
(5.399.886)
(6.603 792)
Net cash used in non -capital financing activities
(5.386.222)
(8.578.256)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
53,776
Principal paid on revenue bond maturities
(4,460,000)
(1,100,000)
Bond proceeds
6,892,352
5,134
Interest and fees paid on long-term debt
(698,209)
(761044)
Acquisition and construction of capital assets
(1,00.5,548)
(1,384,450)
Contributions from developers
730.978
_ 880.557
Net cash provided by (used in) capital and related financing activities
1.459 573
(2.364 937)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investment securities
Proceeds from the sale and maturities of investment securities
(5,975,346)
(4,094,822)
Interest on investments
4,094,622
61566,806
154,766
_ 201.506
Net cash provided by (used in) investing activities
(1.725 758)
2,673,49D
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
541,208
(1,974,307)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
5.916.141
_ 7,890448
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 6.457.349
$ 5.918.141
RECONCILIATION OF OPERATING INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net operating income
Adjustments to reconcile net operating income
$_ 1.022320
$_ 2.944528
to net cash provided by operating activities:
Depreciation and amortization expense
4,644,953
2,676,140
Change in assets and liabilities:
(Increase) in accounts receivable
(117,470)
(257,957)
(Increase) decrease in inventories
(66,954)
26,068
Increase in accounts payable
765.482
7,078
Increase (decrease) In accrued liabilities
53,776
Increase (decrease) in compensated absences
(969,745)
Increase in utility deposits
(2,823)
5,134
(Decrease) in retainage payable
75,275
98,041
(233891)
Total adjustments
_ 5.352 239
_ 1.348 868
Net cash provided by operating activities
$ 6,374.559
$ 4,293,396
NON-CASH FINANCING ACTIVITIES:
Contributions of fixed assets from developers
$
1.408.145
$ _ 1,094.246
eP
CITY OF ALLEN, TEXAS EXHIBIT D-4
SOLID WASTE ENTERPRISE FUND
COMPARATIVE STATEMENTS OF NET ASSETS
SEPTEMBER 30, 2004 AND 2003
95
2004
2003
ASSETS
CURRENTASSETS
Cash and cash equivalents
$
966,603
$
744,184
Receivables, net of allowance for uncollectibles:
Accounts
136,276
335,151
Other
138,603
149,917
Total current assets
1,241,482
1,229,252
CAPITAL ASSETS
Machinery and equipment
9,819
1,450
Vehicles
44,448
44,448
Total capital assets
54,267
45,898
Less: accumulated depreciation
(20,137)
(7,263)
Capital assets, net of accumulated depreciation
34,130
38,635
TOTAL ASSETS
$
1,275,612
$
1,267,887
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable
$
283,928
$
157,652
Accrued liabilities
19,405
16,221
Total current liabilities
303,333
173,873
NON-CURRENT LIABILITIES
Accrued compensated absences
7,641
5,771
Total non-current liabilities
7,641
5,771
TOTAL LIABILITIES
$
310,974
$
179,644
NET ASSETS
Invested in capital assets, net of related debt
34,130
38,635
Unrestricted
930,508
1,049,608
TOTAL NET ASSETS
$
964,638
$
1,088,243
95
CITY OF ALLEN, TEXAS EXHIBIT D-5
SOLID WASTE ENTERPRISE FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN FUND NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
OPERATING REVENUES
Garbage collections
Other
Total operating revenues
OPERATING EXPENSES
Personal services
Contractual and other services
Supplies
Depreciation
Other
Total operating expenses
OPERATING INCOME (LOSS)
NON-OPERATING REVENUES
Interest income
INCOME (LOSS) BEFORE TRANSFERS
TRANSFERS
Transfers from other funds
Transfers to other funds
Total transfers
CHANGE IN NET ASSETS
NET ASSETS, BEGINNING OF YEAR
NET ASSETS, END OF YEAR
ri
$ 3,288,339 $
3,073,916
1,500
65,329
3,289,839
3,139,245
211,882
163,794
3,082,614
2,843,969
6,135
5,463
12,874
7,263
57,329
32,472
3,370,834
3,052,961
(80,995)
86,284
9,362 10,061
(71,633) 96,345
12,549
(51,972) (37,154)
(51,972) (24605)
(123,605) 71,740
1,088,243 1,016,503
$ 964,638 $ 1,088,243
I
' CITY OF ALLEN, TEXAS
EXHIBIT D-6
SOLID WASTE ENTERPRISE FUND
COMPARATIVE STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers
Cash paid to employees for services
Cash paid for goods and services
Net cash provided by (used in) operating activities
CASH FLOWS FROM NON -CAPITAL FINANCING ACTIVITIES
Transfers from other funds
Transfers to other funds
Net cash used in hon -capital financing activities
CASH FLOWS FROM CAPITAL AND
RELATED FINANCING ACTIVITIES
Acquisition of capital assets
Net cash used in capital and related financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on Investments
Net cash provided by investing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
'
RECONCILIATION OF OPERATING INCOME (LOSS) TO
11,314
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
10,061
Net operating income (loss)
222,419
Adjustments to reconcile net operating income (loss)
'
to net cash provided by (used in) operating activities:
Depredation
744,184
Change in assets and liabilities:
'
Decrease (increase) in accounts receivable
Decrease (increase) in other receivables
Increase (decrease) in accounts payable
Increase in accrued liabilities
Increase in accrued compensated absences
Total adjustments
'
Net cash provided by (used in) operating activities
97
$ 3,500,028 $ 2,844,271
(210,012) (161,922)
(3,016,618) (2,991,967)
273,398 (309,618)
12,549
(51,972) (37,154)
(51,972) (24,605)
(8,369) (45,898)
(8,369) (45,898)
9,362
10,061
11,314
9,362
10,061
(114,341)
222,419
(370,060)
744,184
1,114,244
$ 966,603 $
744,184
$ (80,995) $ 88,284
12,874 7,263
198,875
(197,825)
11,314
(97,149)
126,276
(114,341)
3,184
4,278
1,870
1,872
354,393 (395,902)
$ 273,398 $ (309,618)
CITY OF ALLEN, TEXAS
DRAINAGE ENTERPRISE FUND
COMPARATIVE STATEMENTS OF NET ASSETS
SEPTEMBER 30, 2004 AND 2003
EXHIBIT D-7
2004
2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
613,169
$
545,359
Accounts receivable
39,650
39,483
Total current assets
652,819
584,842
CAPITAL ASSETS
Other improvements
498,132
568,038
Vehicles
115,179
54,353
Machinery and equipment
373,734
419,007
Total capital assets
985,045
1,039,398
Less: accumulated depreciation
(257,527)
(218,917)
Capital assets, net of accumulated depreciation
727,518
820,481
TOTAL ASSETS
$
1,380,337
$
1,405,323
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable
$
12,576
$
16,225
Accrued liabilities
8,040
5,025
Total current liabilities
20,616
21,250
NON-CURRENT LIABILITIES
Accrued compensated absences
3,581
3,404
Total noncurrent liabilities
3,581
3,404
TOTAL LIABILITIES
$
24,197
$
24,654
NET ASSETS
Invested in capital assets, net of related debt
727,518
820,481
Unrestricted
628,622
560,188
TOTAL NET ASSETS
$
1,356,140
$
1,380,669
M
I
'
'
CITY OF ALLEN, TEXAS
DRAINAGE ENTERPRISE FUND
COMPARATIVE STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN FUND NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
EXHIBIT D-8
'
2004
2003
OPERATING REVENUES
Drainage fees
$ 771,856 $
730,986
Service charges
94,577
58,147
Miscellaneous
2,331
'
Total
operating revenues
866,433
791,464
OPERATING EXPENSES
Personal services
255,300
209,599
Contractual and other services
75,590
119,642
'
Maintenance
Supplies
159,160
12,252
131,205
9,374
Depreciation
92,963
92,931
Other
48,123
52,269
1
Total operating expenses
643,388
615,020
OPERATING INCOME
223,045
176,444
Non-operating revenues - interest income
5,698
7,435
'
INCOME BEFORE TRANSFERS
228,743
183,879
Transfers to other funds
(253,272)
(253,403)
'
CHANGE IN NET ASSETS
(24,529)
(69,524)
'
NET ASSETS, BEGINNING OF YEAR
1,380,669
1,450,193
NET ASSETS, END OF YEAR
$ 1,356,140 $
1,380,669
A
0
CIN OF ALLEN, TEXAS
DRAINAGE ENTERPRISE FUND
COMPARATIVE STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,20D4 AND 2003
EXHIBIT D-9 '
RECONCILIATION OF OPERATING INCOME TO NET CASH
2004
2003
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers
$ 866,266
$ 789,987
Cash paid to employees for services
(255,123)
(211,204)
Cash paid for goods and services
(295,759)
(335,514)
Net cash provided by operating activities
315,384
243,269
CASH FLOWS FROM NON -CAPITAL FINANCING ACTIVITIES
Operating transfers to other funds
(253,272)
(253,403)
Net cash used in non -capital financing activi ies
(253,272)
(253,403)
CASH FLOWS FROM CAPITAL
3,015
1,617
AND RELATED FINANCING ACTIVITIES:
177
(1,605)
Acquisition of capital assets
92,339
(194,431)
Net cash used in capital and related financing activities
315,384
(194,431)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments
5,698
7,435
Net cash provided by investing activities
5,098
7,435
NET DECREASE IN CASH AND CASH EQUIVALENTS
67,810
(197,130)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
545,359
742,489
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 613,169
$ 545,359
RECONCILIATION OF OPERATING INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net operating income $
223,045
$ 176,444
Adjustments to reconcile net operating Income
to net cash provided by operating activities:
Depreciation
92,963
92,931
Change in assets and liabilities:
(Increase) in accounts receivable
(167)
(1,477)
(Decrease) in accounts payable
(3,649)
(24,611)
Increase in accrued liabilities
3,015
1,617
Increase (decrease) in compensated absences
177
(1,605)
Total adjustments
92,339
66,825
Net cash provided by operating activities $
315,384
$ 243,269
100
I
C
INTERNAL SERVICE FUNDS
1 The Internal Service Funds are used to account for financing of services provided by one department to
other departments of the City on a cost -reimbursement basis.
L The Vehicle Replacement Fund - accounts for the costs associated with the acquisition of vehicles through
the rental of such vehicles to other departments.
r Risk Management Fund — accounts for the costs associated with workers compensation, liability and
` property insurance and medical and dental programs established for City employees and their covered
dependents.
1
1
1
1
1
1
1
1
CITY OF ALLEN, TEXAS EXHIBIT E-1
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF NET ASSETS
SEPTEMBER 30,2004
(WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2003)
VEHICLE RISK TOTALS
REPLACEMENT MANAGEMENT
FUND FUND 2004 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 2,617,123 $
967,080
$ 3,584,203
$ 2,856,939
Investments
2,000,000
100,000
2,100,000
1,994,000
Accounts receivable
7,027
20,460
27,467
19,707
Accrued interest receivable
6,374
548
6,922
8,588
Total current assets
4,630,524
1,088,088
5,718,612
4,879,234
CAPITAL ASSETS
Machinery and equipment
284,607
284,607
200,201
Vehicles
2,157,525
2,157,525
1,953,345
Accumulated depreciation
(1,416,964)
(1,416,964)
(1,249,998)
Capital assets,
net of accumulated depreciation
1,025,168
1,025,168
903,548
TOTAL ASSETS
5,655,692
1,088,088
6,743,780
5,782,782
LIABILITIES AND NET ASSETS
LIABILITIES
Accounts payable
82,535
82,535
37,713
Incurred but not reported claims
424,616
424,616
362,020
TOTAL LIABILITIES
507,151
507,151
399,733
NET ASSETS
Invested in capital assets,
net of related debt
1,025,168
1,025,168
903,548
Unrestricted
4,630,524
580,937
5,211,461
4,479,501
TOTAL NET ASSETS
$ 5,655,692 $
580,937
$ 6,236,629
$ 5,383,049
102
CITY OF ALLEN, TEXAS EXHIBIT E-2
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN FUND NET ASSETS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2003)
VEHICLE RISK TOTALS
REPLACEMENT MANAGEMENT
FUND FUND 2004 2003
OPERATING REVENUES
Charges for services $
847,187 $
3,942,142 $
4,789,329 $
3,574,347
Other income
50,892
50,892
33,598
Total operating revenues
847,187
3,993,034
4,840,221
3,607,945
OPERATING EXPENSES
Personal services
55,214
55,214
57,339
Contractual services
3,827,089
3,827,089
3,011,365
Depreciation
221,310
221,310
193,500
Total operating expenses
221,310
3,882,303
4,103,613
3,262,204
OPERATING INCOME
625,877
110,731
736,608
345,741
NON-OPERATING REVENUES
Interest income
93,655
11,575
105,230
78,398
Gain on disposal of capital assets
11,742
11,742
4,520
Total non-operating revenues
105,397
11,575
116,972
82,918
CHANGE IN NET ASSETS
731,274
122,306
853,580
428,659
NET ASSETS, BEGINNING OF YEAR
4,924,418
458,631
5,383,049
4,954,390
NET ASSETS, END OF YEAR $
5,655,692 $
580,937 $
6,236,629 $
5,383,049
103
CRY OF ALLEN, TEXAS
4,832,441 $
EXHIBIT E-3
INTERNAL SERVICE FUNDS
(58,394)
(57,339)
COMBINING STATEMENT OF CASH FLOWS
(3,222,437)
(2,642,076)
FOR THE YEAR ENDED SEPTEMBER 30, 2004
(494,054)
(78,238)
(WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2003)
90,138
320,948
856,887 200,869
1,057,556
VEHICLE
RISK TOTALS
717,064
REPLACEMENT
MANAGEMENT
1,057,556 It
FUND
FUND 2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from transactions with other funds
Cash paid to employees for services
Cash paid for goods and services
Cash paid for claims
Net cash provided by operating activities
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Acquisition of capital assets
Proceeds from sale of capital assets
Net cash used in capital and related financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities
Proceeds from sale and maturities of investment securities
Interest on investments
Net cash pmvided by (used In) Investing sc1N81es
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net operating income
Adjustments to reconcile operating Income
to net cash provided by operating activities:
Depreciation
Change in assets and liabilities:
(Increase) decrease in accounts receivables
Increase (decrease) In accounts payable
Total adjustments
Not cash provided by operating activities
$ 859,867 $ 3,972,574 $
4,832,441 $
3.611,125
(3,180) (55,214)
(58,394)
(57,339)
(3,222,437)
(3,222,437)
(2,642,076)
(494,054)
(494,054)
(78,238)
230,810
90,138
320,948
856,887 200,869
1,057,556
633,472
(342,930) (342,930) (640,160)
11,742 11,742
(331,186) (331,188) (640,160)
(2,000,000)
(100,000)
(2,100,000)
(1,991,000)
1,994,000
(20,460)
1,894,000
2,835,010
95,869
11,027
106,898
78,074
230,810
90,138
320,948
287,731
89,869
(88,973)
89e
717,064
$___156 687 $
200,869 $
1,057,556 It
633,472
615,368
111,896
727,264
710,396
2,001,755
855,184
2,856,939
2,148,643
$ 2,817,123
$ 967,080 $
3,584,203 $
2,856,939
$ 625,877 $ 110,731 $ 736,608 $ 345,741
221,310
221,310
193,500
12,680
(20,460)
(7,780)
(3,180)
110,598
107,418
94,231
230,810
90,138
320,948
287,731
$___156 687 $
200,869 $
1,057,556 It
633,472
104
CAPITAL ASSETS
USED IN THE OPERATION
� OF GOVERNMENTAL FUNDS
1
1
1
1
1
1
1
1
1
1
1
V,
g?eCT * I NTEO
R'T.
CITY OF PL�'Ec
CITY OF ALLEN, TEXAS
EXHIBIT F-1
COMPARATIVE SCHEDULES OF CAPITAL ASSETS USED IN
THE OPERATION OF GOVERNMENTAL FUNDS - BY SOURCE (A)
SEPTEMBER 30, 2004 AND 2003
2004 2003
GOVERNMENTAL FUNDS CAPITAL ASSETS
Land and land improvements
Buildings
Machinery and equipment
Furniture and fixtures
Vehicles
Books
Infrastructure
Total property and equipment in service
Construction in progress
Total governmental funds capital assets
INVESTMENTS IN GOVERNMENTAL FUNDS CAPITAL ASSETS
BY REVENUE SOURCE
General obligation bond proceeds and interest income
Revenue bonds
Contributions
Other governments
General and other fund operations
Special revenue funds
Total governmental funds capital assets
$ 61,662,118 $
57,215,397
37,203,288
36,673,389
2,658,166
2,000,999
1,594,504
1,561,257
3,116,830
3,422,606
2,573,525
2,562,331
267,133,760
256,579,671
375,942,191
360,215,650
25,534,288
11, 354, 604
$ 401,476,479 $ 371,570,254
$ 85,273,098 $
70,402,558
10,475,000
10,475,000
230,751,770
223,886,656
8,351,500
6,451,500
60,750,994
57,742,668
5,874,117
2,611,872
$401,476,479 $ 371,570,254
(A) This schedule presents only the capital asset balances related to governmental funds,
including infrastructure. Accordingly, the capital assets reported in the internal service
funds are excluded from the above amounts. Generally, the capital assets of internal
service funds are included as governmental activities in the statement of net assets.
105
CITY OF ALLEN, TEXAS
SCHEDULE OF CAPITAL ASSETS USED IN THE OPERATION OF
GOVERNMENTAL FUNDS - BY FUNCTION AND ACTIVITY (A)
AS OF SEPTEMBER 30, 2004
CULTURE & RECREATION
Parks & recreation
Land
647,613
Machinery and
Function and Activity
Land Improvements
Buildings
Equipment
753.625
COMMUNITY DEVELOPMENT
GENERAL GOVERNMENT
Planning & development
Municipal court
$ 631,788 $ $
289,669
$
City administration
507,332
8,820,247
27,948
Information technology
397.739
115,941
Human resources
397,739
Construction in Progress
Internal services
(6.784)
Total general government
1.739,120
9,109,916
137.105
PUBLIC SAFETY
Police
6,475,150
263,098
Fire
6,879.224
749,370
Total public safety
13,354.374
1,012.468
PUBLIC WORKS
Community services & streets
50,940.632
328,839
Engineering
4,W.965
21,397
Total public xrodts
55,085,597
350,236
CULTURE & RECREATION
Parks & recreation
4,595,245 842,156 12,843,920
647,613
Library
1,895,078
106,012
Total culture & recreation
4,595,245 842,156 14,738.998
753.625
COMMUNITY DEVELOPMENT
Building and code compliance
Planning & development
6,993
Total community development
6,993
GRANT ADMINISTRATION
Grant administration
397.739
Total grant administration
397,739
Construction in Progress
Total governmental funds capital assets $ 60.819.962 $ 842.156 $ 37,203,288 $ 2.658,166
(A) This schedule presents only the capital asset balances related to governmental funds,
including infrastructure. Accordingly, the capital assets reported in the internal service
funds are excluded from the above amounts. Generally, the capital assets of internal
service funds are included as governmental activities in the statement of net assets.
