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CITY OF MILAN Washtenaw and Monroe Counties, Michigan

AUDITED FINANCIAL REPORT

For the Fiscal Year Ended

June 30, 2014

PSLZ LLP - Certified Public Accountants

CITY OF MILAN For the Year Ended June 30, 2014

Table of Contents

INTRODUCTORY SECTION

Table of Contents

FINANCIAL SECTION Page Independent Auditor's Report ................................................................................................. 1-2 Management’s Discussion and Analysis ............................................................................... 3-10 Basic Financial Statements: Government Wide Financial Statements: Statement of Net Position ............................................................................................ 11 Statement of Activities ................................................................................................. 12-13 Fund Financial Statements: Balance Sheet – Governmental Funds ..................................................................... 14 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds .................................................................. 15 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities .............................................................................................. 16 Balance Sheet – Proprietary Funds ............................................................................ 17 Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Funds ..................................................................... 18 Statement of Cash Flows – Proprietary Funds .......................................................... 19 Statement of Net Position – Fiduciary Funds ............................................................ 20 Statement of Changes in Net Position – Fiduciary Funds ....................................... 21 Notes to Financial Statements .......................................................................................... 22-46


CITY OF MILAN For the Year Ended June 30, 2014

Table of Contents

FINANCIAL SECTION – Continued Page Required Supplementary Information:

Defined Benefit Pension Plans – Trend Information ............................................................. 47

Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – General Fund ................................................................. 48 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Major Street Fund .......................................................... 49 Other Supplementary Information:

Combining Balance Sheet – Nonmajor Governmental Funds.......................................... 50 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance – Nonmajor Governmental Funds ............................................................. 51 Combining Balance Sheet – Nonmajor Special Revenue Funds ..................................... 52-53 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance – Nonmajor Special Revenue Funds ......................................................... 54-55 Combining Balance Sheet – Nonmajor Debt Service Funds ............................................. 56 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance – Nonmajor Debt Service Funds ................................................................ 57 Combining Balance Sheet – Nonmajor Proprietary Funds ................................................ 58 Combining Statement of Revenues, Expenses, and Changes in Net Position – Nonmajor Proprietary Funds ..................................................................... 59 Combining Statement of Cash Flows – Nonmajor Proprietary Funds ............................. 60

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ....................................................... 61-64


F I N A N C I A L S E C T I O N


PSLZ LLP Certified Public Accountants PLYMOUTH Dennis M. Siegner, C.P.A., C.V.A. BLOOMFIELD HILLS David R. Williamson, C.P.A. 1034 WEST ANN ARBOR TRAIL Jane F. Wang, C.P.A. 3707 WEST MAPLE ROAD P.O. BOX 5520 Rana M. Emmons, C.P.A. SUITE 101 PLYMOUTH, MI 48170-1502 Jennifer A. Galofaro, C.P.A., C.V.A. BLOOMFIELD HILLS, MI 48301-3212 TELEPHONE (734) 453-8770 Susan H. Bertram, C.P.A. TELEPHONE (248) 644-9125

_______________ Deborah M. Cox, C.P.A.

Robert J. Sheu, C.P.A.

Independent Auditor's Report

December 22, 2014 To the Honorable Mayor and Members of the City Council City of Milan, Michigan Report on Financial Statements Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Milan, Michigan, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information

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Mayor and Members of the City Council City of Milan, Michigan December 22, 2014

Opinions-continued of the City of Milan, Michigan as of June 30, 2014 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the defined benefit pension plan trend information, and the budgetary comparison information, as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Milan, Michigan’s basic financial statements. The combining non-major fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining non-major fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining non-major fund financial statements are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 22, 2014, on our consideration of the City of Milan, Michigan’s internal control over financial reporting on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Milan Michigan’s internal control over financial reporting and compliance. Respectfully,

PSLZ LLP Certified Public Accountants

2 PSLZ LLP - Certified Public Accountants

City of Milan Office of City Administrator 147 Wabash St. • Milan, Michigan 48160-1594 Jade Smith Telephone: (734) 439-1501 Fax: (734) 439-3925 Email: [email protected]

Management’s Discussion and Analysis

As management of the City of Milan, we offer readers of the City of Milan’s financial statements this narrative overview and analysis of the financial activities of the City of Milan for the fiscal year ended June 30, 2014.

Financial Highlights

• The assets of the City of Milan exceeded its liabilities at the close of the most recent fiscal year by $ 20,620,394 (net position). Of this amount, $1,505,537 (unrestricted net position) may be used to meet the government’s ongoing obligations to citizens and creditors.

• As of the close of the current fiscal year the City of Milan’s governmental funds reported combined ending fund balances of $ 3,138,876, an increase of $165,662 in comparison with the prior year. Approximately 38% of this total amount, $1,186,564 is available for spending at the government’s discretion (unassigned fund balance).

• The City of Milan’s total bonded debt decreased by $708,000 during the current fiscal year.

• GASB Accounting Standards required recognition of $296,010 in “other post employment benefit (OPEB)” costs.

Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Milan’s basic financial statements. The City of Milan’s basic financial statements comprise 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 themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Milan’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City of Milan’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 of Milan is improving or deteriorating.

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The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as 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, vacation leave). Both of the government-wide financial statements distinguish functions of the City of Milan that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Milan include general government, public safety, highways and streets, sanitation, and culture and recreation. The business-type activities of the City of Milan include the water and sewer system, storm sewer, and Mooreville sewer. The government-wide financial statements include not only the City of Milan itself (known as the primary government), but also a legally separate Brownfield Redevelopment Authority, D.D.A., and other “nonmajor” component units for which the City of Milan is financially accountable. Financial information for these component units are reported separately from the financial information presented for the primary government itself. The government-wide financial statements can be found on pages 11-13 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Milan, like other state and local governments, used fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Milan can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial 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 on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions.

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Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Milan maintains 19 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 balances for the General Fund, Major Street Fund, Southside Sewer Debt and the Arkona Road Special Assessment Debt Service Fund which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Milan adopts an annual appropriated budget for its General Fund and Special Revenue funds. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. Proprietary funds. The City of Milan maintains three proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Milan used the Enterprise Fund to account for its water and sewer activity as well as the other "nonmajor" proprietary funds. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City of Milan’s various functions. The City of Milan uses an internal service fund to account for its fleet of vehicles and other equipment. Because both of these services predominantly benefit governmental rather than business-type functions they have been included within governmental activities in the government-wide financial statements. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City of Milan’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 20-21 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 22-46 of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Milan’s progress in funding its obligation to provide pension benefits to its employees. This information can be found on page 47 of this report.

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The combining statements referred to earlier in connection with nonmajor governmental funds and proprietary funds are presented immediately following the required supplementary information. Combining statements can be found on pages 50-60 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Milan, assets exceeded liabilities by $ 20,620,394 at the close of the most recent fiscal year. By far the largest portion of the City of Milan’s net position (81 percent) reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment); less any related debt used to acquire those assets that are still outstanding. The City of Milan used these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Milan’s investment in its capital assets is reported 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.

2014 2013 2014 2013 2014 2013

Current and Other Assets 4,644,127$ 4,477,805$ 2,286,405$ 1,980,935$ 6,930,532$ 6,458,740$

Capital Assets 7,282,378 7,277,486 22,815,970 23,472,435 30,098,348 30,749,921

Total Assets 11,926,505 11,755,291 25,102,375 25,453,370 37,028,880 37,208,661

Long-Term Liabilities 2,550,875 2,129,893 12,352,000 12,870,000 14,902,875 14,999,893

Other Liabilities & D.I. 1,456,004 1,457,652 49,607 31,902 1,505,611 1,489,554

Total Liabilities

and Deferred Inflows 4,006,879 3,587,545 12,401,607 12,901,902 16,408,486 16,489,447

Net Position:

Net Investment in

Capital Assets 6,184,518 6,222,486 10,463,970 10,602,435 16,648,488 16,824,921

Restricted 1,672,992 1,533,264 793,377 809,451 2,466,369 2,342,715

Unrestricted 62,116 411,996 1,443,421 1,139,582 1,505,537 1,551,578

Total Net Position 7,919,626$ 8,167,746$ 12,700,768$ 12,551,468$ 20,620,394$ 20,719,214$

Total

CITY OF MILAN

Net Position

Governmental

Activities

Business-Type

Activities

An additional portion of the City of Milan’s net position (12 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($1,505,537) may be used to meet the government’s ongoing obligations to citizens and creditors.