106
EXHIBIT F-2
Furniture and
585,202
1,187,687
Other Construction in
7,608,647
9,321,564
FLHums
Vehicles
Books Improvements Progress
Total
17.701
346,611
154,619
256,319,843
10.125,736
307,935,925
14 464,418
$ $
$
$ $ $
921,457
818,459
25,534,288
10,173,986
14,564
9,682
222,321
362,506
3,336
3,336
8,748
$ 1,594,504 E 3,118,830 $
1,964
$45,107
9,682
222,321
11463.251
213,330
235,398
585,202
1,187,687
71,867
269,885
7,608,647
9,321,564
448.728
1.772.889
341,752
16.930.211
17.701
346,611
154,619
256,319,843
10.125,736
307,935,925
14 464,418
17,701
501.230
266 445,579
322,400,343
282,968 557,948 20,000
19,789,850
2,540,471
4,541,561
282,988 557,948 2.540.471 20.000
21.331,411
33,056
104.108
135,515
135,515
6,993
135,515
142.508
139.588
33,054
104,108
674,467
139,566
33,056
104.108
674,467
25,534,288
25,534,288
25,534,288
25 534,288
$ 1,594,504 E 3,118,830 $
2,573,525 E
267,133.760 $
25,534,288 $
401476,479
107
CITY OF ALLEN, TEXAS
SCHEDULE OF CHANGES IN CAPITAL ASSETS USED IN THE OPERATION
OF GOVERNMENTAL FUNDS - BY FUNCTION AND ACTIVITY (A)
FOR THE FISCAL YEAR ENDED SEPTEMRFR 3n 2nA4
EXHIBIT F-3 '
(A) This schedule presents only the capital asset balances related to governmental funds,
including infrastructure. Accordingly, the Capital assets reported in the internal service
funds are excluded from the above amounts. Generally, the Capital assets of intemal
service funds are included as govemmental activities in the statement of net assets.
108
Govemsm ntal Funds
Governmental Funds
C.P6.1 Assets
Developer
Capital Assets
Function and Acpvdy
October 1. 2003
Contributions
Addition.
Deductions
TransNrs
September 30, 2004
GENERAL GOVERNMENT
Municipal coud
S 921,457 $
$
$ $
$
921,457
City administration
10,183,491
(16,289)
8784
10,173,986
Inrmmetion hchnclwy
340,558
21,952
892,508
Human resources
3,336
3,338
IrNemel serncas
8.74
(8.784)
1.984
Total general govemment
11.445.501
34.038
116,289)
11,483251
PUBLIC SAFETY
Police
7.684.351
88.137
(202,712)
80.888
],808.81]
Fire
9.100.321
248.451
(283.328)
288.120
9.321.581
Total public safety
18.]946]5
312.588
(498,010)
328.988
18,930211
PUBLIC WORKS
Commun8y services S.Veete
30],809,]94
1321838
(6,507)
307,935,925
Enginaadng
193.717
8.731,114
455.290
1184,9621
7,819,279
14.464,418
Total public works
308.0031511
8]31,114
587.928
(171,489)
],249,2]9
322.400.313
CULTURE 8 RECREATION
Perks 8 racandocn
19,227,385
134,000
388742
39,723
19.789,850
Library
4,457.409
218.055
(131.913)
4.511581
Total wlture a rxreatbn
23.881 ]94
134.000
SO 507
(131,913)
39.723
24.331.411
COMMUNITY DEVELOPMENT
Building 8 code compliance
135,515
135.515
Planning 6 dl v lwment
8.993
6.508
Totaoxnmunitydevelopmem
14250e
142.508
GRANT ADMINISTRATION
GrantedministMcm
154.859
519.809
614.487
Tote) giant administration
154,958
519.809
_
874,487
Total general fixed assets
allocated by runcdon
360,215,851)
6,1185,114
2.059.168
(815,731)
7.917,990
375,942,191
Concoction in progress
11.354 604
21.797.674
(.617,990)
25.534,288
Total govemmental funds
capital assets
$ 3]1.5]0,254 3_8,865.114
S_
23,858.842
$ 3_$
401.4]8.4]9
(A) This schedule presents only the capital asset balances related to governmental funds,
including infrastructure. Accordingly, the Capital assets reported in the internal service
funds are excluded from the above amounts. Generally, the Capital assets of intemal
service funds are included as govemmental activities in the statement of net assets.
108
II
II
STATISTICAL SECTION
(UNAUDITED)
109
CITY OF ALLEN, TEXAS
GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION (A)
LAST TEN FISCAL YEARS
(UNAUDITED)
FISCAL
GENERAL
PUBLIC
PUBLIC
CULTUREAND
COMMUNITY ,
YEAR
GOVERNMENT
SAFETY
WORKS
RECREATION
DEVELOPMENT
1995
$1,534,808
$4,028,945
$541,827
$1,465,860
$545,331
1996
1,257,365
4,339,685
542,141
17,648,576
587,059
1997
1,788,174
5,620,122
585,179
2,133,283
674,604
1998
2,126,443
6,911,125
675,079
2,541,508
748,510
1999
2,657,125
8,006,330
854,907
2,913,149
618,812
2000
3,714,436
9,063,625
1,963,195
3,390,150
1,230,318
2001
4,051,058
10,896,606
2,354,777
4,554,158
1,242,795
2002
5,091,234
12,813,503
2,629,347
4,996,149
1,949,561
2003
5,210,352
13,559,651
2,444,021
7,977,612
1,492,952
2004
5,291,962
15,182,134
2,799,841
9,071,821
1,563,096
(A) Includes General, Special Revenue and Debt Service Funds
(B) In 2003, grants were allocated for in their own category.
110
TABLE 1
GRANTS
CAPITAL
DEBT
ADMINISTRATION (B)
OUTLAY
SERVICE
TOTAL
$158,959
$3,005,147
$11,280,877
758,278
3,007,485
28,140,589
980,289
3,620,852
15,402,503
678,761
3,643,055
17,324,481
254,693
4,451,686
19,756,702
1,153,095
5,545,171
26,059,990
2,250
6,813,770
29,915,414
1,004,720
8,124,934
36,609,448
$1,025,141
330,872
9,143,031
41,183,632
1,206,477
9,674,682
44,790,013
111
CITY OF ALLEN, TEXAS
GENERAL GOVERNMENTAL REVENUES BY SOURCE (A)
LAST TEN FISCAL YEARS
(UNAUDITED)
FISCAL LICENSES INTER-
CHARGES FOR
FINES AND j
YEAR TAXES (B) AND PERMITS GOVERNMENTAL
SERVICES
FORFEITURES ■
1995 $9,200,266 $615,891
$9,293
$202,345
1996 10,757,710 922,138
112,972
310,318
1997 12,002.526 1,026,175
243,417
332,385
1998 13,976,651 1,842,603
287,020
465,756
1999 16,607,129 2,006,937
358,597
671,934
2000 20,255,520 1,733,140
992,672
738,005
2001 25,292,740 1,896,867 $538,761
1,288,629
1,007,666 1
i
2002 29,715,372 1,484,888 896,321
1,147,409
1,179.269
2003 33,593,070 1,364,939 794,840
2,587,674 (D)
1,428,274
2004 36,069,356 1,494,082 507,783
2,988,565 (D)
1,567,378
(A) Includes General, Special Revenue and Debt Service Funds
'
(B) Includes ad valorem, penalty and interest, franchise, hotel and sales tares -
General and Debt Service Funds
(C) Includes gifts and contributions
(D) Includes recreation fees
112
113
TABLE 2
GIFTS AND
CONTRIBUTIONS
INTEREST
MISCELLANEOUS
TOTAL
$420,387
$866,113 (C)
$11,314,295
473,570
510,363 (C)
13,087,071
'
451,499
909,111 (C)
14,985,113
$685,217
521,151
459,825
18,238,223
254,693
478,640
653,506
21,031,436
1,158,765
1,000,208
1,099,644
26,977,954
'
2,250
918,055
641,851
31,586,819
1,004,720
436,605
836,367
36,700,951
'
283,019
404,082
795,785
41,251,683
322,130
481,618
1,076,102
44,507,014
113
TABLE 2
CITY OF ALLEN, TEXAS
AD VALOREM TAX LEVIES AND COLLECTIONS
LAST TEN FISCAL YEARS
(UNAUDITED)
114
PERCENT
DELINQUENT
FISCAL
TOTAL
CURRENTTAX
OFLEVY
TAX
TOTALTAX
YEAR
TAX LEVY
COLLECTIONS
COLLECTED
COLLECTIONS
COLLECTIONS (A)
1995
$6,380,680
$6,363,231
99.73%
$19,016
$6,382,247
1996
7,139,479
7,142,679
100.04%
50,451
7,193,130
1997
8,092,555
8,056,575
99.56%
80,355
8,136,930
1998
9,107,745
9,102,700
99.94%
27,067
9,129,767
1999
10,823,366
10,762,014
99.43%
68,580
10,830,594
2000
13,100,263
13,043,521
99.57%
103,623
13,147,144
2001
16,070,978
16,051,072
99.88%
152,450
16,203,522
2002
19,396,752
19,318,306
99.60%
272,200
19,590,606
2003
22,912,250
22,792,642
99.48%
552,794
23,345,437
2004
24,869,126
24,627,258
99.03%
235,498
24,862,756
(A) Includes penalty and interest
collections. Such amounts
ere recorded with
ad valorem
tax revenue in the combined financial statements
114
TABLE 3
PERCENT OF
PERCENT OF
TOTALTAX
OUTSTANDING
OUTSTANDING
COLLECTIONS
DELINQUENT
DELINQUENT
TO TAX LEVY
TAXES
TAXES TO TAX LEVY
99.65%
$4,626
0.07%
100.06%
8,158
0.11%
99.57%
12,131
0.15%
99.81%
38,701
0.42%
100.36%
72,467
0.67%
100.36%
56,244
0.43%
100.82%
104,596
0.65%
101.00%
179,172
0.92%
101.89%
231,153
1.01%
99.98%
215,928
0.87%
115
� VLOSpECT * JIV rtoH
�T.
T
A
m
H
r
CITY OF A%--6'
CITY OF ALLEN, TEXAS
ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY
LAST TEN FISCAL YEARS
(UNAUDITED)
TABLE 4
116
REAL AND PERSONAL
PERCENTAGE OF
FISCAL
PROPERTY ASSESSED
ESTIMATED
TOTAL ASSESSED TO
YEAR
VALUE (A)
VALUE
TOTAL ESTIMATED
1995
$891,654,515
589104,515
100.00%
1996
1,073,605,805
1,073,605,805
100.00%
1997
1,248,851,016
1,248,851,016
100.00%
1998
1,566,233,175
1,566,233,175
100.00%
1999
1,862,324,508
1,882,324,508
100.00%
2000
2,287,107,121
2,287.107,121
100.00%
2001
2,849,399,418
2,849,399,418
100.00%
2002
3,445,805,987
3,445,805,987
100.00%
2003
4,076,548,994
4,076,548,994
100.00%
2004
4,432,999,647
4,432,999,647
100.OD%
(A) Represents total assessed value before expiration
116
CITY OF ALLEN, TEXAS
PROPERTY TAX RATES (A) - DIRECT AND OVERLAPPING GOVERNMENTS
LAST TEN FISCAL YEARS
(UNAUDITED)
(A) Rams are based per $100 valuation
ifh
DEBT
COLLIN COUNTY
TAX
GENERAL
SERVICE
ALLEN
COLLIN
COMMUNITY
YEAR
FUND
FUND
TOTAL
I.S.D.
COUNTY
COLLEGE DISTRICT
1995
0.37805
0.33755
0.7156
1.668600
0.26
0.098550
1996
0.38371
0.28129
0.6650
1.605000
0.26
0.098550
1997
0.35843
0.28957
0.6480
1.690000
0.26
0.098550
1998
0.34867
0.23191
0.5806
1.661100
0.26
0.098550
1999
0.35005
0.22495
0.5750
1.736900
0.25
0.096880
2000
0.34603
0.22797
0.5740
1.762040
0.25
0.094050
2001
0.34817
0.21583
0.5640
1.831416
0.25
0.092843
2002
0.35705
0.20595
0.5630
1.808203
0.25
0.091946
2003
0.35438
0.20762
0.5620
1.808203
0.25
0.091946
2004
0.35924
0.20176
0.5610
1.872300
0.25
0.091932
(A) Rams are based per $100 valuation
ifh
�I
118
TABLE 5
LOVEJOY
MCKINNEY
PLANO
I.S.D.
I.S.D.
I.S.D.
TOTAL
2.74275
'
2.62855
2.69655
'
2.60023
2.66078
'
2.68009
2.73826
2.71315
1.7034
4.41555
1.703
1.98
1.7334
8.19163
�I
118
TABLE 5
CITY OF ALLEN, TEXAS
RATIO OF NET GENERAL BONDED DEBT TO ASSESSED VALUE
LAST TEN FISCAL YEARS
(UNAUDITED)
FISCAL
ESTIMATED
TAXABLE
GROSS GENERAL
LESS DEBT
YEAR
POPULATION (A)
VALUE(B)
BONDED DEBT (C)
SERVICE FUND
1995
27,219
$891,654,515
$26,398,921
$594,510
1996
29,468
1,073,605,805
32,033,921
765,253
1997
32,539
1,248,851,016
30,323,921
838,686
1998
35,744
1,566,233,175
38,413,921
1,017,694
■■■
1999
43,686
1,882,324,508
49,608,921
937,386
2000
48,308
2,287,107,121
59,117,730
833,788
2001
54,421
2,849,399,418
68,409,064
848,466
2002
58,790
3,445,805,987
78,007,619
1,040,735
2003
63,643
4,076,548,994
79,243,921
1,377,670
2004
67,147
4,432,999,647
85,833,921
1,541,257
(A) Source: Census results/North Central Texas Council of Governments
(B) Represents assessed value less exemptions
(C) Includes all General Obligation bonds
119
TABLE 6
120
RATIO OF NET
NET
NET
BONDED DEBT
BONDED DEBT
BONDED DEBT
TO TAXABLE VALUE
PER CAPITA
$25,804,411
2.89%
$948.03
31,268,668
2.91%
1,061.11
29,485,235
2.36%
906.15
37,396,227
2.39%
1,046.22
48,671,535
2.59%
1,114.12
58,283,942
2.55%
1,206.51
67,560,598
2.37%
1,241.44
76,966,884
2.23%
1,309.18
77,866,251
1.91%
1,223.48
84,292,664
1.90%
1,255.35
120
CITY OF ALLEN, TEXAS
RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL OBLIGATION
BONDED DEBT TO GENERAL GOVERNMENTAL EXPENDITURES -LAST TEN FISCAL YEARS
(UNAUDITED)
TABLE 7 '
(A) Includes General, Special Revenue, and Debt Service Funds
121
RATIO OF DEBT
TOTAL GENERAL
SERVICE TO GENERAL
FISCAL
TOTAL DEBT
GOVERNMENTAL
GOVERNMENTAL
YEAR
PRINCIPAL
INTEREST
SERVICE
EXPENDITURES
EXPENDITURES
1995
$1,195,000
$1204,232
$2,399,232
$11,260,877
21.31%
1996
1,465,000
1,539,912
3,004,912
12,256,870
24.52%
1997
1,710,000
1,906,985
3,616,985
15,402,503
23.48%
1998
1,927,980
1,715,075
3,643,055
17,324,481
21.03%
1999
2,145,000
2,306,686
4,451,686
19,756,702
22.53%
2000
2,830,000
2,715,171
5,545,171
24,828,513
22.33%
2001
3,469,803
3,343,966
6,813,789
29,754,166
22.90%
2002
3,725,000
3,715,129
7,440,129
35,335,608
21.06%
2003
4,370,000
4,018,210
8,388,210
41,183,632
20.37%
2004
5,110,000
3,830,366
8,940,366
44,790,013
19.96%
(A) Includes General, Special Revenue, and Debt Service Funds
121
' CITY OF ALLEN, TEXAS TABLES
t COMPUTATION OF LEGAL DEBT MARGIN
SEPTEMBER 30, 2004
(UNAUDITED)
Article XI, Section 5 of the Texas Constitution, applicable to cities of more than 5,000 population: $2.50 per $100.00 assessed
valuation. The City Charter of the City of Allen, Texas does not provide for a debt limit. The City tax rate of $0.561 per $100.00
' assessed valuations is 22.44% of the constitutional limit for operation and debt service.
1
1
1
1
1
122
CITY OF ALLEN, TEXAS
COMPUTATION OF DIRECT AND OVERLAPPING DEBT
SEPTEMBER 30,2004
(UNAUDITED)
TABLE 9
PERCENTAGE
(A)
APPLICABLE TO
GROSS DEBT
CITIZENS OF
OUTSTANDING (A)
City of Allen
$85,833,921
Total direct debt
85,833,921
$85,833,921
Allen I.S.D.
221,828,533
Lovejoy I.S.D.
32,722,943
McKinney I.S.D.
335,705,840
Plano I.S.D.
724,063,145
Collin County
248,689,997
Collin County Community College District
42,698,564
9.15%
Total overlapping debt
1,605,709,022
3,906,919
Total direct and overlapping debt
$1,891,542,943
TABLE 9
PERCENTAGE
AMOUNT
APPLICABLE TO
APPLICABLE TO
CITIZENS OF
CITIZENS OF
ALLEN
ALLEN
100.00%
$85,833,921
85,833,921
88.71%
196,784,092
0.43%
140,709
0.85%
2,853,500
0.13%
941,282
9.15%
22,755,135
9.15%
3,906,919
227,381,637
$313,215,558
Average debt per capita $25,192
(A) Includes all general obligation debt which is to be repaid through property taxes
[P*l
1
1
1
1
1
CITY OF ALLEN, TEXAS
PROPERTY VALUES AND CONSTRUCTION
LAST TEN FISCAL YEARS
(UNAUDITED)
TABLE 10
(A) Source: City of Allen - Building Inspections (includes all permits)
(B) Includes new construction, alterations, add-ons and improvements
124
TOTAL
CONSTRUCTION (A)
FISCAL
ASSESSED
NUMBER
COMMERCIAL
NUMBER
RESIDENTIAL
YEAR
VALUE
OF PERMITS
VALUE
OF PERMITS
VALUE(B)
1995
$891,654,515
333
$13,491,728
2,259
$104,305,165
1996
1,073,605,805
319
36,369,959
2,803
164,855,137
1997
1248,851,016
386
75,998,593
2,487
158,480,566
1998
1,566,233,175
468
56,481,429
3,360
209,691,408
1999
1,882,324,508
133
116,245,279
1,298
209,732,070
2000
2,287,107,121
252
105,883,860
1,425
244,820,111
2001
2,849,399,418
197
73,463,501
2,257
586,583,600
2002
3,445,805,987
202
50,759,762
1,458
277,808,123
2003
4,076,548,994
218
39,705,007
3,708
238,064,000
2004
4,432,999,647
291
66,497,137
4,255
252,689,150
(A) Source: City of Allen - Building Inspections (includes all permits)
(B) Includes new construction, alterations, add-ons and improvements
124
CRY OF ALLEN, TEXAS
PRINCIPAL TAXPAYERS
SEPTEMBER 30,2004
(UNAUDITED)
TABLE 11 '
125
PERCENTAGE OF
2003
TAXABLE ASSESSED
TAXPAYER
TYPE OF BUSINESS
VALUATION
VALUATION
Chelsea Allen Development LP
Commercial Real Estate
$13,491,728
0.30%
Oncor?XU/Lone Star Gas
Gas Utility
35,345,389
0.80%
Wells Operating Partnership
Commercial Real Estate
32,186,331
0.73%
Southwestem Bell/SBC
Telephone Utility
28,477,162
0.64%
Meridian Settlers' Gate, L.P.
Apartment Complex
25,109,456
0.57%
Photronics-Toppan TX Inc
Photomask Production
29,545,501
0.67%
Benton Pointe/Sentinel R.E.
Apartment Complex
43,302,660
0.98%
FSI International Inc
Semiconductor mfg
21,099,483
0.48%
Twin Creeks Village LP
Retail
22,519,228
0.51%
Bossy Boots/S.R./Twin Creeks
Real Estate
36,278,364
0.82%
Total
$13,491,728
7.35%
125
I
1
1
1
1
1
1
CITY OF ALLEN, TEXAS
MISCELLANEOUS STATISTICAL FACTS
SEPTEMBER 30,2004
(UNAUDITED)
Date of Incorporation
July 1, 1953
Form of Government
Council/Manager
Area
26.37 square miles
Miles of street
261 center line miles
Population estimate
67,147
Fire Protection:
Number of stations
4
Number of personnel
86
Number of fire hydrants
3,429
Police Protection:
Number of stations
1
Number of personnel
121
Water Service:
Supplier
North Texas Municipal Water District
Number of consumers
21,933
Average daily consumption
15,947,000 gallons
Miles of water lines
323 linear miles
Sewer Service:
Sanitary sewer lines
242 linear miles
Storm sewer lines
86 linear miles
Building Permits Issued (A)
4,992
Parks:
Number
38
Area
740 acres
Municipal Employees:
Full-time equivalent
550
Public Education:
Total Enrollment
14,770
Number of Schools
Elementary ( K - 6)
11
Middle School (7 & 8)
3
Freshman Center (9)
1
High School (10 - 12)
1
Community College
classes held at the High School
(A) Includes residential, commercial, and miscellaneous (e.g.
pools, fences) permits
126
TABLE 12
CITY OF ALLEN, TEXAS
DEMOGRAPHIC STATISTICS (Unaudited)
LAST TEN FISCAL YEARS
(UNAUDITED)
TABLE 13
FISCAL ESTIMATED
PER CAPITA
SCHOOL
YEAR POPULATION (A)
INCOME (B)
ENROLLMENT (C)
1995 27,219
$16,040
7,531
1996 29,468
16,040
8,199
1997 32,539
16,040
8,781
1998 35,744
16,040
9,453
1999 43,686
16,040
9,940
2000 48,308
16,040
10,595
2001 54,421
40,068
11,519
2002 58,790
40,068
12,380
2003 63,643
40,068
13,798
2004 67,147
40,068
14,770
(A) Estimates by City, review of available census data and review of various City records
(B) Source: North Dallas Chamber of Commerce/North Central Texas council of Governments,
Updated every 10 years from census study
(C) Source: Allen Independent School District
127
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INTERNATIONAL
1
To the Audit Committee
CITY OF ALLEN
Statement on Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial
Statement Audit, is effective for audits of financial statements for periods beginning after
December 15, 2002. This statement establishes standards and provides guidance to
auditors in fulfilling their responsibility to plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement,
whether caused by error or fraud. This standard includes specific guidance relating to:
IF description and characteristics of fraud
• the importance of exercising professional skepticism
• discussion among engagement personnel regarding the risks of material
misstatement
• obtaining the information needed to identify risks of material misstatement due to
fraud
IF identifying risks that may result in a material misstatement due to fraud
IF assessing the identified risks after taking into account of the entity's programs and
controls
• responding to the results of the assessment
• evaluating audit evidence
IF communicating about fraud to management, the audit committee, and others
IF documenting the auditor's consideration of fraud
In the requirements relating to obtaining information needed to identify risks of material
misstatement due to fraud, this standard requires the auditor to make the following
inquiries of the audit committee or its chair:
IF What are the audit committee's views relating to risk of fraud?
IF Does the audit committee have any knowledge of any fraud or suspected fraud?
IF What is the audit committee's involvement in the oversight of the assessment of
the risks of fraud and the programs and controls the entity has established to
mitigate fraud risks?
• How does the audit committee exercise its oversight of fraud risk?
Accompanying this letter is a copy of SAS No. 99 and its appendices. On page 43 you
will find a brief discussion of an audit committee's involvement in assessing risk of fraud.
If you have any questions relating to this standard, please do not hesitate to contact us.
WEAVER AND TIDWELL, L.L.P.
COPYRIGHT e2001, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
' AU Section 316
' Consideration of Fraud in a Financial Statement Audit
(Supersedes SAS No. 82)
' Source: SAS No. 99.
' Effective for audits of financial statements for periods beginning on or after December 15, 2002.
' Introduction and Overview
.01 Section 110, Responsibilities and Functions ofthe Independent Auditor, paragraph .02, states,
' "The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether caused by error
or fraud. [footnote omitted]" fn 1(1) This section establishes standards and provides guidance to
' auditors in fulfilling that responsibility, as it relates to fraud, in an audit of financial statements
conducted in accordance with generally accepted auditing standards (GRAS). fn 2(2)
' .02 The following is an overview of the organization and content of this section:
' Description and characteristics offraud. This section describes laud and its
characteristics. (See paragraphs .05 through .12.)
• The importance of exercising professional skepticism. This section discusses the need for
' auditors to exercise professional skepticism when considering the possibility that a
material misstatement due to fraud could be present. (See paragraph .13.)
t Discussion among engagement personnel regarding the risks ofmaterial misstatement
due to fraud. This section requires, as part of planning the audit, that there be a
discussion among the audit team members to consider how and where the entity's
' financial statements might be susceptible to material misstatement due to fraud and to
reinforce the importance of adopting an appropriate mindset of professional skepticism.
' (See paragraphs .14 through .18.)
Obtaining the information needed to identify risks of material misstatement due tofraud.
This section requires the auditor to gather information necessary to identify risks of
' material misstatement due to fraud, by
a. Inquiring of management and others within the entity about the risks of fraud.
' (See paragraphs .20 through .27.)
b. Considering the results of the analytical procedures performed in planning the
' audit (See paragraphs .28 through .30.)
C. Considering fraud risk factors. (See paragraphs .31 through .33, and the
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' Appendix, "Examples of Fraud Risk Factors" [paragraph .85].)
d. Considering certain other information. (See paragraph .34.)
• Identifying risks that may result in a material misstatement due to fraud This section
requires the auditor to use the information gathered to identify risks that may result in a
material misstatement due to fraud. (See paragraphs .35 through .42.)
' Assessing the identified risks after taking into account an evaluation of the entity's
programs and controls. This section requires the auditor to evaluate the entity's programs
' and controls that address the identified risks of material misstatement due to fraud, and to
assess the risks taking into account this evaluation (See paragraphs .43 through .45.)
' Responding to the results of the assessment. This section emphasizes that the auditor's
response to the risks of material misstatement due to fraud involves the application of
professional skepticism when gathering and evaluating audit evidence. (See paragraph
' .46 through .49.) The section requires the auditor to respond to the results of the risk
assessment in three ways:
t a. A response that has an overall effect on how the audit is conducted, that is, a
response involving more general considerations apart from the specific
procedures otherwise planned (See paragraph .50.)
' b. A response to identified risks that involves the nature, timing, and extent of the
auditing procedures to be performed (See paragraphs .51 through .56.)
'C. A response involving the performance of certain procedures to f i thet address the
risk of material misstatement due to fraud involving management override of
' controls. (See paragraphs .57 through .67.)
• Evaluating audit evidence. This section requires the auditor to assess the risks of material
' misstatement due to fraud throughout the audit and to evaluate at the completion of the
audit whether the accumulated results of auditing procedures and other observations
affect the assessment (See paragraphs .68 through .74.) It also requires the auditor to
' consider whether identified misstatements may be indicative of fraud and, if so, directs
the auditor to evaluate their implications. (See paragraphs .75 through .78.)
' Communicating about fraud to management, the audit committee, and others. This
section provides guidance regarding the auditor's communications about fraud to
management, the audit committee, and others. (See paragraphs .79 through .82.)
' Documenting the auditor's consideration offraud This section describes related
documentation requirements. (See paragraph .83.)
.03 The requirements and guidance set forth in this section are intended to be integrated into an
overall audit process, in a logical manner that is consistent with the requirements and guidance
provided in other sections, including section 311, Planning and Supervision; section 312, Audit
Risk and Materiality in Conducting an Audit,, and section 319, Consideration oflnternal Control
' in a Financial Statement Audit. Even though some requirements and guidance set forth in this
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' section are presented in a manner that suggests a sequential audit process, auditing in fact
involves a continuous process of gathering, updating, and analyzing information throughout the
audit Accordingly the sequence of the requirements and guidance in this section may be
' implemented differently among audit engagements.
.04 Although this section focuses on the auditor's consideration of fraud in an audit of financial
' statements, it is management's responsibility to design and implement programs and controls to
prevent, deter, and detect fraud. fn 3(3) That responsibility is described in section 110.03, which
states, "Management is responsible for adopting sound accounting policies and for establishing
tand maintaining internal control that will, among other things, initiate, record, process, and
report transactions (as well as events and conditions) consistent with managements assertions
' embodied in the financial statements." Management, along with those who have responsibility
for oversight of the financial reporting process (such as the audit committee, board of trustees,
board of directors, or the owner in owner -managed entities), should set the proper tone; create
' and maintain a culture of honesty and high ethical standards; and establish appropriate controls
to prevent, deter, and detect fraud. Wben management and those responsible for the oversight of
the financial reporting process fulfill those responsibilities, the opportunities to commit fraud can
' be reduced significantly.
' Description and Characteristics of Fraud
.05 Fraud is a broad legal concept and auditors do not make legal determinations of whether fraud
' has occurred Rather, the auditor's interest specifically relates to acts that result in a material
misstatement of the financial statements. The primary factor that distinguishes fraud from error
is whether the underlying action that results in the misstatement of the financial statements is
intentional or unintentional. For purposes of the section, fraud is an intentional act that results in
a material misstatement in financial statements that are the subject of an audit fin 4(4)
.06 Two types of misstatements are relevant to the auditor's consideration of fraud—misstatements
arising from fraudulent financial reporting and misstatements arising from misappropriation of
' assets.
• Misstatements arisingfrom fraudulentfnancial reporting are intentional misstatements
' or omissions of amounts or disclosures in financial statements designed to deceive
financial statement users where the effect causes the financial statements not to be
presented, in all material respects, in conformity with generally accepted accounting
' principles (GAAP). fn 5(5) Fraudulent financial reporting may be accomplished by the
following:
— Manipulation, falsification, or alteration of accounting records or supporting
documents from which financial statements are prepared
Misrepresentation in or intentional omission from the financial statements of
' events, transactions, or other significant information
— Intentional misapplication of accounting principles relating to amounts,
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classification, manner of presentation, or disclosure
Fraudulent financial reporting need not be the result of a grand plan or conspiracy. It may
be that management representatives rationalize the appropriateness of a material
misstatement, for example, as an aggressive rather than indefensible interpretation of
complex accounting riles, or as a temporary misstatement of financial statements,
including interim statements, expected to be corrected later when operational results
improve.
Misstatements arising from misappropriation of assets (sometimes referred to as theft or
defalcation) involve the theft of an entity's assets where the effect of the theft causes the
financial statements not to be presented, in all material respects, in conformity with
GAAP. Misappropriation of assets can be accomplisbed in various ways, including
embezzling receipts, stealing assets, or causing an entity to pay for goods or services that
have not been received Misappropriation of assets may be accompanied by false or
misleading records or documents, possibly created by circumventing controls. The scope
of this section includes only those misappropriations of assets for which the effect of the
misappropriation causes the financial statements not to be fairly presented, in all material
respects, in conformity with GAAP.
.07 Three conditions generally are present when fraud occurs. First, management or other employees
have an incentive or are under pressure, which provides a reason to commit fraud Second,
circumstances exist—for example, the absence of controls, ineffective controls, or the ability of
management to override controls that provide an opportunity for a fraud to be perpetrated.
Third, those involved are able to rationalize committing a fraudulent act Some individuals
possess an attitude, character, or set of ethical values that allow them to knowingly and
intentionally commit a dishonest acL However, even otherwise honest individuals can commit
fraud in an environment that imposes sufficient pressure on them. The greater the incentive or
pressure, the more likely an individual will be able to rationalize the acceptability of committing
feud
.Og Management has a unique ability to perpetrate fraud because it frequently is in a position to
directly or indirectly manipulate accounting records and present fraudulent financial information.
Fraudulent financial reporting often involves management override of controls that otherwise
may appear to be operating effectively. in 6(6) Management can either direct employees to
perpetrate fraud or solicit their help in carrying it ouL In addition, management personnel at a
component of the entity may be in a position to manipulate the accounting records of the
component in a manner that causes a material misstatement in the consolidated financial
statements of the entity. Management override of controls can occur in unpredictable ways.
.09 Typically, management and employees engaged in fraud will take steps to conceal the fraud from
the auditors and others within and outside the organization. Fraud may be concealed by
withholding evidence or misrepresenting information in response to inquiries or by falsifying
documentation. For example, management that engages in fraudulent financial reporting might
alter shipping documents. Employees or members of management who misappropriate cash
might try to conceal their thefts by forging signatures or falsifying electronic approvals on
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disbursement authorizations. An audit conducted in accordance with GAAS rarely involves the
authentication of such documentation, nor are auditors trained as or expected to be experts in
such authentication. In addition, an auditor may not discover the existence of a modification of
documentation through a side agreement that management or a third party has not disclosed
.10 Freud also may be concealed through collusion among management, employees, or third parties.
Collusion may cause the auditor who has properly performed the audit to conclude that evidence
provided is persuasive when it is, in fact, false. For example, through collusion, false evidence
that controls have been operating effectively may be presented to the auditor, or consistent
misleading explanations may be given to the auditor by more than one individual within the
entity to explain an unexpected result of an analytical procedure. As another example, tate auditor
may receive a false confirmation from a third party that is in collusion with management.
.11 Although fraud usually is concealed and managements intent is difficult to determine, the
presence of certain conditions may suggest to the auditor the possibility that fraud may exist. For
example, an important contract may be missing, a subsidiary ledger may not be satisfactorily
reconciled to its control account, or the results of an analytical procedure performed during the
audit may not be consistent with expectations. However, these conditions may be the result of
circumstances other than fraud Documents may legitimately have been lost or misfiled; the
subsidiary ledger may be out of balance with its control account because of an unintentional
accounting error, and unexpected analytical relationships may be the result of unanticipated
changes in underlying economic factors. Even reports of alleged fraud may not always be
reliable because an employee or outsider may be mistaken or may be motivated for unknown
reasons to make a false allegation.
.12 As indicated in paragraph .01, the auditor has a responsibility to plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether caused by fraud or error. fn 7(7) However, absolute assurance is not
attainable and thus even a properly planned and performed audit may not detect a material
misstatement resulting from fraud. A material misstatement may not be detected because of the
nature of audit evidence or because the characteristics of fraud as discussed above may cause the
auditor to rely unknowingly on audit evidence that appears to be valid, but is, in fact, false and
fraudulent. Furthermore, audit procedures that are effective for detecting an error may be
ineffective for detecting fraud.
The Importance of Exercising Professional Skepticism
.13 Due professional care requires the auditor to exercise professional skepticism. See section 230,
Due Professional Care in the Performance of Work, paragraphs .07 through .09. Because of the
characteristics of fraud, the auditor's exercise of professional skepticism is important when
considering the risk of material misstatement due to fraud Professional skepticism is an attitude
that includes a questioning mind and a critical assessment of audit evidence. The auditor should
conduct the engagement with a mindset that recognizes the possibility that a material
misstatement due to fraud could be present, regardless of any past experience with the entity and
COFYRIGRT O26W, AMERICAN INSTITUTE OF CERMIED TUBUC ACCOUNTAN7s(AICFA)
regardless of the auditor's belief about management's honesty and integrity. Furthermore,
professional skepticism requires an ongoing questioning of whether the information and
evidence obtained suggests that a material misstatement due to fraud has occurred. In exercising
professional skepticism in gathering and evaluating evidence, the auditor should not be satisfied
with less -than -persuasive evidence because of a belief that management is honest.
Discussion Among Engagement Personnel Regarding the Risks of Material
Misstatement Due to Fraud
.14 Prior to or in conjunction with the information -gathering procedures described in paragraphs .19
through .34 of this section, members of the audit team should discuss the potential for material
misstatement due to fraud. The discussion should include:
An exchange of ideas or "brainstorming" among the audit team members, including the
auditor with final responsibility for the audit, about how and where they believe the
entity's financial statements might be susceptible to material misstatement due to fraud,
how management could perpetrate and conceal fraudulent financial reporting, and how
assets of the entity could be misappropriated (See paragraph .15.)
An emphasis on the importance of maintaining the proper state of mind throughout the
audit regarding the potential for material misstatement due to fraud (See paragraph .16.)
.15 The discussion among the audit team members about the susceptibility of the entity's financial
statements to material misstatement due to fraud should include a consideration of the known
external and internal factors affecting the entity that might (a) create incentives/pressures for
management and others to commit fraud, (b) provide the opportunity for fraud to be perpetrated,
and (c) indicate a culture or environment that enables management to rationalize committing
fraud The discussion should occur with an attitude that includes a questioning mind as described
in paragraph .16 and, for this purpose, setting aside any prior beliefs the audit team members
may have that management is honest and has integrity. In this regard, the discussion should
include a consideration of the risk of management override of controls. fir 8(8) Finally, the
discussion should include how the auditor might respond to the susceptibility of the entity's
financial statements to material misstatement due to fraud
.16 The discussion among the audit team members should emphasize the need to maintain a
questioning mind and to exercise professional skepticism in gathering and evaluating evidence
throughout the audit, as described in paragraph .13. This should lead the audit team members to
continually be alert for information or other conditions (such as those presented in paragraph
.68) that indicate a material misstatement due to fraud may have occurred. It should also lead
audit team members to thoroughly probe the issues, acquire additional evidence as necessary,
and consult with other team members and, if appropriate, experts in the firm, rather than
rationalize or dismiss information or other conditions that indicate a material misstatement due
to fraud may have occurred.
.17 Although professional judgment should be used in determining which audit team members
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should be included in the discussion, the discussion ordinarily should involve the key members
of the audit team A number of factors will influence the extent of the discussion and how it
should occur. For example, if the audit involves more than one location, there could be multiple
discussions with team members in differing locations. Another factor to consider in planning the
discussions is whether to include specialists assigned to the audit team. For example, if the
auditor has determined that a professional possessing information technology skills is needed on
the audit team (see section 319.32), it may be useful to include that individual in the discussion.
.18 Communication among the audit team members about the risks of material misstatement due to
fraud also should continue throughout the audit—for example, in evaluating the risks of material
misstatement due to fraud at or new the completion of the field work. (See paragraph .74 and
footnote 28.)
Obtaining the Information Needed to Identify the Risks of Material Misstatement
Due to Fraud
.19 Section 311.06-.08 provides guidance about how the auditor obtains knowledge about the
entity's business and the industry in which it operates. In performing that work, information may
come to the auditor's attention that should be considered in identifying risks of material
misstatement due to fraud. As part of this work, the auditor should perform the following
procedures to obtain information that is used (as described in paragraphs .35 through .42) to
identify the risks of material misstatement due to fraud:
a. Make inquiries of management and others within the entity to obtain their views about
the risks of fraud and bow they are addressed. (See paragraphs .20 through .27.)
b. Consider any unusual or unexpected relationships that have been identified in performing
analytical procedures in planning the audit. (See paragraphs .28 through .30.)
C. Consider whether one or more fraud risk factors exist. (See paragraphs .31 through .33,
and the Appendix [paragraph .85).)
d. Consider other information that may be helpful in the identification of risks of material
misstatement due to fraud. (See paragraph .34.)
Making Inquiries of Management and Others Within the Entity About the Risks of Fraud
.20 The auditor should inquire of management about: fn 9(9)
• Whether management has knowledge of any fraud or suspected fraud affecting the entity
• Whether management is aware of allegations of fraud or suspected fraud affecting the
entity, for example, received in communications from employees, former employees,
analysts, regulators, short sellers, or others
• Management's understanding about the risks of fraud in the entity, including any specific
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' fraud risks the entity has identified or account balances or classes of transactions for
which a risk of fraud may be likely to exist
• Programs and controls fn 10(10) the entity has established to mitigate specific fraud risks
' the entity has identified, or that otherwise help to prevent, deter, and detect fraud, and
how management monitors those programs and controls. For examples of programs and
controls an entity may implement to prevent, deter, and detect fraud, see the exhibit titled
"Management Antifraud Programs and Controls" [paragraph .86] at the end of this
section.