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At the end of the current fiscal year the City of Milan is able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. The governmental activities net position decreased by $248,120 during the current fiscal year as shown in the table below:

2014 2013 2014 2013 2014 2013Program Revenues: Charges for Services 1,328,533$ 1,352,199$ 3,087,961$ 2,858,262$ 4,416,494$ 4,210,461$ Operating Grants 535,287 481,564 - - 535,287 481,564 Capital Grants 28,018 - 75,000 34,300 103,018 34,300 General Revenues: Property Taxes 2,454,290 2,428,821 - - 2,454,290 2,428,821 State Shared Revenues 475,967 476,310 - - 475,967 476,310 Investment Earnings 517 926 164 292 681 1,218 Transfers 73,271 74,266 (73,271) (74,266) - - Other 72,594 70,133 - (251,658) 72,594 (181,525) Total Revenues 4,968,477 4,884,219 3,089,854 2,566,930 8,058,331 7,451,149

Program Expenses: General Government 1,406,009 1,329,041 - - 1,406,009 1,329,041 Public Safety 1,821,331 2,185,769 - - 1,821,331 2,185,769 Public Works 1,623,052 1,592,363 - - 1,623,052 1,592,363 Health and Welfare 31,086 33,637 - - 31,086 33,637 Recreation and Culture 278,729 270,377 - - 278,729 270,377 Interest – Long-Term Debt 51,331 55,800 - - 51,331 55,800 Other 5,059 5,405 2,046 7,082 7,105 12,487 Water and Sewer - - 2,938,508 2,935,003 2,938,508 2,935,003 Total Expenses 5,216,597 5,472,392 2,940,554 2,942,085 8,157,151 8,414,477

Change in Net Position (248,120)$ (588,173)$ 149,300$ (375,155)$ (98,820)$ (963,328)$

Activities Activities TotalGovernmental Business

Governmental activities. Governmental activities decreased the City of Milan’s net position by $248,210, as revenues decreased, and expenses increased mostly due to increased OPEB costs, while other expenses increased moderately. Business-type activities. Business-type activities increased the City of Milan’s net position by $149,300. Key elements of this increase are as follows:

• Revenue Increases from Large Customers $ 193,925

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Financial Analysis of the Government’s Funds

As noted earlier, the City of Milan used fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental funds. The focus of the City of Milan’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 of Milan’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

As of the end of the current fiscal year, the City of Milan’s governmental funds reported combined ending fund balances of $ 3,138,876, an increase of $165,662 in comparison with the prior year. Approximately 38% of this total amount ($1,186,564) constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of fund balance is restricted to pay debt service ($294,096), to accomplish capital projects ($113,620), or other purposes ($1,265,276). $32,754 is ‘non-spendable, and $246,566 is ‘committed’ to accomplish specific purposes.

The General Fund is the chief operating fund of the City of Milan. At the end of the current fiscal year unassigned fund balance of the general fund was $1,186,564 , which represents 36% of total general fund expenditures.

The General Fund showed a small increase in equity of $118, as operating revenues exceed expenditures, which was offset by transfers to other funds.

Proprietary funds. The City of Milan’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.

Unrestricted net position of the Water and Sewer Fund at the end of the year amounted to $1,347,285. The total increase in net position was $136,790. Other factors concerning the finances of the fund have already been addressed in the discussion of the City of Milan’s business-type activities. General Fund Budgetary Highlights

Differences between the original expenditure budget and the final amended expenditure budget were $261,950 (including transfers to other funds) to accommodate non re-occurring expenses, and transfers to other funds.

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Capital Asset and Debt Administration

Capital assets. The City of Milan’s investment in capital assets for its governmental and business type activities as of June 30, 2014 amounts to $30,098,348 (net of accumulated depreciation). This investment in capital assets includes land, buildings and system, improvements, machinery and equipment, park facilities, roads and highways. There were no significant capital events during the year. Details to the City’s capital assets are continued in the notes to the financial statements on pages 34-35.

Long-term debt. At the end of the current fiscal year the City of Milan had total bonded and installment debt outstanding of $13,449,860, all but the USDA Revenue Bonds, are backed by the full faith and credit of the City. Additional information on the City of Milan’s long-term debt can be found in note III.D. on pages 38-39.

Economic Factors and Next Year’s Budgets and Rates

The unemployment rate is still high in the State of Michigan and the State’s budget plan may result in reduced state shared revenues. The City of Milan’s charter rate after Headlee Amendment rollback was 18.3166 for general operating purposes; however, we will only levy 14.4 mills. These factors were considered in preparing the City of Milan’s budget for the 2015 fiscal year. During the current fiscal year, unrestricted fund balance in the General Fund increased by $118. The City of Milan has presented a balanced budget in the 2014-2015 fiscal year. The City Administration and City Council will have to continue its diligent review of operating costs, to insure that these funding plans are viable.

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Requests for Information This financial report is designed to provide a general overview of the City of Milan’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City Administrator, 147 Wabash, Milan, MI 48160.

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B A S I C F I N A N C I A L S T A T E M E N T S


11The notes to the financial statements are an integral part of this statement.