' For an entity with multiple locations, (a) the nature and extent of monitoring of operating
locations or business segments, and (b) whether there are particular operating locations or
' business segments for which a risk of fraud may be more likely to exist
Whether and how management communicates to employees its views on business
practices and ethical behavior
' .21 The inquiries of management also should include whether management has reported to the audit
' committee or others with equivalent authority and responsibility fn 11(11) (hereafter referred to
as the audit committee) on how the entity's internal control fn 12(12) serves to prevent, deter, or
detect material misstatements due to fraud.
.22 The auditor also should inquire directly of the audit committee (or at least its chair) regarding the
audit committee's views about the risks of fraud and whether the audit committee has knowledge
of any fraud or suspected fraud affecting the entity. An entity's audit committee sometimes
assumes an active role in oversight of the entity's assessment of the risks of fraud and the
programs and controls the entity has established to mitigate these risks. The auditor should
obtain an understanding of how the audit committee exercises oversight activities in that area.
.23 For entities that have an internal audit function, the auditor also should inquire of appropriate
internal audit personnel about their views about the risks of fraud, whether they have performed
any procedures to identify or detect fraud during the year, whether management has satisfactorily
' responded to any findings resulting from these procedures, and whether the internal auditors
have knowledge of any fraud or suspected fraud.
' .24 In addition to the inquiries outlined in paragraphs .20 through .23, the auditor should inquire of
others within the entity about the existence or suspicion of fraud. The auditor should use
' professional judgment to determine those others within the entity to whom inquiries should be
directed and the extent of such inquiries. In making this determination, the auditor should
consider whether others within the entity may be able to provide information that will be helpful
to the auditor in identifying risks of material misstatement due to fraud—for example, others
who may have additional knowledge about or be able to corroborate risks of fraud identified in
' the discussions with management (see paragraph .20) or the audit committee (see paragraph .22).
.25 Examples of others within the entity to whom the auditor may wish to direct these inquiries
■ include:
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' Employees with varying levels of authority within the entity, including, for example,
entity personnel with whom the auditor comes into contact during the course of the audit
in obtaining (a) an understanding of the entity's systems and internal control, (b) in
' observing inventory or performing cutoff procedures, or (c) in obtaining explanations for
fluctuations noted as a result of analytical procedures
Operating personnel not directly involved in the financial reporting process
Employees involved in initiating, recording, or processing complex or unusual
transactions—for example, a sales transaction with multiple elements, or a significant
related party transaction
• In-house legal counsel
.26 The auditor's inquiries of management and others within the entity are important because fraud
often is uncovered through information received in response to inquiries. One reason for this is
that such inquiries may provide individuals with an opportunity to convey information to the
auditor that otherwise might not be communicated. Making inquiries of others within the entity,
in addition to management, may be useful in providing the auditor with a perspective that is
different from that of individuals involved in the financial reporting process. The responses to
these other inquiries might serve to corroborate responses received from management, or
alternatively, might provide information regarding the possibility of management override of
controls—for example, a response from an employee indicating an unusual change in the way
transactions have been processed In addition, the auditor may obtain information from these
inquiries regarding how effectively management has communicated standards of ethical behavior
to individuals throughout the organization.
.27 The auditor should be aware when evaluating management's responses to the inquiries discussed
in paragraph .20 that management is often in the best position to perpetrate fraud The auditor
should use professional judgment in deciding when it is necessary to corroborate responses to
inquiries with other information. However, when responses are inconsistent among inquiries, the
auditor should obtain additional audit evidence to resolve the inconsistencies.
Considering the Results of the Analytical Procedures Performed in Planning the Audit
.28 Section 329, Analytical Procedures, paragraphs .04 and .06, requires that analytical procedures
be performed in planning the audit with an objective of identifying the existence of unusual
transactions or events, and amounts, ratios, and trends that might indicate matters that have
financial statement and audit planning implications. In performing analytical procedures in
planning the audit, the auditor develops expectations about plausible relationships that are
reasonably expected to exist, based on the auditor's understanding of the entity and its
environment When comparison of those expectations with recorded amounts or ratios developed
from recorded amounts yields unusual or unexpected relationships, the auditor should consider
those results in identifying the risks of material misstatement due to fraud
.29 In planning the audit, the auditor also should perform analytical procedures relating to revenue
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' with the objective of identifying unusual or unexpected relationships involving revenue accounts
that may indicate a material misstatement due to fraudulent financial reporting. An example of
such an analytical procedure that addresses this objective is a comparison of sales volume, as
determined from recorded revenue amounts, with production capacity. An excess of sales
volume over production capacity may be indicative of recording fictitious sales. As another
example, a trend analysis of revenues by month and sales returns by month during and shortly
' after the reporting period may indicate the existence of undisclosed side agreements with
customers to return goods that would preclude revenue recognition. in 13(13)
30 Analytical procedures performed during planning may be helpful in identifying the risks of
material misstatement due to fraud However, because such analytical procedures generally use
' data aggregated at a high level, the results of those analytical procedures provide only a broad
initial indication about whether a material misstatement of the financial statements may exist
Accordingly, the results of analytical procedures performed during planning should be
' considered along with other information gathered by the auditor in identifying the risks of
material misstatement due to fraud
' Considering Fraud Risk Factors
31 Because fraud is usually concealed, material misstatements due to fraud are difficult to detect
Nevertheless, the auditor may identify events or conditions that indicate incentives/pressures to
perpetrate fraud, opportunities to carry out the fraud, or attitudes/rationalizations to justify a
' fraudulent action. Such events or conditions are referred to as "fraud risk factors." Fraud risk
factors do not necessarily indicate the existence of Saud; however, they often are present in
circumstances where fraud exists.
32 When obtaining information about the entity and its environment, the auditor should consider
whether the information indicates that one or more fraud risk factors are present The auditor
should use professional judgment in determining whether a risk factor is present and should be
considered in identifying and assessing the risks of material misstatement due to fraud
' 33 Examples of fraud risk factors related to fraudulent financial reporting and misappropriation of
' assets are presented in the Appendix [paragraph .85]. These illustrative risk factors are classified
based on the three conditions generally present when fraud exists: incentivelpressure to
perpetrate fraud, an opportunity to carry out the fraud, and attitude/rationalization to justify the
fraudulent action. Although the risk factors cover a broad range of situations, they are only
examples and, accordingly, the auditor may wish to consider additional or different risk factors.
Not all of these examples are relevant in all circumstances, and some may be of greater or lesser
significance in entities of different size or with different ownership characteristics or
circumstances. Also, the order of the examples of risk factors provided is not intended to reflect
' their relative importance or frequency of occurrence.
Considering Other Information That May Be Helpful in Identifying Risks of Material
Misstatement Due to Fraud
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34 The auditor should consider other information that may be helpful in identifying risks of material
misstatement due to fraud. Specifically, the discussion among the engagement team members
(see paragraphs .14 through .18) may provide information helpful in identifying such risks. In
addition, the auditor should consider whether information from the results of (a) procedures
relating to the acceptance and continuance of clients and engagements 1n 14(14) and (b) reviews
of interim financial statements may be relevant in the identification of such risks. Finally, as part
of the consideration of audit risk at the individual account balance or class of transaction level
(see section 312.24 through .33), the auditor should consider whether identified inherent risks
would provide useful information in identifying the risks of material misstatement due to fraud
(see paragraph .39).
Identifying Risks That May Result in a Material Misstatement Due to Fraud
Using the Information Gathered to Identify Risk of Material Misstatements Due to Fraud
35 In identifying risks of material misstatement due to fraud, it is helpful for the auditor to consider
the information that has been gathered (see paragraphs .19 through .34) in the context of the
three conditions present when a material misstatement due to fraud occurs—that is,
incentives/pressures, opportunities, and attitudes/rationalizations (see paragraph .07). However,
the auditor should not assume that all three conditions must be observed or evident before
concluding that there are identified risks. Although the risk of material misstatement due to fraud
may be greatest when all three fraud conditions are observed or evident, the auditor cannot
assume that the inability to observe one or two of these conditions means there is no risk of
material misstatement due to fraud. In fact, observing that individuals have the requisite attitude
to commit fraud, or identifying factors that indicate a likelihood that management or other
employees will rationalize committing a fraud, is difficult at best
36 In addition, the extent to which each of the three conditions referred to above are present when
fraud occurs may vary. In some instances the significance of incentives/pressures may result in a
risk of material misstatement due to fraud, apart from the significance of the other two
conditions. For example, an incentive/pressure to achieve an earnings level to preclude a loan
default, or to "trigger" incentive compensation plan awards, may alone result in a risk of material
misstatement due to fraud. In other instances, an easy opportunity to commit the fraud because of
a lack of controls may be the dominant condition precipitating the risk of fraud, or an
individual's attitude or ability to rationalize unethical actions may be sufficient to motivate that
individual to engage in fraud, even in the absence of significant inoentives/pressures or
opportunities.
37 The auditor's identification of fraud risks also may be influenced by characteristics such as the
size, complexity, and ownership attributes of the entity. For example, in the case of a larger
entity, the auditor ordinarily considers factors that generally constrain improper conduct by
management, such as the effectiveness of the audit committee and the internal audit function,
and the existence and enforcement of a formal code of conduct In the case of a smaller entity,
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some or all of these considerations may be inapplicable or less important, and management may
' have developed a culture that emphasizes the importance of integrity and ethical behavior
through oral communication and management by example. Also, the risks of material
' misstatement due to fraud may vary among operating locations or business segments of an entity,
requiring an identification of the risks related to specific geographic areas or business segments,
as well as for the entity as a whole, fn 15(15)
1 38 The auditor should evaluate whether identified risks of material misstatement due to fraud can be
related to specific financial -statement account balances or classes of transactions and related
' assertions, or whether they relate more pervasively to the financial statements as a whole.
Relating the risks of material misstatement due to fraud to the individual accounts, classes of
transactions, and assertions will assist the auditor in subsequently designing appropriate auditing
procedures.
' 39 Certain accounts, classes of transactions, and assertions that have high inherent risk because they
involve a high degree of management judgment and subjectivity also may present risks of
material misstatement due to fraud because they are susceptible to manipulation by management.
For example, liabilities resulting from a restructuring may be deemed to have high inherent risk
because of the high degree of subjectivity and management judgment involved in their
estimation. Similarly, revenues for software developers may be deemed to have high inherent
risk because of the complex accounting principles applicable to the recognition and measurement
of software revenue transactions. Assets resulting from investing activities may be deemed to
' have high inherent risk because of the subjectivity and management judgment involved in
estimating fair values of those investments.
.40 In summary, the identification of a risk of material misstatement due to fraud involves the
application of professional judgment and includes the consideration of the attributes of the risk,
including:
The type of risk that may exist, that is, whether it involves fraudulent financial reporting
or misappropriation of assets
' The significance of the risk, that is, whether it is of a magnitude that could lead to result
in a possible material misstatement of the financial statements
1 The likelihood of the risk, that is, the likelihood that it will result in a material
misstatement in the financial statements fn 16(16)
' The pervasiveness of the risk, that is, whether the potential risk is pervasive to the
financial statements as a whole or specifically related to a particular assertion, account, or
' class of transactions.
A Presumption That Improper Revenue Recognition Is a Fraud Risk
' .41 Material misstatements due to fraudulent fmancial reporting often result from an overstatement
of revenues (for example, through premature revenue recognition or recording fictitious -
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revenues) or an understatement of revenues (for example, through improperly shifting revenues
' to a later period). Therefore, the auditor should ordinarily presume that there is a risk of material
misstatement due to fraud relating to revenue recognition. (See paragraph .54 for examples of
' auditing procedures related to the risk of improper revenue recognition.) fin 17(17)
A Consideration of the Risk of Management Override of Controls
' .42 Even if specific risks of material misstatement due to fraud are not identified by the auditor,
' there is a possibility that management override of controls could occur, and accordingly, the
auditor should address that risk (see paragraph .57) apart from any conclusions regarding the
existence of more specifically identifiable risks.
' Assessing the Identified Risks After Taking Into Account an Evaluation of the
' Entity's Programs and Controls That Address the Risks
.43 Section 319 require's the auditor to obtain an understanding of each of the five components of
internal control sufficient to plan the audit. It also notes that such knowledge should be used to
identify types of potential misstatements, consider factors that affect the risk of material
misstatement, design tests of controls when applicable, and design substantive tests.
Additionally, section 319 notes that controls, whether manual or automated, can be circumvented
by collusion of two or more people or inappropriate management override of internal control.
.44 As part of the understanding of internal control sufficient to plan the audit, the auditor should
evaluate whether entity programs and controls that address identified risks of material
misstatement due to fraud have been suitably designed and placed in operation. fa 18(18) These
programs and controls may involve (a) specific controls designed to mitigate specific risks of
fraud—for example, controls to address specific assets susceptible to misappropriation, and (6)
broader programs designed to prevent, deter, and detect fraud—for example, programs to
promote a culture of honesty and ethical behavior. The auditor should consider whether such
programs and controls mitigate the identified risks of material misstatement due to fraud or
whether specific control deficiencies may exacerbate the risks (see paragraph .80). The exhibit at
the end of this section [paragraph .88] discusses examples of programs and controls an entity
might implement to create a culture of honesty and ethical behavior, and that help to prevent,
deter, and detect fraud.
.45 After the auditor has evaluated whether the entity's programs and controls that address identified
risks of material misstatement due to fraud have been suitably designed and placed in operation,
' the auditor should assess these risks taking into account that evaluation. This assessment should
be considered when developing the auditor's response to the identified risks of material
misstatement due to fraud (see paragraphs .46 through .67). fn 19(19)
' Responding to the Results of the Assessment
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t .46 The auditor's response to the assessment of the risks of material misstatement due to fraud
involves the application of professional skepticism in gathering and evaluating audit evidence.
As noted in paragraph .13, professional skepticism is an attitude that includes a critical
' assessment of the competency and sufficiency of audit evidence. Examples of the application of
professional skepticism in response to the risks of material misstatement due to fraud are (a)
designing additional or different auditing procedures to obtain more reliable evidence in support
' of specified financial statement account balances, classes of transactions, and related assertions,
and (b) obtaining additional corroboration of management's explanations or representations
' concerning material matters, such as through third -party confirmation, the use of a specialist,
analytical procedures, examination of documentation from independent sources, or inquiries of
others within or outside the entity.
.47 The auditor's response to the assessment of the risks of material misstatement of the financial
statements due to fraud is influenced by the nature and significance of the risks identified as
1 being present (paragraphs .35 through .42) and the entity's programs and controls that address
these identified risks (paragraphs .43 through .45).
' .48 The auditor responds to risks of material misstatement due to fraud in the following three ways:
' a. A response that has an overall effect on how the audit is conducted—that is, a response
involving more general considerations apart from the specific procedures otherwise
planned (see paragraph .50).
' b. A response to identified risks involving the nature, timing, and extent of the auditing
procedures to be performed (see paragraphs .51 through .56).
'C. A response involving the performance of certain procedures to further address the risk of
material misstatement due to feud involving management override of controls, given the
unpredictable ways in which such override could occur (see paragraphs .57 through .67).
.49 The auditor may conclude that it would not be practicable to design auditing procedures that
sufficiently address the risks of material misstatement due to fraud. In that case; withdrawal from
the engagement with communication to the appropriate parties may be an appropriate course of
action (see paragraph .78).
r Overall Responses to the Risk of Material Misstatement
■
.50 Judgments about the risk of material misstatement due to fraud have an overall effect on how the
taudit is conducted in the following ways:
• Assignment ofpersonnel and supervision. The knowledge, skill, and ability of personnel
assigned significant engagement responsibilities should be commensurate with the
auditor's assessment of the risks of material misstatement due to fraud for the engagement
(see section 210, Training and Proficiency of the Independent Auditor, paragraph .03).
For example, the auditor may respond to an identified risk of material misstatement due
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' to fraud by assigning additional persons with specialized skill and knowledge, such as
forensic and information technology (IT) specialists, or by assigning more experienced
personnel to the engagement. In addition, the extent of supervision should reflect the
' risks of material misstatement due to fraud (see section 311.11).
Accountingprinciples. The auditor should consider management's selection and
' application of significant accounting principles, particularly those related to subjective
measurements and complex transactions. In this respect, the auditor may have a greater
concern about whether the accounting principles selected and policies adopted are being
' applied in an inappropriate manner to create a material misstatement of the financial
statements. In developing judgments about the quality of such principles (see section 380,
Communication With Audit Committees, paragraph .11), the auditor should consider
' whether their collective application indicates a bias that may create such a material
misstatement of the financial statements.
' Predictability ojauditing procedures. The auditor should incorporate an element of
unpredictability in the selection from year to year of auditing procedures to be
performed—for example, performing substantive tests of selected account balances and
assertions not otherwise tested due to their materiality or risk, adjusting the timing of
testing from that otherwise expected, using differing sampling methods, and performing
procedures at different locations or at locations on an unannounced basis.
Responses Involving the Nature, Timing, and Extent of Procedures to Be Performed to Address
the Identified Risks
.51 The auditing procedures performed in response to identified risks of material misstatement due
to fraud will vary depending upon the types of risks identified and the account balances, classes
of transactions, and related assertions that may be affected. These procedures may involve both
substantive tests and tests of the operating effectiveness of the entity's programs and controls.
However, because management may have the ability to override controls that otherwise appear
■ to be operating effectively (see paragraph .08), it is unlikely that audit risk can be reduced to an
appropriately low level by performing only tests of controls.
.52 The auditor's responses to address specifically identified risks of material misstatement due to
fraud may include changing the nature, timing, and extent of auditing procedures in the
following ways:
• The nature of auditing procedures performed may need to be changed to obtain evidence
that is more reliable or to obtain additional corroborative information. For example, more
evidential matter may be needed from independent sources outside the entity, such as
public -record information about the existence and nature of key customers, vendors, or
f counterparties in a major transaction. Also, physical observation or inspection of certain
assets may become more important (see section 326, Evidential Matter, paragraphs .15
` through .21). Furthermore, the auditor may choose to employ computer-assisted audit
techniques to gather more extensive evidence about data contained in significant
accounts or electronic transaction files. Finally, inquiry of additional members of
management or others may be belpful in identifying issues and corroborating other
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evidential matter (see paragraphs .24 through .26 and paragraph .53).
The timing of substantive tests may need to be modified The auditor might conclude that
substantive testing should be performed at or near the end of the reporting period to best
address an identified risk of material misstatement due to fraud (see section 313,
Substantive Tests Prior to the Balance -Sheet Date). That is, the auditor might conclude
that, given the risks of intentional misstatement or manipulation, tests to extend audit
conclusions from an interim date to the period -end reporting date would not be effective.
In contrast, because an intentional misstatement—for example, a misstatement involving
inappropriate revenue recognition—may have been initiated in an interim period, the
auditor might elect to apply substantive tests to transactions occurring earlier in or
throughout the reporting period.
The extent of the procedures applied should reflect the assessment of the risks of material
misstatement due to fraud For example, increasing sample sizes or performing analytical
procedures at a more detailed level may be appropriate (see section 350, Audit Sampling,
paragraph .23, and section 329). Also, computer-assisted audit techniques may enable
more extensive testing of electronic transactions and account files. Such techniques can
be used to select sample transactions from key electronic files, to sort transactions with
specific characteristics, or to test an entire population instead of a sample.
.53 The following are examples of modification of the nature, timing, and extent of tests in response
to identified risks of material misstatements due to fraud
' Performing procedures at locations on a surprise or unannounced basis, for example,
observing inventory on unexpected dates or at unexpected locations or counting cash on a
' surprise basis.