Governmental Business-type ComponentActivities Activities Total Units

ASSETSCash and Cash Equivalents $ 3,207,413 $ 680,524 $ 3,887,937 $ 306,526 Receivables (net of Allowance for Uncollectibles): Special Assessments 984,393 - 984,393 - Accounts 339,031 729,452 1,068,483 21 Due from Other Funds 16,078 - 16,078 - Due from Other Governmental Units 62,493 - 62,493 - Inventory - 77,865 77,865 - Prepaid Expenditures 34,719 5,187 39,906 - Restricted Assets – Cash - 793,377 793,377 - Capital Assets (net of Accumulated Depreciation) 7,282,378 22,815,970 30,098,348 - Total Assets 11,926,505 25,102,375 37,028,880 306,547

LIABILITIES Accounts Payable 345,962 15,553 361,515 - Accrued Liabilities 125,649 19,902 145,551 - Due to Other Funds - 14,152 14,152 - Noncurrent Liabilities: Compensated Absences Due in More Than One Year 238,370 - 238,370 - Other Post Employment Benefits (OPEB) 1,214,645 - 1,214,645 - Due Within One Year 217,000 655,000 872,000 - Due in More Than One Year 880,860 11,697,000 12,577,860 - Total Liabilities 3,022,486 12,401,607 15,424,093 -

DEFERRED INFLOWS OF RESOURCES Unavailable Revenue-Special Assessments 984,393 - 984,393 -

NET POSITION Net Investment in Capital Assets 6,184,518 10,463,970 16,648,488 - Restricted for: Capital Projects 113,620 - 113,620 - Debt Service 294,096 793,377 1,087,473 - Special Revenue Funds 1,265,276 - 1,265,276 Unrestricted 62,116 1,443,421 1,505,537 306,547 Total Net Position $ 7,919,626 $ 12,700,768 $ 20,620,394 $ 306,547

Primary Government

CITY OF MILANStatement of Net Position

June 30, 2014

12The notes to the financial statements are an intergal part of this statement.


Operating CapitalCharges for Grants and Grants and

Expenses Services Contributions ContributionsFunctions/ProgramsPrimary Government: Governmental Activities: General Government $ 1,406,009 $ 385,682 $ 37,925 $ 23,088 Public Safety 1,821,331 86,251 76,931 4,930 Public Works 1,623,052 795,648 420,431 - Health and Welfare 31,086 - - - Planning and Zoning 5,059 - - - Recreation and Cultural 278,729 60,952 - - Interest on Long-Term Debt 51,331 - - - Total Governmental Activities 5,216,597 1,328,533 535,287 28,018

Business-Type Activities: Water and Sewer 2,938,508 3,085,423 - 63,000 Other 2,046 2,538 - 12,000 Total Business-Type Activities 2,940,554 3,087,961 - 75,000

Total Primary Government $ 8,157,151 $ 4,416,494 $ 535,287 $ 103,018

Component Units $ 1,385 $ 225 $ - $ -

General Revenues: Property Taxes State Shared Revenue Unrestricted Investment Earnings Franchise Fees

Transfers In (Out) Total General Revenues and Transfers

Change in Net PositionNet Position – Beginning

Net Position – Ending

Program Revenues

CITY OF MILANStatement of Activities

For the Year Ended June 30, 2014

13The notes to the financial statements are an intergal part of this statement.


Governmental Business-Type Component

Activities Activities Total Units

$ (959,314) $ - $ (959,314) $ - (1,653,219) - (1,653,219) -

(406,973) - (406,973) - (31,086) - (31,086) - (5,059) - (5,059) -

(217,777) - (217,777) - (51,331) - (51,331) -

(3,324,759) - (3,324,759)

- 209,915 209,915 - - 12,492 12,492 - - 222,407 222,407 -

(3,324,759) 222,407 (3,102,352)

- - - (1,160)

2,454,290 - 2,454,290 5,818 475,967 - 475,967 -

517 164 681 70 72,594 - 72,594 - 73,271 (73,271) - -

3,076,639 (73,107) 3,003,532 5,888

(248,120) 149,300 (98,820) 4,728 8,167,746 12,551,468 20,719,214 301,819

$ 7,919,626 $ 12,700,768 $ 20,620,394 $ 306,547

Primary GovernmentNet (Expense) Revenue and Changes in Net Assets



Southside Arkona Rd. Other TotalMajor Special Asess. Special Asess. Governmental Governmental

General Street Fund Debt Sevice Debt Sevice Funds FundsASSETS

Cash and Cash Equivalents $ 1,340,584 $ 553,683 $ 202,429 $ 47,098 $ 1,056,439 $ 3,200,233 Receivables (net of Allowance for Uncollectibles): Accounts 153,459 466 461 - 183,338 337,724 Special Assessments - - 330,167 331,326 322,900 984,393 Due from Other Funds 136,755 - - - 137,522 274,277 Due from Other Governmental Units - 45,806 - - 16,687 62,493 Prepaid Expenditures 31,772 982 - - 1,701 34,455