• Requesting that inventories be counted at the end of the reporting period or on a date
closer to period end to minimize the risk of manipulation of balances in the period
between the date of completion of the count and the end of the reporting period
' Making oral inquiries of major customers and suppliers in addition to sending written
confirmations, or sending confirmation requests to a specific party within an
organization
• Performing substantive analytical procedures using disaggregated data, for example,
comparing gross profit or operating margins by location, line of business, or month to
auditor -developed expectations. fn 20(20)
• Interviewing personnel involved in activities in areas where a risk of material
misstatement due to fraud has been identified to obtain their insights about the risk and
bow controls address the risk (also see paragraph .24).
• If other independent auditors are auditing the financial statements of one or more
subsidiaries, divisions, of branches, discussing with them the extent of work that needs to
be performed to address the risk of material misstatement due to fraud resulting from
transactions and activities among these components.
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Additional Examples ojResponses to IdendJied Risks of Missiatements Arising From Fraudulent
Financial Repordng
' .54 The following are additional examples of responses to identified risks of material misstatements
relating to fraudulent fmancial reporting:
' Revenue recognition. Because revenue recognition is dependent on the particular facts
and circumstances, as well as accounting principles and practices that can vary by
industry, the auditor ordinarily will develop auditing procedures based on the auditor's
understanding of the entity and its environment, including the composition of revenues,
specific attributes of the revenue transactions, and unique industry considerations. If
there is an identified risk of material misstatement due to fraud that involves improper
revenue recognition, the auditor also may want to consider.
t — Performing substantive analytical procedures relating to revenue using
disaggregated data, for example, comparing revenue reported by month and by
product line or business segment during the current reporting period with
comparable prior periods. Computer-assisted audit techniques may be useful in
' identifying unusual or unexpected revenue relationships or transactions.
— Confirming with customers certain relevant contract terms and the absence of side
agreements, because the appropriate accounting often is influenced by such terms
or agreements. fn 21(2 1) For example, acceptance criteria, delivery and payment
' terms, the absence of future or continuing vendor obligations, the right to return
the product, guaranteed resale amounts, and cancellation or refund provisions
often are relevant in such circumstances.
' — Inquiring of the entity's sales and marketing personnel or in-house legal counsel
regarding sales or shipments near the end of the period and their knowledge of
any unusual terms or conditions associated with these transactions.
—
Being physically present at one or more locations at period end to observe goods
' being shipped or being readied for shipment (or returns awaiting processing) and
performing other appropriate sales and inventory cutoff procedures.
— For those situations for which revenue transactions are electronically initiated,
processed, and recorded, testing controls to determine whether they provide
assurance that recorded revenue transactions occurred and are properly recorded
' Inventory quantities. If there is an identified risk of material misstatement due to fraud
that affects inventory quantities, examining the entity's inventory records may help
identify locations or items that require specific attention during or after the physical
inventory count. Such a review may lead to a decision to observe inventory counts at
certain locations on an unannounced basis (see paragraph .53) or to conduct inventory
counts at all locations on the same date. In addition, it may be appropriate for inventory
' counts to be conducted at or near the end of the reporting period to minimithe risk of
inappropriate manipulation during the period between the count and the end of the
' reporting period
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It also may be appropriate for the auditor to perform additional procedures during the
observation of the count, for example, more rigorously examining the contents of boxed
items, the manner in which the goods are stacked (for example, hollow squares) or
labeled, and the quality (that is, purity, grade, or concentration) of liquid substances such
as perfumes or specialty chemicals. Using the work of a specialist may be helpful in this
regard. fa 22(22) Furthermore, additional testing of count sheets, tags, or other records,
or the retention of copies of these records, may be warranted to minimize the risk of
subsequent alteration or inappropriate compilation.
Examples of Responses to Identified Risks ofMisstatements Arising From Misappropriations of
Assets
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Following the physical inventory count, the auditor may want to employ additional
procedures directed at the quantities included in the priced out inventories to further test
the reasonableness of the quantities counted—for example, comparison of quantities for
the current period with prior periods by class or category of inventory, location or other
criteria, or comparison of quantities counted with perpetual records. The auditor also may
I
consider using computer-assisted audit techniques to further test the compilation of the
physical inventory counts—for example, sorting by tag number to test tag controls or by
item serial number to test the possibility of item omission or duplication.
'
Management estimates. The auditor may identify a risk of material misstatement due to
fraud involving the development of management estimates. This risk may affect a
number of accounts and assertions, including asset valuation, estimates relating to
specific transactions (such as acquisitions, restructurings, or disposals of a segment of the
business), and other significant accrued liabilities (such as pension and other
postretirement benefit obligations, or environmental remediation liabilities). The risk
may also relate to significant changes in assumptions relating to retuning estimates. As
indicated in section 342, Auditing Accounting Estimates, estimates are based on
subjective as well as objective factors and there is a potential for bias in the subjective
factors, even when management's estimation process involves competent personnel using
relevant and reliable data
In addressing an identified risk of material misstatement due to fraud involving
accounting estimates, the auditor may want to supplement the audit evidence otherwise
I
obtained (see section 342.09 through .14). In certain circumstances (for example,
evaluating the reasonableness of management's estimate of the fair value of a derivative),
it may be appropriate to engage a specialist or develop an independent estimate for
comparison to management's estimate. Information gathered about the entity and its
environment may help the auditor evaluate the reasonableness of such management
estimates and underlying judgments and assumptions.
A retrospective review of similar management judgments and assumptions applied in
prior periods (see paragraphs .63 through .65) may also provide insight about the
reasonableness of judgments and assumptions supporting management estimates.
Examples of Responses to Identified Risks ofMisstatements Arising From Misappropriations of
Assets
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.55 The auditor may have identified a risk of material misstatement due to fraud relating to
misappropriation of assets. For example, the auditor may conclude that the risk of asset
misappropriation at a particular operating location is significant because a large amount of easily
' accessible cash is maintained at that location, or there are inventory items such as laptop
computers at that location that can easily be moved and sold.
' .56 The auditor's response to a risk of material misstatement due to fraud relating to
misappropriation of assets usually will be directed toward certain account balances. Although
some of the audit responses noted in paragraphs .52 through .54 may apply in such
' circumstances, such as the procedures directed at inventory quantities, the scope of the work
should be linked to the specific information about the misappropriation risk that has been
' identified For example, if a particular asset is highly susceptible to misappropriation and a
potential misstatement would be material to the financial statements, obtaining an understanding
of the controls related to the prevention and detection of such misappropriation and testing the
' operating effectiveness of such controls may be warranted In certain circumstances, physical
inspection of such assets (for example, counting cash or securities) at or near the end of the
reporting period may be appropriate. In addition, the use of substantive analytical procedures,
' such as the development by the auditor of an expected dollar amount at a high level of precision,
to be compared with a recorded amount, may be effective in certain circumstance,
' Responses to Further Address the Risk of Management Override of Controls
' .57 As noted in paragraph .08, management is in a unique position to perpetrate fraud because of its
ability to directly or indirectly manipulate accounting records and prepare fraudulent financial
statements by overriding established controls that otherwise appear to be operating effectively.
By its nature, management override of controls can occur in unpredictable ways. Accordingly, in
addition to overall responses (paragraph .50) and responses that address specifically identified
risks of material misstatement due to fiaud (see paragraphs .51 through .56) the procedures
described in paragraphs .58 through .67 should be performed to farther address the risk of
management override of controls.
' .58 Examining journal entries and other adjustments for evidence ofpossible materid
misstatement due to fraud Material misstatements of financial statements due to fraud often
involve the manipulation of the financial reporting process by (a) recording inappropriate or
unauthorized journal entries throughout the year or at period end, or (b) making adjustments to
' amounts reported in the financial statements that are not reflected in formal journal entries, such
as through consolidating adjustments, report combinations, and reclassifications. Accordingly,
the auditor should design procedures to test the appropriateness of journal entries recorded in the
general ledger and other adjustments (for example, entries posted directly to financial statement
drafts) made in the preparation of the financial statements. More specifically, the auditor should.-
a.
hould:a. Obtain an understanding of the entity's financial reporting process fn 23(23) and the
controls over journal entries and other adjustments. (See paragraphs .59 and .60.)
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' b. Identify and select joumal entries and other adjustments for testing. (See paragrapb .61.)
C. Determine the timing of the testing. (See paragraph .62.)
' d. Inquire of individuals involved in the financial reporting process about inappropriate or
unusual activity relating to the processing of journal entries and other adjustments.
' .59 The auditor's understanding of the entity's financial reporting process may help in identifying the
type, number, and monetary value of journal entries and other adjustments that typically are
made in preparing the financial statements. For example, the auditor's understanding may include
the sources of significant debits and credits to an account, who can initiate entries to the general
' ledger or transaction processing systems, what approvals are required for such entries, and how
journal entries are recorded (for example, entries may be initiated and recorded online with no
physical evidence, or may be created in paper form and entered in batch mode).
' .60 An entity may have implemented specific controls over journal entries and other adjustments.
' For example, an entity may use journal entries that are preformatted with account numbers and
specific user approval criteria, and may have automated controls to generate an exception report
for any entries that were unsuccessfully proposed for recording or entries that were recorded and
' processed outside of established parameters. The auditor should obtain an understanding of the
design of such controls over journal entries and other adjustments and determine whether they
are suitably designed and have been placed in operation.
' .61 The auditor should use professional judgment in determining the nature, timing, and extent of the
' testing of journal entries and other adjustments. For purposes of identifying and selecting
specific entries and other adjustments for testing, and determining the appropriate method of
examining the underlying support for the items selected, the auditor should consider.
• The auditor's assessment of the risk of materia( misstatement due to fraud The presence
of fraud risk factors or other conditions may help the auditor to identify specific classes
of journal entries for testing and indicate the extent of testing necessary.
• The effectiveness of controls that have been implemented over journal entries and other
adjustments. Effective controls over the preparation and posting of journal entries and
adjustments may affect the extent of substantive testing necessary, provided that the
auditor has tested the operating effectiveness of those controls. However, even though
controls might be implemented and operating effectively, the auditor's procedures for
testing joumal entries and other adjustments should include the identification and testing
of specific items.
• The entity's financial reporting process and the nature of the evidence that can be
examined. The auditor's procedures for testing journal entries and other adjustments will
vary based on the nature of the financial reporting process. For many entities, routine
processing of transactions involves a combination of manual and automated steps and
procedures. Similarly, the processing of journal entries and other adjustments might
involve both manual and automated procedures and controls. Regardless of the method,
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the auditor's procedures should include selecting from the general ledger journal entries
to be tested and examining support for those items. In addition, the auditor should be
aware that journal entries and other adjustments might exist in either electronic or paper
' form. When information technology (IT) is used in the financial reporting process,
journal entries and other adjustments might exist only in electronic form Electronic
evidence often requires extraction of the desired data by an auditor with IT knowledge
and skills or the use of an IT specialist In an IT environment, it may be necessary for the
auditor to employ computer-assisted audit techniques (for example, report writers,
software or data extraction tools, or other systems -based techniques) to identify the
' journal entries and other adjustments to be tested
The characteristics offraudulent entries or adjustments. Inappropriate journal entries and
' other adjustments often have certain unique identifying characteristics. Such
characteristics may include entries (a) made to unrelated, unusual, or seldom -used
accounts, (b) made by individuals who typically do not make journal entries, (c) recorded
' at the end of the period or as post -closing entries that have little or no explanation or
description, (d) made either before or during the preparation of the financial statements
that do not have account numbers, or (e) containing round numbers or a consistent ending
number.
The nature and complexity of the accounts. Inappropriate journal entries or adjustments
may be applied to accounts that (a) contain transactions that are complex or unusual in
nature, (b) contain significant estimates and period -end adjustments, (c) have been prone
to errors in the past, (d) have not been reconciled on a timely basis or contain
unreconciled differences, (e) contain intercompany transactions, or (1) are otherwise
associated with an identified risk of material misstatement due to fraud. The auditor
should recognize, however, that inappropriate journal entries and adjustments also might
be made to other accounts. In audits of entities that have several locations or components,
the auditor should consider the need to select journal entries from locations based on the
factors set forth in section 312.18.
Journal entries or other adjustments processed outside the normal course of business.
Standardjoumal entries used on a recurring basis to record transactions such as monthly
sales, purchases, and cash disbursements, or to record recurring periodic accounting
estimates generally are subject to the entity's internal controls. Nonstandard entries (for
example, entries used to record nonrecurring transactions, such as a business
combination, or entries used to record a nonrecurring estimate, such as an asset
impairment) might not be subject to the same level of internal control. In addition, other
adjustments such as consolidating adjustments, report combinations, and reclassifications
generally are not reflected in formal journal entries and might not be subject to the
entity's internal controls. Accordingly, the auditor should consider placing additional
emphasis on identifying and testing items processed outside of the normal course of
business.
.62 Because fraudulent journal entries often are made at the end of a reporting period, the auditor's
testing ordinarily should focus on the journal entries and other adjustments made at that time.
However, because material misstatements in financial statements due to fraud can occur
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throughout the period and may involve extensive efforts to conceal how it is accomplished, the
auditor should consider whether there also is a need to test journal entries throughout the period
under audit
.63 Reviewing accounting estimates for biases that could result in material misstatement due to
fraud In preparing financial statements, management is responsible for making a number of
judgments or assumptions that affect significant accounting estimates fn 24(24) and for
monitoring the reasonableness of such estimates on an ongoing basis. Fraudulent financial
' reporting often is accomplished through intentional misstatement of accounting estimates. As
discussed in section 312.36, the auditor should consider whether differences between estimates
best supported by the audit evidence and the estimates included in the financial statements, even
t if they are individually reasonable, indicate a possible bias on the part of the entity's
management, in which case the auditor should reconsider the estimates taken as a whole.
' .64 The auditor also should perform a retrospective review of significant accounting estimates
reflected in the financial statements of the prior year to determine whether management
judgments and assumptions relating to the estimates indicate a possible bias on the part of
management The significant accounting estimates selected for testing should include those that
are based on highly sensitive assumptions or are otherwise significantly affected by judgments
' made by management With the benefit of hindsight, a retrospective review should provide the
auditor with additional information about whether there may be a possible bias on the part of
management in naming the current -year estimates. This review, however, is not intended to call
' into question the auditor's professional judgments made in the prior year that were based on
information available at the time.
.65 If the auditor identifies a possible bias on the part of management in making accounting
estimates, the auditor should evaluate whether circumstances producing such a bias represent a
risk of a material misstatement due to fraud. For example, information coming to the auditor's
attention may indicate a risk that adjustments to the current -year estimates might be recorded at
the instruction of management to arbitrarily achieve a specified earnings target
.66 Evaluating the business rationale for signifcant unusual transactions During the course of
the audit, the auditor may become aware of significant transactions that are outside the normal
course of business for the entity, or that otherwise appear to be unusual given the auditor's
understanding of the entity and its environment The auditor should gain an understanding of the
business rationale for such transactions and whether that rationale (or the lack thereof) suggests
that the transactions may have been entered into to engage in fraudulent financial reporting or
conceal misappropriation of assets.
.67 In understanding the business rationale for the transactions, the auditor should consider:
• Whether the form of such transactions is overly complex (for example, involves multiple
entities within a consolidated group or unrelated third parties).
Whether management has discussed the nature of and accounting for such transactions
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with the audit committee or board of directors.
Whether management is placing more emphasis on the need for a particular accounting
treatment than on the underlying economics of the transaction.
Whether transactions that involve unconsolidated related parties, including special
purpose entities, have been properly reviewed and approved by the audit committee or
board of directors.
Whether the transactions involve previously unidentified related parties in 25(25) or
parties that do not have the substance or the financial strength to support the transaction
without assistance from the entity under audit
Evaluating Audit Evidence
.68 Assessing risks of material misstatement due to fraud throughout the audit The auditor's
assessment of the risks of material misstatement due to fraud should be ongoing throughout the
audit. Conditions may be identified during fieldwork that change or support a judgment
regarding the assessment of the risks, such as the following:
Discrepancies in the accounting records, including:
— Transactions that are not recorded in a complete or timely manner or are
improperly recorded as to amount, accounting period, classification, or entity
policy
— Unsupported or unauthorized balances or transactions
— Last-minute adjustments that significantly affect financial results
— Evidence of employees' access to systems and records inconsistent with that
necessary to perform their authorized duties
— Tips or complaints to the auditor about alleged fraud
Conflicting or missing evidential matter, including:
— Missing documents
— Documents that appear to have been altered fn 26(26)
— Unavailability of other than pbotocopied or electronically transmitted documents
when documents in original form are expected to exist
— Significant unexplained items on reconciliations
— Inconsistent, vague, or implausible responses from management or employees
arising from inquiries or analytical procedures (See paragraph .72.)
— Unusual discrepancies between the entity's records and confirmation replies
— Missing inventory or physical assets of significant magnitude
— Unavailable or missing electronic evidence, inconsistent with the entity's record
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retention practices or policies
— Inability to produce evidence of key systems development and program change
testing and implementation activities for current -year system changes and
deployments
Problematic or unusual relationships between the auditor and management, including:
— Denial of access to records, facilities, certain employees, customers, vendors, or
others from whom audit evidence might be sought fil 27(27)
— Undue time pressures imposed by management to resolve complex or contentious
issues
— Complaints by management about the conduct of the audit or management
intimidation of audit team members, particularly in connection with the auditor s
critical assessment of audit evidence or in the resolution of potential
disagreements with management
— Unusual delays by the entity in providing requested information
— Unwillingness to facilitate auditor access to key electronic files for testing
through the use of computer-assisted audit techniques
— Denial of access to key IT operations staff and facilities, including security,
operations, and systems development personnel
— An unwillingness to add or revise disclosures in the financial statements to make
them more complete and transparent
.69 Evaluating whether analytical procedures performed as substantive tests or in the overall
review stage of the audit indicate a previously unrecognized risk of material misstatement due
to fraud As discussed in paragraphs .28 through .30, the auditor should consider whether
analytical procedures performed in planning the audit result in identifying any unusual or
unexpected relationships that should be considered in assessing the risks of material
misstatement due to fraud. The auditor also should evaluate whether analytical procedures that
were performed as substantive tests or in the overall review stage of the audit (see section 329)
indicate a previously unrecognized risk of material misstatement due to fraud
70 If not already performed during the overall review stage of the audit, the auditor should perform
analytical procedures relating to revenue, as discussed in paragraph .29, through the end of the
reporting period
71 Detent imng which particular trends and relationships may indicate a risk of material
misstatement due to fraud requires professional judgment. Unusual relationships involving
year-end revenue and income often are particularly relevant These might include, for example,
(a) uncharacteristically large amounts of income being reported in the last week or two of the
reporting period from unusual transactions, as well as (b) income that is inconsistent with trends
in cash flow from operations.
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' .72 Some unusual or unexpected analytical relationships may have been identified and may indicate
a risk of material misstatement due to fraud because management or employees generally are
unable to manipulate certain information to create seemingly normal or expected relationships.
Some examples are as follows:
• The relationship of net income to cash flows from operations may appear unusual
' because management recorded fictitious revenues and receivables but was unable to
manipulate cash.
Changes in inventory, accounts payable, sales, or cost of sales from the prior period to
the current period may be inconsistent• indicating a possible employee theft of inventory,
because the employee was unable to manipulate all of the related accounts.
• A comparison of the entity's profitability to industry trends, which management cannot
manipulate, may indicate trends or differences for further consideration when identifying
' risks of material misstatement due to fraud.
A comparison of bad debt write-offs to comparable industry data, which employees
' cannot manipulate, may provide unexplained relationships that could indicate a possible
theft of cash receipts.
• An unexpected or unexplained relationship between sales volume as determined from the
accounting records and production statistics maintained by operations personnel—which
may be more difficult for management to manipulate—may indicate a possible
misstatement of sales.
.73 The auditor also should consider whether responses to inquiries throughout the audit about
analytical relationships have been vague or implausible, or have produced evidence that is
inconsistent with other evidential matter accumulated during the audit
74 Evaluating the risks of material misstatement due to fraud at or near the completion of
fieldwork At or near the completion of fieldwork, the auditor should evaluate whether the
accumulated results of auditing procedures and other observations (for example, conditions and
analytical relationships noted in paragraphs .69 through .73) affect the assessment of the risks of
material misstatement due to fraud made earlier in the audit This evaluation primarily is a
qualitative matter based on the auditor's judgment Such an evaluation may provide further
insight about the risks of material misstatement due to fraud and whether there is a need to
perform additional or different audit procedures. As part of this evaluation, the auditor with final
responsibility for the audit should ascertain that there has been appropriate communication with
the other audit team members throughout the audit regarding information or conditions
indicative of risks of material misstatement due to fraud. fn 28(28)
.75 Responding to misstatements that may be the result offraud When audit test results identify
misstatements in the financial statements, the auditor should consider whether such
misstatements may be indicative of fraud. fn 29(29) That determination affects the auditor's
evaluation of materiality and the related responses necessary as a result of that evaluation.
fn 30(30)
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76 If the auditor believes that misstatements are or may be the result of fraud, but the effect of the
misstatements is not material to the financial statements, the auditor nevertheless should evaluate
the implications, especially those dealing with the organizational position of the person(s)
involved. For example, fraud involving misappropriations of cash from a small petty cash fund
normally would be of little significance to the auditor in assessing the risk of material
misstatement due to fraud because both the manner of operating the fund and its size would tend
to establish a limit on the amount of potential loss, and the custodianship of such funds normally
is entrusted to a nonmanagement employee. fa 31(3 1) Conversely, if the matter involves
higher-level management, even though the amount itself is not material to the financial
statements, it may be indicative of a more pervasive problem, for example, implications about
the integrity of management. fn 32(32) In such circumstances, the auditor should reevaluate the
assessment of the risk of material misstatement due to fraud and its resulting impact on (a) the
nature, timing, and extent of the tests of balances or transactions and (b) the assessment of the
effectiveness of controls if control risk was assessed below the maximum.
77 If the auditor believes that the misstatement is or may be the result of fraud, and either has
determined that the effect could be material to the financial statements or has been unable to
evaluate whether the effect is material, the auditor should:
a. Attempt to obtain additional evidential matter to determine whether material fraud has
occurred or is likely to have occurred, and, if so, its effect on the financial statements and
the auditor's report thereon. fa 33(33)
b. Consider the implications for other aspects of the audit (see paragraph .76).
C. Discuss the matter and the approach for furtber investigation with an appropriate level of
management that is at least one level above those involved, and with senior management
and the audit committee. fo 34(34)
d. If appropriate, suggest that the client consult with legal counsel.
78 The auditors consideration of the risks of material misstatement and the results of audit tests
may indicate such a significant risk of material misstatement due to fraud that the auditor should
consider withdrawing from the engagement and communicating the reasons for withdrawal to
the audit committee or others with equivalent authority and responsibility. fn 35(35) Whether the
auditor concludes that withdrawal from the engagement is appropriate may depend on (a) the
implications about the integrity of management and (b) the diligence and cooperation of
management or the board of directors in investigating the circumstances and taking appropriate
action. Because of the variety of circumstances that may arise, it is not possible to definitively
describe when withdrawal is appropriate. in 36(36) The auditor may wish to consult with legal
counsel when considering withdrawal from an engagement.
Communicating About Possible Fraud to Management, the Audit Committee, and
Others fn 37(37)
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79 Whenever the auditor has determined that there is evidence that fraud may exist, that matter
' should be brought to the attention of an appropriate level of management This is appropriate
even if the matter might be considered inconsequential, such as a minor defalcation by an
' employee at a low level in the entity's organization. Fraud involving senior management and
fraud (whether caused by senior management or other employees) that causes a material
misstatement of the financial statements should be reported directly to the audit committee. In
' addition, the auditor should reach an understanding with the audit committee regarding the
nature and extent of communications with the committee about misappropriations perpetrated by
' lower -level employees.
.80 If the auditor, as a result of the assessment of the risks of material misstatement, has identified
' risks of material misstatement due to fraud that have continuing control implications (whether or
not transactions or adjustments that could be the result of fraud have been detected), the auditor
should consider whether these risks represent reportable conditions relating to the entity's
internal control that should be communicated to senior management and the audit committee.
fn 38(38) (See section 325, Communication oflnternal Control Related Matters Noted in an
' Audit, paragraph .04). The auditor also should consider whether the absence of or deficiencies in
programs and controls to mitigate specific risks of fraud or to otherwise help prevent, deter, and
detect fraud (see paragraph .44) represent reportable conditions that should be communicated to
1 senior management and the audit committee.
.81 The auditor also may wish to communicate other risks of fraud identified as a result of the
assessment of the risks of material misstatements due to fraud Such a communication may be a
part of an overall communication to the audit committee of business and financial statement risks
' affecting the entity and/or in conjunction with the auditor communication about the quality of the
entity's accounting principles (see section 380.11).
' .82 The disclosure of possible fraud to parties other than the client's senior management and its audit
committee ordinarily is not part of the auditor's responsibility and ordinarily would be precluded
by the auditor's ethical or legal obligations of confidentiality unless the matter is reflected in the
auditor's report. The auditor should recognize, however, that in the following circumstances a
duty to disclose to partes outside the entity may exist:
a. To comply with certain legal and regulatory requirements fa 39(39)
b. To a successor auditor when the successor makes inquiries in accordance with section
'.. ' 315, Communications Between Predecessor and Successor Auditors fit 40(40)
C. In response to a subpoena
' d. To a funding agency or other specified agency in accordance with requirements for the
audits of entities that receive governmental financial assistance fn 41(41)
' Because potential conflicts between the auditor's ethical and legal obligations for confidentiality
of client maters may be complex, the auditor may wish to consult with legal counsel before
1
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discussing matters covered by paragraphs .79 through .81 with parties outside the client.
Documenting the Auditor's Consideration of Fraud
' .83 The auditor should document the following.
' The discussion among engagement personnel in planning the audit regarding the
susceptibility of the entity's financial statements to material misstatement due to fraud,
including how and when the discussion occurred, the audit team members who
' participated, and the subject matter discussed (See paragraphs .14 through .17.)
• The procedures performed to obtain information necessary to identify and assess the risks
of material misstatement due to fraud (See paragraphs .19 through .34.)
• Specific risks of material misstatement due to fraud that were identified (see paragraphs
.35 through .45), and a description of the auditor's response to those risks (See paragraphs
' .46 through .56.)
• If the auditor has not identified in a particular circumstance, improper revenue
recognition as a risk of material misstatement due to fraud, the reasons supporting the
auditor's conclusion (See paragraph .4 1.)
' The results of the procedures performed to further address the risk of management
override of controls (See paragraphs .58 through .67.)
• Other conditions and analytical relationships that caused the auditor to believe that
additional auditing procedures or other responses were required and any further
responses the auditor concluded were appropriate, to address such risks or other
conditions (See paragraphs .68 through .73.)
• The nature of the communications about fraud made to management, the audit
committee, and others (See paragraphs .79 through .82.)
Effective Date
.84 This section is effective for audits of financial statements for periods beginning on or after
December 15, 2002. Early application of the provisions of this section is permissible.
Appendix
Examples of Fraud Risk Factors
.85
A.1 This appendix contains examples of risk factors discussed in paragraphs .31 through .33 of the
section. Separately presented are examples relating to the two types of fraud relevant to the
auditor's consideration—that is, fraudulent financial reporting and misappropriation of assets.
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For each of these types of fraud, the risk factors are further classified based on the three
conditions generally present when material misstatements due to fraud occur. (a)
incentives/pressures, (b) opportunities, and (c) attitudes/rationalizations. Although the risk
factors cover a broad range of situations, they are only examples and, accordingly, the auditor
may wish to consider additional or different risk factors. Not all of these examples are relevant in
all circumstances, and some may be of greater or lesser significance in entities of different size
1 or with different ownership characteristics or circumstances. Also, the order of the examples of
risk factors provided is not intended to reflect their relative importance or frequency of
occurrence.
' Risk Factors Relating to Misstatements Arising From Fraudulent Financial
Reporting
A.2 The following are examples of risk factors relating to misstatements arising from fraudulent
' financial reporting.
Incentives/Pressures
a. Financial stability or profitability is threatened by economic, industry, or entity operating
conditions, such as (or as indicated by):
— High degree of competition or market saturation, accompanied by declining
margins
' — High vulnerability to rapid changes, such as changes in technology, product
obsolescence, or interest rates
' — Significant declines in customer demand and increasing business failures in either
the industry or overall economy
— Operating losses making the threat of bankruptcy, foreclosure, or hostile takeover
' imminent
— Recurring negative cash flows from operations or an inability to generate cash
flows from operations while reporting earnings and earnings growth
— Rapid growth or unusual profitability, especially compared to that of other
' companies in the same industry
— New accounting, statutory, or regulatory requirements
b. Excessive pressure exists for management to meet the requirements or expectations of
third parties due to the following:
— Profitability or trend level expectations of investment analysts, institutional
investors, significant creditors, or other external parties (particularly expectations
that are unduly aggressive or unrealistic), including expectations created by
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' management in, for example, overly optimistic press releases or annual report
messages
— Need to obtain additional debt or equity financing to stay competitive—including
financing of major research and development or capital expenditures
' — Marginal ability to meet exchange listing requirements or debt repayment or other
debt covenant requirements
' — Perceived or real adverse effects of reporting poor financial results on significant
pending transactions, such as business combinations or contract awards
'
C. Information available indicates that management or the board of directors' personal
financial situation is threatened by the entity's financial performance arising from the
following:
' — Significant financial interests in the entity -
' — Significant portions of their compensation (for example, bonuses, stock options,
and eam-out arrangements) being contingent upon achieving aggressive targets
for stock price, operating results, financial position, or cash flow fit 1(42)
t— Personal guarantees of debts of the entity
' d. There is excessive pressure on management or operating personnel to meet financial
targets set up by the board of directors or management, including sales or profitability
incentive goals.
Opportunities
a. The nature of the industry or the entity's operations provides opportunities to engage in
fraudulent financial reporting that can arise from the following:
Significant related -party transactions not in the ordinary course of business or
with related entities not audited or audited by another firm
A strong financial presence or ability to dominate a certain industry sector that
allows the entity to dictate terms or conditions to suppliers or customers that may
result in inappropriate or non -arm's-length transactions
— Assets, liabilities, revenues, or expenses based on significant estimates that
involve subjective judgments or uncertainties that are difficult to corroborate
— Significant, unusual, or highly complex transactions, especially those close to
period end that pose difficult "substance over form" questions
— Significant operations located or conducted across international borders in
jurisdictions where differing business environments and cultures exist
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— Significant bank accounts or subsidiary or branch operations in tax -haven
jurisdictions for which there appears to be no clear business justification
b. There is ineffective monitoring of management as a result of the following:
— Domination of management by a single person or small group (in a
nonowner-managed business) without compensating controls
— Ineffective board of directors or audit committee oversight over the financial
reporting process and internal control
C. There is a complex or unstable organizational structure, as evidenced by the following:
— Difficulty in determining the organization or individuals that have controlling
interest in the entity
— Overly complex organizational structure involving unusual legal entities or
managerial lines of authority
— High turnover of senior management, counsel, or board members
d. Internal control components are deficient as a result of the following:
— Inadequate monitoring of controls, including automated controls and controls
over interim financial reporting (where external reporting is required)
— High turnover rates or employment of ineffective accounting, internal audit, or
information technology staff
— Ineffective accounting and information systems, including situations involving
reportable conditions
Attitudes/Rationalizations
Risk factors reflective of attitudes/rationalizations by board members, management, or
employees, that allow them to engage in and/or justify fraudulent financial reporting, may not be
susceptible to observation by the auditor. Nevertheless, the auditor who becomes aware of the
existence of such information should consider it in identifying the risks of material misstatement
arising from fraudulent financial reporting. For example, auditors may become aware of the
following information that may indicate a risk factor.
Ineffective communication, implementation, support, or enforcement of the entity's
values or ethical standards by management or the communication of inappropriate values
or ethical standards
Nonfinancial management's excessive participation in or preoccupation with the selection
of accounting principles or the determination of significant estimates
Known history of violations of securities laws or other laws and regulations, or claims
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against the entity, its senior management, or board members alleging fraud or violations
of laws and regulations
• Excessive interest by management in maintaining or increasing the entity's stock price or
earnings trend
• A practice by management of committing to analysts, creditors, and other third parties to
achieve aggressive or unrealistic forecasts
• Management failing to correct known reportable conditions on a timely basis
• An interest by management in employing inappropriate means to minimi rr reported
earnings for tax -motivated reasons
• Recurring attempts by management to justify marginal or inappropriate accounting on the
basis of materiality
• The relationship between management and the current or predecessor auditor is strained,
as exhibited by the following:
Frequent disputes with the current or predecessor auditor on accounting, auditing,
or reporting matters
Unreasonable demands on the auditor, such as unreasonable time constraints
regarding the completion of the audit or the issuance of the auditor's report
Formal or informal restrictions on the auditor that inappropriately limit access to
people or information or the ability to communicate effectively with the board of
directors or audit committee
— Domineering management behavior in dealing with the auditor, especially
involving attempts to influence the scope of the auditor's work or the selection or
continuance of personnel assigned to or consulted on the audit engagement
Risk Factors Relating to Misstatements Arising From Misappropriation of Assets
A3 Risk factors that relate to misstatements arising from misappropriation of assets are also
classified according to the three conditions generally present when fraud exists:
incentives/pressures, opportunities, and attitudes/rationalizations. Some of the risk factors related
to misstatements arising from fraudulent financial reporting also may be present when
misstatements arising from misappropriation of assets occur. For example, ineffective
monitoring of management and weaknesses in internal control may be present when
misstatements due to either fraudulent financial reporting or misappropriation of assets exist.
The following are examples of risk factors related to misstatements arising from
misappropriation of assets.
Incentives/Pressures
a. Personal financial obligations may create pressure on management or employees with
access to cash or other assets susceptible to theft to misappropriate those assets.
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b. Adverse relationships between the entity and employees with access to cash or other
assets susceptible to theft may motivate those employees to misappropriate those assets.
For example, adverse relationships may be created by the following:
— Known or anticipated future employee layoffs
— Recent or anticipated changes to employee compensation or benefit plans
— Promotions, compensation, or other rewards inconsistent with expectations
Opportunities
a. Certain characteristics or circumstances may increase the susceptibility of assets to
misappropriation. For example, opportunities to misappropriate assets increase when
there are the following:
— Large amounts of cash on hand or processed
— Inventory items that are small in size, of high value, or in high demand
— Easily convertible assets, such as bearer bonds, diamonds, or computer chips
— Fixed assets that are small in size, marketable, or lacking observable
identification of ownership
b. Inadequate internal control over assets may increase the susceptibility of
misappropriation of those assets. For example, misappropriation of assets may occur
because there is the following:
— Inadequate segregation of duties or independent checks
— Inadequate management oversight of employees responsible for assets, for
example, inadequate supervision or monitoring of remote locations
— Inadequate job applicant screening of employees with access to assets
— Inadequate recordkeeping with respect to assets
— Inadequate system of authorization and approval of transactions (for example, in
purchasing)
— Inadequate physical safeguards over cash, investments, inventory, or fixed assets
— Lack of complete and timely reconciliations of assets
— Lack of timely and appropriate documentation of transactions, for example,
credits for merchandise returns -
— Lack of mandatory vacations for employees performing key control functions
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1 — Inadequate management understanding of information technology, which enables
information technology employees to perpetrate a misappropriation
— Inadequate access controls over automated records, including controls over and
review of computer systems event logs.
' Attitudes/Rationalizations
Risk factors reflective of employee attitudes/rationalizations that allow them to justify
misappropriations of assets, are generally not susceptible to observation by the auditor.
Nevertheless, the auditor who becomes aware of the existence of such information should
' consider it in identifying the risks of material misstatement arising from misappropriation of
assets. For example, auditors may become aware of the following attitudes or behavior of
employees who have access to assets susceptible to misappropriation:
' Disregard for the need for monitoring or reducing risks related to misappropriations of
assets
' Disregard for internal control over misappropriation of assets by overriding existing
controls or by failing to correct known internal control deficiencies
• Behavior indicating displeasure or dissatisfaction with the company or its treatment of
the employee
Changes in behavior or lifestyle that may indicate assets have been misappropriated
Exhibit
' Management Antifraud Programs and Controls
' Guidance to Help Prevent, Deter, and Detect Fraud
' .86
(This exhibit is reprinted for the reader's convenience but is not an integral part of the section-)
This document is being issued jointly by the following organisations:
' In addition, we would also Ince to acknowledge the American Accounting Association, the Defense
Industry Initiative, and the National Association of Corporate Directors for their review of the
Eev Jane 2061 N
American Institute of Certified Public Accountants
'
Association of Certified Fraud Examiners
Financial Executives International
'
Information Systems Audit and Control Association
7'he Institute of Internal Auditors
Institute of Management Accountants
'
Society for Human Resource Management
' In addition, we would also Ince to acknowledge the American Accounting Association, the Defense
Industry Initiative, and the National Association of Corporate Directors for their review of the
Eev Jane 2061 N
COPYRIGHT 020M, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
document and belpful comments and materials.
We gratefully acknowledge the valuable contribution provided by the Anti -Fraud Detection
Subgroup:
Daniel D. Montgomery, Chair David L. Landsittel
Toby J.F. Bishop
Dennis H. Chockasaan
Susan A. Finn
Dana Hermanson
Carol A. Langebw
Joseph T. Wells
Janice Wilkins
'
Finally, we thank the staff of the American Institute of Certified Public Accountants for their
support on this project:
Charles E. Landes Kim K Obson
'
Director Senior Technical Manager
Audit and Anest Standards Audit andAttest Standards
'
Richard Lana Hugh Kelsey
Senior Program Manager Program Manager
Chief Operating Office Knowledge Management
This document was comrnissioned by the Fraud Task Force of the AICPA's Auditing Standards
Board This document has not been adopted, approved, disapproved, or otherwise acted upon by a
'
board, committee, governing body, or membership of the above issuing organivatlons.
Preface
' Some organizations have significantly lower levels of misappropriation of assets and are less
susceptible to fraudulent financial reporting than other organizations because these organizations
' take proactive steps to prevent or deter fraud It is only those organizations that seriously
consider fraud risks and take proactive steps to create the right kind of climate to reduce its
occurrence that have success in preventing fraud. This document identifies the key participants
' in this antifraud effort, including the board of directors, management, internal and independent
auditors, and certified fraud examiners.
' Management may develop and implement some of these programs and controls in response to
specific identified risks of material misstatement of financial statements due to fraud. In other
cases, these programs and controls may be a part of the entity's enterprise -wide risk management
' activities.
Management is responsible for designing and implementing systems and procedures for the
' prevention and detection of fraud and, along with the board of directors, for ensuring a culture
and environment that promotes honesty and ethical behavior. However, because of the
characteristics of fraud, a material misstatement of financial statements due to fraud may occur
' notwithstanding the presence of programs and controls such as those described in this document.
' Introduction
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' COPYRIGHT 02000,AMERICAN INSTITUTE OPCERTIRED PUBLIC ACCOUNTANTS(AICPA)
Fraud can range from minor employee theft and unproductive behavior to misappropriation of
assets and fraudulent financial reporting. Material financial statement fraud can have a
significant adverse effect on an entity's market value, reputation, and ability to achieve its
' strategic objectives. A number of highly publicized cases have heightened the awareness of the
effects of fraudulent financial reporting and have led many organizations to be more proactive in
taking steps to prevent or deter its occurrence. Misappropriation of assets, though often not
material to the financial statements, can nonetheless result in substantial losses to an entity if a
dishonest employee has the incentive and opportunity to commit fraud
'
The risk of fraud can be reduced through a combination of prevention, deterrence, and detection
measures. However, fraud can be difficult to detect because it often involves concealment
'
through falsification of documents or collusion among management, employees, or third parties.
Therefore, it is important to place a strong emphasis on fraud prevention, which may reduce
opportunities for fraud to take place; and fraud deterrence, which could persuade individuals that
they should not commit fraud because of the likelihood of detection and punishment. Moreover,
'
prevention and deterrence measures are much less costly than the time and expense required for
fraud detection and investigation.
An entity's management has both the responsibility and the means to implement measures to
reduce the incidence of fraud The measures an organization takes to prevent and deter fraud also
can help create a positive workplace environment that can enhance the entity's ability to recruit
and retain high-quality employees.
t
Research suggests that the most effective way to implement measures to reduce wrongdoing is to
base them on a set of core values that are embraced by the entity. These values provide an
overarching message about the key principles guiding all employees' actions. This provides a
'
platform upon which a more detailed code of conduct can be constructed, giving more specific
guidance about permitted and prohibited behavior, based on applicable laws and the
'
organization's values. Management needs to clearly articulate that all employees will be held
to act within the organization's code of conduct
accountable
This document identifies measures entities can implement to prevent, deter, and detect fraud It
discusses these measures in the context of three fundamental elements. Broadly stated, these
fundamental elements are (1) create and maintain a culture of honesty and high ethics; (2)
evaluate the risks of fraud and implement the processes, procedures, and controls needed to
mitigate the risks and reduce the opportunities for fraud; and (3) develop an appropriate
oversight process. Although the entire management team shares the responsibility for
implementing and monitoring these activities, with oversight from the board of directors, the
entity's chief executive officer (CEO) should initiate and support such measures. Without the
CEO's active support, these measures are less likely to be effective.
The information presented in this document generally is applicable to entities of all sizes.
However, the degree to which certain programs and controls are applied in smaller, less -complex
entities and the formality of their application are likely to differ from larger organizations. For
example, management of a smaller entity (or the owner of an owner -managed entity), along with
those charged with governance of the financial reporting process, are responsible for creating a
culture of honesty and high ethics. Management also is responsible for implementing a system of
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internal controls commensurate with the nature and size of the organization, but smaller entities
may find that certain types of control activities are not relevant because of the involvement of
and controls applied by management However, all entities must make it clear that unethical or
dishonest behavior will not be tolerated
Creating a Culture of Honesty and High Ethics
It is the organ m on's responsibility to create a culture of honesty and high ethics and to clearly
communicate acceptable behavior and expectations of each employee. Such a culture is rooted in
a strong set of core values (or value system) that provides the foundation for employees as to
how the organization conducts its business. It also allows an entity to develop an ethical
framework that covers (1) fraudulent financial reporting, (2) misappropriation of assets, and (3)
corruption as well as other issues. in 1(43)
Creating a culture of honesty and high ethics should include the following.
Sening the Tone at the Top
Directors and officers of corporations set the "tone at the top" for ethical behavior within any
organization. Research in moral development strongly suggests that honesty can best be
reinforced when a proper example is set—sometimes referred to as the tone at the top. The
management of an entity cannot act one way and expect others in the entity to behave differently.
In many cases, particularly in larger organizations, it is necessary for management to both
behave ethically and openly communicate its expectations for ethical behavior because most
employees are not in a position to observe management's actions. Management must show
employees through its words and actions that dishonest or unethical behavior will not be
tolerated, even if the result of the action benefits the entity. Moreover, it should be evident that
all employees will be treated equally, regardless of their position.
For example, statements by management regarding the absolute need to meet operating and
financial targets can create undue pressures that may lead employees to commit fraud to achieve
them Setting unachievable goals for employees can give them two unattractive choices: fail or
cheat In contrast, a statement from management that says, "We are aggressive in pursuing our
targets, while requiring truthful financial reporting at all times," clearly indicates to employees
that integrity is a requirement This message also conveys that the entity has "zero tolerance" for
unethical behavior, including fraudulent financial reporting.
The cornerstone of an effective antifraud environment is a culture with a strong value system
founded on integrity. This value system often is reflected in a code of conduct fit 2(44) The code
of conduct should reflect the core values of the entity and guide employees in making
appropriate decisions during their workday. The code of conduct might include such topics as
ethics, confidentiality, conflicts of interest, intellectual property, sexual harassment, and fraud
in 3(45) For a code of conduct to be effective, it should be communicated to all personnel in an
understandable fashion. It also should be developed in a participatory and positive manner that
will result in both management and employees taking ownership of its content Finally, the code
of conduct should be included in an employee handbook or policy manual, or in some other
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COPYRIGHT 0 ZM, AMERICAN INSTITUTE OF CERTIFIED PUBW C ACCOUNTANTS (AICPA)
formal document or location (for example, the entity's intranet) so it can be referred to when
needed
Senior financial officers hold an important and elevated role in corporate governance. While
members of the management team, they are uniquely capable and empowered to ensure that all
stakeholders' interests are appropriately balanced, protected, and preserved. For examples of
' codes of conduct, see Attachment 1, "AICPA'CPA's Handbook of Fraud and Commercial Crime
Prevention,' An Organizational Code of Conduct," and Attachment 2, "Financial Executives
International Code of Ethics Statement" provided by Financial Executives International. In
' addition, visit the Institute of Management Accountant's Ethics Center at www.imanetorg for
their members' standards of ethical conduct
Creating a Positive Workplace Environment
' Research results indicate that wrongdoing occurs less frequently when employees have positive
feelings about an entity than when they feel abused, threatened, or ignored. Without a positive
workplace environment, there are more opportunities for poor employee morale, which can
' affect an employee's attitude about committing fraud against an entity. Factors that detract from
a positive work environment and may increase the risk of fraud include:
' Top management that does not seem to care about or reward appropriate behavior
Negative feedback and lack of recognition for job performance
Perceived inequities in the organization
Autocratic rather than participative management
' Low organizational loyalty or feelings of ownership
• Unreasonable budget expectations or other financial targets
' Fear of delivering "bad news" to supervisors and/or management
• Less -than -competitive compensation
' Poor training and promotion opportunities
• Lack of clear organizational responsibilities
' Poor communication practices or methods within the organization
The entity's human resources department often is instrumental in helping to build a corporate
culture and a positive work environment Human resource professionals are responsible for
implementing specific programs and initiatives, consistent with management's strategies, that can
help to mitigate many of the detractors mentioned above. Mitigating factors that help create a
positive work environment and reduce the risk of fraud may include:
Recognition and reward systems that are in tandem with goals and results
Equal employment opportunities
• Team -oriented, collaborative decision-making policies
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Professionally administered compensation programs
Professionally administered training programs and an organizational priority of career
development
Employees should be empowered to help create a positive workplace environment and support
the entity's values and code of conduct. They should be given the opportunity to provide input to
' the development and updating of the entity's code of conduct, to ensure that it is relevant, clear,
and fair. Involving employees in this fashion also may effectively contribute to the oversight of
the entity's code of conduct and an environment of ethical behavior (see the section titled
"Developing an Appropriate Oversight Process").
' Employees should be given the means to obtain advice internally before making decisions that
appear to have significant legal or ethical implications. They should also be encouraged and
given the means to communicate concerns, anonymously if preferred, about potential violations
' of the entity's code of conduct, without fear of retribution. Many organizations have
implemented a process for employees to report on a confidential basis any actual or suspected
wrongdoing, or potential violations of the code of conduct or ethics policy. For example, some
' organizations use a telephone "hotline" that is directed to or monitored by an ethics officer, fraud
officer, general counsel, internal audit director, or another trusted individual responsible for
investigating and reporting incidents of fraud or illegal acts.
Hiring and Promoting Appropriate Employees
Each employee has a unique set of values and personal code of ethics. When faced with
sufficient pressure and a perceived opportunity, some employees will behave dishonestly rather
than face the negative consequences of honest behavior. The threshold at which dishonest
behavior starts, however, will vary among individuals. If an entity is to be successful in
preventing fraud, it must have effective policies that minimize the chance of hiring or promoting
individuals with low levels of honesty, especially for positions of trust
Proactive hiring and promotion procedures may include:
• Conducting background investigations on individuals being considered for employment
or for promotion to a position of trust fn 4(46)
• Thoroughly checking a candidate's education, employment history, and personal
references
• Periodic training of all employees about the entity's values and code of conduct, (training
is addressed in the following section)
• Incorporating into regular performance reviews an evaluation of how each individual has
contributed to creating an appropriate workplace environment in line with the entity's
values and code of conduct
• Continuous objective evaluation of compliance with the entity's values and code of
conduct, with violations being addressed immediately
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COPYRIGHT 01004, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
Training
New employees should be trained at the time of hiring about the entity's values and its code of
conduct. This training should explicitly cover expectations of all employees regarding (1) their
duty to communicate certain matters; (2) a list of the types of matters, including actual or
suspected fraud, to be communicated along with specific examples; and (3) information on how
to communicate those matters. There also should be an affirmation from senior management
regarding employee expectations and communication responsibilities. Such training should
include an element of "fraud awareness," the tone of which should be positive but nonetheless
stress that fraud can be costly (and detrimental in other ways) to the entity and its employees.
In addition to training at the time of hiring, employees should receive refresher training
periodically thereafter. Some organizations may consider ongoing training for certain positions,
such as purchasing agents or employees with financial reporting responsibilities. Training should
be specific to an employee's level within the organization, geographic location, and assigned
responsibilities. For example, training for senior manager level personnel would normally be
different from that of nonsupervisory employees, and training for purchasing agents would be
different from that of sales representatives.
Corift madon
Management needs to clearly articulate that all employees will be held accountable to act within
the entity's code of conduct. All employees within senior management and the finance function,
as well as other employees in areas that might be exposed to unethical behavior (for example,
procurement, sales and marketing) should be required to sign a code of conduct statement
annually, at a minimum.
Requiring periodic confirmation by employees of their responsibilities will not only reinforce the
policy but may also deter individuals from committing fraud and other violations and might
identify problems before they become significant. Such confirmation may include statements
that the individual understands the entity's expectations, has complied with the code of conduct,
and is not aware of any violations of the code of conduct other than those the individual lists in
his or her response. Although people with low integrity may not hesitate to sign a false
confirmation, most people will want to avoid making a false statement in writing. Honest
individuals are more likely to return their confirmations and to disclose what they know
(including any conflicts of interest or other personal exceptions to the code of conduct).
Thorough follow-up by internal auditors or others regarding nomeplies may uncover significant
issues.
Discipline
The way an entity reacts to incidents of alleged or suspected fraud will send a strong deterrent
message throughout the entity, helping to reduce the number of future occurrences. The
following actions should be taken in response to an alleged incident of fraud:
A thorough investigation of the incident should be conducted. fn 5(47)
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COPYRIGHT 0 2001, AMERICAN INSTITUTE OF CERTIFIED PUEUC ACCOUNTANTS (AICPA)
' Appropriate and consistent actions should be taken against violators.
Relevant controls should be assessed and improved.
' Communication and training should occur to reinforce the entity's values, code of
conduct, and expectations.
Expectations about the consequences of committing fraud must be clearly communicated
throughout the entity. For example, a strong statement from management that dishonest actions
will not be tolerated, and that violators may be terminated and referred to the appropriate
authorities, clearly establishes consequences and can be a valuable deterrent to wrongdoing. If
wrongdoing occurs and an employee is disciplined, it can be helpful to communicate that fact, on
a no -name basis, in an employee newsletter or other regular communication to employees.
Seeing that other people have been disciplined for wrongdoing can be an effective deterrent,
increasing the perceived likelihood of violators being caught and punished It also can
demonstrate that the entity is committed to an environment of high ethical standards and
integrity.
' Evaluating Antifraud Processes and Controls
Neither fraudulent financial reporting nor misappropriation of assets can occur without a
' perceived opportunity to commit and conceal the act. Organizations should be proactive in
reducing fraud opportunities by (1) identifying and measuring fraud risks, (2) taking steps to
mitigate identified risks, and (3) implementing and monitoring appropriate preventive and
tdetective internal controls and other deterrent measures.
' Identifying and Measuring Fraud Risks
Management has primary responsibility for establishing and monitoring all aspects of the entity's
fraud risk -assessment and prevention activities. fn 6(48) Fraud risks often are considered as part
of an enterprise -wide risk management program, though they may be addressed separately.
fh 7(49) The fraud risk -assessment process should consider the vulnerability of the entity to
fraudulent activity (fraudulent financial reporting, misappropriation of assets, and corruption)
and whether any of those exposures could result in a material misstatement of the financial
statements or material loss to the organization. In identifying fraud risks, organizations should
' consider organizational, industry, and country -specific characteristics that influence the risk of
fraud.
' The nature and extent of management's risk assessment activities should be commensurate with
the size of the entity and complexity of its operations. For example, the risk assessment process
is likely to be less formal and less structured in smaller entities. However, management should
recognize that fraud can occur in organizations of any size or type, and that almost any employee
may be capable of committing fraud given the right set of circumstances. Accordingly,
t management should develop a heightened "fraud awareness" and an appropriate fraud
risk -management program, with oversight from the board of directors or audit committee.
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COPMGBT O 20KAMERICAN INS71TUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
Mitigating Fraud Risks
It may be possible to reduce or eliminate certain fraud risks by making changes to the entity's
activities and processes. An entity may choose to sell certain segments of its operations, cease
doing business in certain locations, or reorganize its business processes to eliminate
unacceptable risks. For example, the risk of misappropriation of funds may be reduced by
implementing a central lockbox at a bank to receive payments instead of receiving money at the
entity's various locations. The risk of corruption may be reduced by closely monitoring the
entity's procurement process. The risk of financial statement fraud may be reduced by
implementing shared services centers to provide accounting services to multiple segments,
affiliates, or geographic locations of an entity's operations. A shared services center may be less
vulnerable to influence by local operations managers and may be able to implement more
extensive fraud detection measures cost-effectively.
Implementing and Monitoring Appropriate Internal Controls
Some risks are inherent in the environment of the entity, but most can be addressed with an
appropriate system of internal control. Once fraud risk assessment has taken place, the entity can
identify the processes, controls, and other procedures that are needed to mitigate the identified
risks. Effective internal control will include a well-developed control environment, an effective
and secure information system, and appropriate control and monitoring activities. fn 8(50)
Because of the importance of information technology in supporting operations and the
processing of transactions, management also needs to implement and maintain appropriate
controls, whether automated or manual, over computer-generated information.
Fraudulent financial reporting by lower levels of management and employees may be deterred or
detected by appropriate monitoring controls, such as having higher-level managers review and
evaluate the financial results reported by individual operating units or subsidiaries. Unusual
' fluctuations in results of particular reporting units, or the lack of expected fluctuations, may
indicate potential manipulation by departmental or operating unit managers or staff.
1
Revisetl June 20D1 42
1
In particular, management should evaluate whether appropriate internal controls have been
'
implemented in any areas management has identified as posing a higher risk of fraudulent
activity, as well as controls over the entity's financial reporting process. Because fraudulent
financial reporting may begin in an interim period, management also should evaluate the
appropriateness of internal controls over interim financial reporting.
Fraudulent financial reporting by upper-level management typically involves override of internal
controls within the financial reporting process. Because management has the ability to override
controls, or to influence others to perpetrate or conceal fraud, the need for a strong value system
'
and a culture of ethical financial reporting becomes increasingly important This helps create an
environment in which other employees will decline to participate in committing a fraud and will
use established communication procedures to report any requests to commit wrongdoing. Ile
'
potential for management override also increases the need for appropriate oversight measures by
the board of directors or audit committee, as discussed in the following section.
Fraudulent financial reporting by lower levels of management and employees may be deterred or
detected by appropriate monitoring controls, such as having higher-level managers review and
evaluate the financial results reported by individual operating units or subsidiaries. Unusual
' fluctuations in results of particular reporting units, or the lack of expected fluctuations, may
indicate potential manipulation by departmental or operating unit managers or staff.
1
Revisetl June 20D1 42
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COPYRIGHT 02W1, AMERICAN INSTITUTE OF CERTIFIED PURUC ACCOUNTANTS (AICPA)
Developing an Appropriate Oversight Process
To effectively prevent or deter fraud, an entity should have an appropriate oversight function in
place. Oversight can take many forms and can be performed by many within and outside the
entity, under the overall oversight of the audit committee (or board of directors where no audit
committee exists).
Audit Committee or Board of Directors
The audit committee (or the board of directors where no audit committee exists) should evaluate
managements identification of fraud risks, implementation of antifraud measures, and creation
of the appropriate "tone at the top." Active oversight by the audit committee can help to reinforce
management's commitment to creating a culture with "zero tolerance" for fraud An entity's audit
committee also should ensure that senior management (in particular, the CEO) implements
appropriate fraud deterrence and prevention measures to better protect investors, employees, and
other stakeholders. The audit committee's evaluation and oversight not only helps make sure that
senior management fulfills its responsibility, but also can serve as a deterrent to senior
management engaging in fraudulent activity (that is, by ensuring an environment is created
whereby any attempt by senior management to involve employees in committing or concealing
fraud would lead promptly to reports from such employees to appropriate persons, including the
audit committee).
The audit committee also plays an important role in helping the board of directors fulfill its
oversight responsibilities with respect to the entity's financial reporting process and the system of
internal control. fir 9(5 1) In exercising this oversight responsibility, the audit committee should
consider the potential for management override of controls or other inappropriate influence over
the financial reporting process. For example, the audit committee may obtain from the internal
auditors and independent auditors their views on managements involvement in the financial
reporting process and, in particular, the ability of management to override information processed
by the entity's financial reporting system (for example, the ability for management or others to
initiate or record nonstandard journal entries). The audit committee also may consider reviewing
the entity's reported information for reasonableness compared with prior or forecasted results, as
well as with peers or industry averages. In addition, information received in communications
from the independent auditors 81 10(52) can assist the audit committee in assessing the strength
of the entity's internal control and the potential for fraudulent financial reporting.
As part of its oversight responsibilities, the audit committee should encourage management to
' provide a mechanism for employees to report concerns about unethical behavior, actual or
suspected fraud, or violations of the entity's code of conduct or ethics policy. The committee
should then receive periodic reports describing the nature, status, and eventual disposition of any
fraud or unethical conduct. A summary of the activity, follow-up and disposition also should be
provided to the full board of directors.
' If senior management is involved in fraud, the next layer of management may be the most likely
to be aware of it As a result, the audit committee (and other directors) should consider
' establishing an open line of communication with members of management one or two levels
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COPYRIGHT O 2001, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
below senior management to assist in identifying fraud at the highest levels of the organization
' or investigating any fraudulent activity that might occur. fir 11(53) The audit committee typically
has the ability and authority to investigate any alleged or suspected wrongdoing brought to its
' attention. Most audit committee charters empower the committee to investigate any matters.
within the scope of its responsibilities, and to retain legal, accounting, and other professional
advisers as needed to advise the committee and assist in its investigation.
iAll audit committee members should be financially literate, and each committee should have at
least one financial expert The financial expert should possess:
' An understanding of generally accepted accounting principles and audits of financial
statements prepared under those principles. Such understanding may have been obtained
either through education or experience. It is important for someone on the audit
committee to have a working knowledge of those principles and standards.
• Experience in the preparation and/or the auditing of financial statements of an entity of
' similar size, scope and complexity as the entity on whose board the committee member
serves. The experience would generally be as a chief financial officer, chief accounting
' officer, controller, or auditor of a similar entity. This background will provide a
necessary understanding of the transactional and operational environment that produces
the issuces financial statements. It will also bring an understanding of what is involved
in, for example, appropriate accounting estimates, accruals, and reserve provisions, and
an appreciation of what is necessary to maintain a good internal control environment
' Experience in internal governance and procedures of audit committees, obtained either as
an audit committee member, a senior corporate manager responsible for answering to the
audit committee, or an external auditor responsible for reporting on the execution and
results of annual audits.
Management
Management is responsible for overseeing the activities carried out by employees, and typically
does so by implementing and monitoring processes and controls such as those discussed
previously. However, management also may initiate, participate in, or direct the commission and
concealment of a fraudulent act Accordingly, the audit committee (or the board of directors
where no audit committee exists) has the responsibility to oversee the activities of senior
management and to consider the risk of fraudulent financial reporting involving the override of
internal controls or collusion (see discussion on the audit committee and board of directors
above).
Public companies should include a statement in the annual report acknowledging management's
responsibility for the preparation of the financial statements and for establishing and maintaining
an effective system of internal control. This will help improve the public's understanding of the
respective roles of management and the auditor. This statement has also been generally referred
to as a "Management Report" or "Management Certificate." Such a statement can provide a
convenient vehicle for management to describe the nature and manner of preparation of the
financial information and the adequacy of the internal accounting controls. Logically, the
statement should be presented in close proximity to the formal financial statements. For example,
R.A.d Jnae 2001
COPYRIGHT 02004, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
it could appear near the independent auditor's report, or in the financial review or management
analysis section.
Internal Auditors
An effective internal audit team can be extremely helpful in performing aspects of the oversight
function. Their knowledge about the entity may enable them to identify indicators that suggest
fraud has been committed The Standards for the Professional Practice oflnternal Auditing (IIA
Standards), issued by the Institute of Internal Auditors, state, "The internal auditor should have
sufficient knowledge to identify the indicators of fraud but is not expected to have the expertise
of a person whose primary responsibility is detecting and investigating fraud" Internal auditors
also have the opportunity to evaluate fraud risks and controls and to recommend action to
mitigate risks and improve controls. Specifically, the IIA Standards require intemal auditors to
assess risks facing their organizations. This risk assessment is to serve as the basis from which
audit plans are devised and against which internal controls are tested The IIA Standards require
the audit plan to be presented to and approved by the audit committee (or board of directors
where no audit committee exists). The work completed as a result of the audit plan provides
assurance on which management's assertion about controls can be made.
Internal audits can be both a detection and a deterrence measure. Internal auditors can assist in
the deterrence of fraud by examining and evaluating the adequacy and the effectiveness of the
system of internal control, commensurate with the extent of the potential exposure or risk in the
various segments of the organization's operations. In carrying out this responsibility, internal
auditors should, for example, determine whether:
• The organizational environment fosters control consciousness.
• Realistic organizational goals and objectives are set.
• Written policies (for example, a code of conduct) exist that describe prohibited activities
and the action required whenever violations are discovered
• Appropriate authorization policies for transactions are established and maintained.
• Policies, practices, procedures, reports, and other mechanisms are developed to monitor
activities and safeguard assets, particularly in high-risk areas.
• Communication channels provide management with adequate and reliable information.
Recommendations need to be made for the establishment or enhancement of
cost-effective controls to help deter fraud.
Internal auditors may conduct proactive auditing to search for corruption, misappropriation of
assets, and financial statement fraud This may include the use of computer-assisted audit
techniques to detect particular types of fraud. Internal auditors also can employ analytical and
other procedures to isolate anomalies and perform detailed reviews of high-risk accounts and
transactions to identify potential financial statement fraud. The internal auditors should have an
independent repotting line directly to the audit committee, to enable them to express any
concerns about management's commitment to appropriate internal controls or to report
Rev J.oe 2004 4S
COFMGRT 02004, AMERICAN INSTITUTE OF CERTIFIED PUBUC ACCOUNTANTS (AICPA)
suspicions or allegations of fraud involving senior management
Independent Auditors
Independent auditors can assist management and the board of directors (or audit committee) by
providing an assessment of the entity's process for identifying, assessing, and responding to the
risks of fraud. The board of directors (or audit committee) should have an open and candid
dialogue with the independent auditors regarding management's risk assessment process and the
system of internal control. Such a dialogue should include a discussion of the susceptibility of
the entity to fraudulent financial reporting and the entity's exposure to misappropriation of
assets.
Certified Fraud Examiners
Certified fraud examiners may assist the audit committee and board of directors with aspects of
the oversight process either directly or as part of a team of internal auditors or independent
auditors. Certified fraud examiners can provide extensive knowledge and experience about
fraud that may not be available within a corporation. They can provide more objective input into
management's evaluation of the risk of fraud (especially fraud involving senior management,
such as financial statement fraud) and the development of appropriate antifraud controls that are
less vulnerable to management override. They can assist the audit committee and board of
directors in evaluating the fraud risk assessment and fraud prevention measures implemented by
management. Certified fraud examiners also conduct examinations to resolve allegations or
suspicions of fraud, reporting either to an appropriate level of management or to the audit
committee or board of directors, depending upon the nature of the issue and the level of
personnel involved
Other Information
To obtain more information on fraud and implementing antifraud programs and controls, please
go to the following Web sites where additional materials, guidance, and tools can be found
American Institute of Certified Public
v .aicpa.org
Accountants
Association of Certified Fraud Examiners
w .cfenetwrn
Financial Executives International
w Sei.org
Information Systems Audit and Control
w .isacaorg
Association
The Institute of Intemal Auditors
w .theiia.org
hnitum of Management Accountants
wJnienetorg
National Association of Corporate Directors
w .nacdoaline.org
Society for Human Resource Management
w .sbrmorg
Attachment 1: AICPA "CPA's Handbook of Fraud and Commercial Crime Prevention," An
RMSW Jon, 20H 46
COPYRIGHT 02001, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
Organizational Code of Conduct
The following is an example of an organizational code of conduct, which includes definitions of
what is considered unacceptable, and the consequences of any breaches thereof. The specific
content and areas addressed in an entity's code of conduct should be specific to that entity.
Revived Juae 2001
1
Organizational Code of Conduct
The Organization and its employees must, at all times, comply with all applicable laws
and regulations. The Organization will not condone the activities of employees who
achieve results through violation of the law or unethical business dealings. This includes
any payments for illegal acts, indirect contributions, rebates, and bribery. The
Organization does not permit any activity that fails to stand the closest possible public
scrutiny.
All business conduct should be well above the minimum standards required by law.
Accordingly, employees must ensure that their actions cannot be interpreted as being, in
any way, in contravention of the laws and regulations governing the Organization's
worldwide operations.
Employees uncertain about the application or interpretation of any legal requirements
should refer the matter to their superior, who, if necessary, should seek the advice of the
legal department.
General Employee Conduct
The Organization expects its employees to conduct themselves in a businesslike manner.
Drinking, gambling, fighting, swearing, and similar unprofessional activities are strictly
prohibited while on the job.
Employees must not engage in sexual harassment, or conduct themselves in a way that
could be construed as such, for example, by using inappropriate language, keeping or
posting inappropriate materials in their work area, or accessing inappropriate materials on
their computer.
Conflicts of Interest
The Organization expects that employees will perform their duties conscientiously,
honestly, and in accordance with the best interests of the Organization. Employees must
not use their position or the knowledge gained as a result of their position for private or
personal advantage. Regardless of the circumstances, if employees sense that a course of
action they have pursued, are presently pursuing, or are contemplating pursuing may
involve them in a conflict of interest with their employer, they should immediately
communicate all the facts to their superior.
Outside Activities, Employment, and Directorships
All employees share a serious responsibility for the Organization's good public relations,
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COPYRIGHT 0 ZM. AMEMCAN mSTITUT6 OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA)
especially at the community level. Their readiness to help with religious, charitable,
educational, and civic activities brings credit to the Organization and is encouraged.
Employees must, however, avoid acquiring any business interest or participating in any
other activity outside the Organization that would, or would appear to:
• Create an excessive demand upon their time and attention, thus depriving the
Organization of their best efforts on the job.
• Create a conflict of interest—an obligation, interest, or distraction—that may
interfere with the independent exercise of judgment in the Organization's best
interest.
Relationships With Clients and Suppliers
Employees should avoid investing in or acquiring a financial interest for their own
accounts in any business organization that has a contractual relationship with the
Organization, of that provides goods or services, or both to the Organization, if such
investment or interest could influence or create the impression of influencing their
decisions in the performance of their duties on behalf of the Organization.
Gifts, Entertafnmen; and Favors
Employees must not accept entertainment, gifts, or personal favors that could, in any
way, influence, or appear to influence, business decisions in favor of any person or
organization with whom or with which the Organization has, or is likely to have, business
dealings. Similarly, employees must not accept any other preferential treatment under
these circumstances because their position with the Organization might be inclined to, or
be perceived to, place them under obligation.
■
Kickbacks and Secret Commissions
' Regarding the Organization's business activities, employees may not receive payment or
compensation of any kind, except as authorized under the Organization's remuneration
policies. In particular, the Organization strictly prohibits theacceptance of kickbacks and
' secret commissions from supplier; or others. Any breach of this Wile will result in
immediate termination and prosecution to the fullest extent of the law.
' Organization Funds and Other Assets
Employees who have access to Organization funds in any form must follow the
' prescribed procedures for recording, handling, and protecting money as detailed in the
Organization's instructional manuals or other explanatory materials, or both. The
' Organization imposes strict standards to prevent fraud and dishonesty. If employees
become aware of any evidence of fraud and dishonesty, they should immediately advise
their superior or the Law Department so that the Organization can promptly investigate
' further.
When an employee's position requires spending Organization funds or incurring any
reimbursable personal expenses, that individual must use good judgment on the
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' Revtred Jane 2001
J
Organization's behalf to ensure that good value is received for every expenditure.
Organization funds and all other assets of the Organization are for Organization purposes
only and not for personal benefit. This includes the personal use of organizational assets,
such as computers.
Organization Records and Communications
Accurate and reliable records of many kinds are necessary to meet the Organization's
legal and financial obligations and to manage the affairs of the Organization, The
Organization's books and records must reflect in an accurate and timely manner all
business transactions. The employees responsible for accounting and recordkeeping must
fully disclose and record all assets, liabilities, or both, and must exercise diligence in
enforcing these requirements.
Employees must not make or engage in any false record or communication of any kind,
whether internal or external, including but not limited to:
• False expense, attendance, production, financial, or similar reports and statements
False advertising, deceptive marketing practices, or other misleading
representations
Dealing With Outside People and Organizations
Employees must take care to separate their personal roles from their Organization
positions when communicating on matters not involving Organization business.
Employees must not use organization identification, stationery, supplies, and equipment
for personal or political matters.
When communicating publicly on matters that involve Organization business, employees
must not presume to speak for the Organization on any topic, unless they are certain that
the views they express are those of the Organization, and it is the Organization's desire
that such views be publicly disseminated-
When
isseminated
When dealing with anyone outside the Organization, including public officials,
employees must take care not to compromise the integrity or damage the reputation of
either the Organization, or any outside individual, business, or government body.
Prompt Communications
In all matters relevant to customers, suppliers, government authorities, the public and
others in the Organization, all employees must make every effort to achieve complete,
accurate, and timely communications—responding promptly and courteously to all
proper requests for information and to all complaints.
Privacy and Confidentiality
When handling financial and personal information about customers or others with whom
49
' COPMGHT C 20K AMERICAN UISTITUTE OF CERTIFIED PUBUC ACCOUNTANTS (A)CPA)
the Organization has dealings, observe the following principles:
1. Collect, use, and retain only the personal information necessary for the
Organization's business. Whenever possible, obtain any relevant information
' directly from the person concerned Use only reputable and reliable sources to
supplement this information.
' 2. Retain information only for as long as necessary or as required by law. Protect the
physical security of this information.
' 3. Limit internal access to personal information to those with a legitimate business
reason for seeking that information. Use only personal information for the
purposes for which it was originally obtained Obtain the consent of the person
' concerned before externally disclosing any personal information, unless legal
process or contractual obligation provides otherwise.
' Attachment 2: Financial Executives International Code of Ethics Statement
' The mission of Financial Executives International (FET) includes significant efforts to promote
ethical conduct in the practice of financial management throughout the world Senior financial
officers hold an important and elevated role in corporate governance. While members of the
management team, they are uniquely capable and empowered to ensure that all stakeholders'
interests are appropriately balanced, protected, and preserved This code provides principles that
members are expected to adhere to and advocate. They embody rules regarding individual and
' peer responsibilities, as well as responsibilities to employers, the public, and other stakeholders.
All members of FEI will:
' 1. Act with honesty and integrity, avoiding actual or apparent conflicts of interest in
personal and professional relationships.
' 2. Provide constituents with information that is accurate, complete, objective, relevant,
timely, and understandable.
1 3. Comply with riles and regulations of federal, state, provincial, and local governments,
and other appropriate private and public regulatory agencies.
4. Act in good faith; responsibly; and with due care, competence, and diligence, without
misrepresenting material facts or allowing one's independent judgment to be
' subordinated
' 5. Respect the confidentiality of information acquired in the course of one's work except
when authorized or otherwise legally obligated to disclose. Confidential information
acquired in the course of one's work will not be used for personal advantage.
' 6. Share knowledge and maintain skills important and relevant to constituents' needs.
7. Proactively promote ethical behavior as a responsible partner among peers, in the work
RevBea June 2M 50
CITY OF ALLEN, TEXAS
COMMUNICATION OF INTERNAL CONTROL STRUCTURE
RELATED MATTERS NOTED DURING THE AUDIT
FOR THE YEAR ENDED SEPTEMBER 30, 2004
I I I
March 11, 2005
WEAVER
TIDWELL
LLP
To the Honorable Mayor,
CENTIFIED EDBLIC
City Council and City Manager
ACCOUNTANTS
AND CONSULTANTS
City of Allen, Texas
Management of the City of Allen, Texas (the "City") is responsible for establishing and
maintaining the City's internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related costs
of internal control structure policies and procedures.
The City's internal control structure consists of policies and procedures established by
management to provide reasonable, but not absolute, assurance that the financial data
are recorded, processed, summarized, and reported consistent with the assertions
embodied in the financial statements. In establishing those policies and procedures,
management assesses their expected benefits and related costs. Because of the
inherent limitations in any internal control structure, errors or irregularities may
nevertheless occur and not be detected. Also, projection of any assessment of the
internal control structure to future periods is subject to the risk that policies or procedures
may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
In planning and performing our audit of the financial statements of the City of Allen for the
year ended September 30, 2004, we considered its internal control structure in order to
determine our auditing procedures for the purpose of expressing our opinion on the
financial statements and not to provide assurance on the internal control structure.
However, during our audit, we noted certain matters involving accounting internal control
structure and other operational matters that are presented for your consideration. These
matters, which were considered by us during our audit of the financial statements and do
not modify the opinion expressed in our report dated February 1, 2005, are presented in the
following paragraphs. We will review the status of these comments during our next audit
engagement. Our comments and recommendations are intended to improve the internal
control structure or result in other operating efficiencies. Additionally, we evaluated the
status of the comments from our audit of the previous year.
DALLAS CURRENT COMMENTS
12.21 Reconcile Detail Pro Records Monthly
II2z/ Mr... m 0 D Property
sN„r 1a00 Observation:
D.U., h-75251 2280 During our testing of property and equipment, we found discrepancies between the recorded
9724901970 balances in the faced assets module and the amounts per the general ledger. In some
F 91 702 8 32/ cases, the amounts of the discrepancies were significant. Accurate capital assets records
FORT WORT„ are an important management tool in maintaining control over fixed assets. Capital
assets records and related general ledger accounts should be updated each time assets
/000 W,,sr300 s..rr, are purchased, sold, or discarded. Although correcting entries were made at
s,T„r 300 and during g g year's end
rA., w „2. Ira, 7elozzsoo g the audit, the time spent by the City personnel and the auditor in reconciling such
8/73327905 items was significant due to the volume of additions and dispositions and number of
P 817 429 3936 discrepancies.
WWW WEAVERANDTIDW ELL LOM
AN INDEPENDENT MESEEN OF
AKER LILLY
INTERNATIONAL
CITY OF ALLEN, TEXAS
March 11, 2005
Page Two
Recommendation:
We recommend that such reconciliations be performed on a monthly basis when any
discrepancies can be more easily and quickly researched and resolved. In addition, regular
'
comparisons of capital expenditure with recorded capital assets additions should be done
to help ensure all capital expenditures are entered into the fixed assets module.
'
Management's Response:
Prior to GASB34 reporting requirements, the City did not utilize a computerized fixed
asset application. During fiscal year 2002-03, the fixed asset application was being
'
developed, allowing the City to report assets (after a physical inventory) in time for GASB
34 implementation. The depreciation portion of the application was not fully developed,
however, which resulted in depreciation for the FY2002-03 audit to be calculated using
both Excel formulas and the fixed asset application.
In February 2004, the prior year's audit schedules were revised and updated to improve
detail required for GASB 34 reporting requirements for the upcoming year's audit. That
'
process determined that assets in one fund were incorrectly classified. The procedures
correct the classification of the assets involved recalculation of prior year's depreciation
which required more work for the auditors to re -validate the revised information.
"due
In response to the auditor's comments on spending significant time to the volume of
additions and dispositions; the City's growth has impacted the time staff can allocate to
fixed assets. Currently, fixed asset acquisitions are, on average, accounted for on a
'
weekly or bi-weekly basis. Once staffing levels are improved, more time will be devoted
to fixed asset reporting requirements.
Assess the Finance Department Staffing Needs
Observation:
It was apparent from the finance department's level of preparedness at the start of the audit
'
that the resignation of accounting staff prior to the audit, along with increasing
responsibilities, put a strain on the current staff to prepare requested audit schedules timely
'
and accurately. A significant amount of audit time was spent assisting the City staff in
completing supporting schedules. The situation described above may carry over to getting
regular day-to-day assignments complete in a timely manner as the City grows and
transactions and reporting requirements increase.
'
Recommendation:
We recommend that the staffing needs of the finance department be assessed and that
consideration be given to increasing capacity through hiring or reorganizing the current
responsibilities. With the expansion of the City's operations and reporting requirements,
we believe serious consideration should be given to adding an experienced staff that
would assist with financial reporting, as well as with the day-to-day supervision of
accounting activities.
Management's Response:
Growth of the City, new reporting requirements, and new City activities have all
contributed to the increase in professional accounting work required of existing staff.
This year's audit was especially difficult with the resignation of a senior accountant just
before year-end. Staffing shortages during the past year will be addressed with the
'
training of the new senior accountant hired in October and the approval of another
professional accountant position.
II
CITY OF ALLEN, TEXAS
1 March 11, 2005
Page Three
II
Status of Prior Year Comments
WEAVER AND TIDWELL, L.L.P.
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Accompanying this letter is a summary of the status of prior year comments, which should
be
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read along with our current observations and recommendations.
Concluding Comments
'
We appreciate the opportunity to be of service and wish to express our appreciation to the
officials and employees of the City for their cooperation and assistance during the course of
the audit. We would be pleased to discuss these recommendations in greater detail or
1
otherwise assist in their implementation.
This report is intended solely for the information and use of the City council, management,
1
and others within the organization.
WEAVER AND TIDWELL, L.L.P.
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CITY OF ALLEN, TEXAS
t March 11, 2005
Page Four
' STATUS OF PRIOR YEAR COMMENTS
The status of prior year's recommendations is based upon discussion with management and limited review of
their implementation. Such recommendations were reported to the City Council and are more fully described
in prior year's Communication of Internal Control Structure Related Matters Noted during the Audit.
Recommendations
1. We recommended that the City review its
purchasing policies and procedures to
ensure only allowable disbursements are
conducted and in the proper manner.
2. We recommended that the City review the
operations of the utility billing system and
take corrective action to ensure that the
affected accounts reflect the correct
balances at all times.
Implementation
Implemented Not Implemented In Process
X
X