Total Assets $ 1,662,570 $ 600,937 $ 533,057 $ 378,424 $ 1,718,587 $ 4,893,575 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCELiabilities: Accounts Payable $ 183,300 $ 41,196 $ - $ - $ 112,192 $ 336,688 Accrued and Other Liabilities 102,038 6,941 - - 9,409 118,388 Due to Other Funds 158,896 21,259 - - 135,075 315,230 Total Liabilities 444,234 69,396 - - 256,676 770,306

DEFERRED INFLOWS OF RESOURCES Unavailable Revenue-Spec.Assessments - - 330,167 331,326 322,900 984,393

Fund Balances: Non-Spendable – Prepaid Insurance 31,772 982 - - - 32,754 Restricted: Debt Service - - 202,890 47,098 44,108 294,096 Capital Projects - - - - 113,620 113,620 Special Revenue Funds - 530,559 - - 734,717 1,265,276 Committed - - - - 246,566 246,566 Unrestricted: Assigned - - - - - - Unassigned 1,186,564 - - - - 1,186,564 Total Fund Balances 1,218,336 531,541 202,890 47,098 1,139,011 3,138,876

Total Liabilities and Fund Balances $ 1,662,570 $ 600,937 $ 533,057 $ 378,424 $ 1,718,587

Amounts reported for governmental activities in the statement of net position are different because:Capital Assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 6,860,370 Internal Service Funds are used by management to charge the costs of motor pool to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 238,395 Other Post Employment (O.P.E.B) Liability (1,214,645) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (1,103,370)

$ 7,919,626

June 30, 2014

CITY OF MILANBalance Sheet

Governmental Funds



Southside Arkona Rd. Other TotalMajor Special Asess. Special Asess. Governmental Governmental

General Street Fund Debt Sevice Debt Sevice Funds FundsRevenuesProperty Taxes $ 2,454,290 $ - $ - $ - $ - $ 2,454,290 Special Assessments - - 54,389 109,889 25,603 189,881 Licenses and Permits 49,658 - - - 49,658 Intergovernmental: Federal, State and Local 485,787 286,762 - 169,787 942,336 Charges for Services 349,930 - - 594,379 944,309 Fines and Forfeitures 11,676 - - - 11,676 Interest 178 54 1 284 517 Other 147,641 448 - - 154,450 302,539 Total Revenues 3,499,160 287,264 54,389 109,890 944,503 4,895,206

Expenditures Current: General Government 889,696 - - 129,858 109,946 1,129,500 Public Safety 1,745,343 - - - 21,719 1,767,062 Public Works 278,057 261,270 - - 671,938 1,211,265 Health and Welfare 31,086 - - - - 31,086 Planning and Zoning 5,059 - - - - 5,059 Recreation and Cultural 252,056 - - - - 252,056 Debt Service: Principal - - 55,000 90,000 45,000 190,000 Interest and Other Charges - - 16,080 19,645 12,175 47,900 Capital Outlay 135,984 - - - 11,529 147,513 Total Expenditures 3,337,281 261,270 71,080 239,503 872,307 4,781,441

Excess (Deficiency) of Revenues Over Expenditures 161,879 25,994 (16,691) (129,613) 72,196 113,765 Other Financing Sources (Uses) Transfers In 16,645 15,000 32,151 10,950 237,250 311,996 Transfers Out (178,406) (50,950) - - (30,743) (260,099) Total Other Financing Sources (Uses) (161,761) (35,950) 32,151 10,950 206,507 51,897

Net Change in Fund Balances 118 (9,956) 15,460 (118,663) 278,703 165,662 Fund Balances – Beginning 1,218,218 541,497 187,430 165,761 860,308 2,973,214

Fund Balances – Ending $ 1,218,336 $ 531,541 $ 202,890 $ 47,098 $ 1,139,011 $ 3,138,876

CITY OF MILANStatement of Revenues, Expenditures, and Changes in Fund Balances

Governmental FundsFor the Year Ended June 30, 2014



Amounts reported for governmental activities in the statement of activities are different because:

Net change in fund balances – total governmental funds $ 165,662

Capital Outlay Expenditures 147,513Capital Outlay Expenditures-in Department 84,615Depreciation (446,739)

(214,611)

190,000(82,112)

(296,010)(188,122)

(11,049)

Change in net position in governmental activities $ (248,120)

Governmental funds report capital outlays as expenditures. However, in thestatement of activities the cost of those assets is allocated over their estimateduseful lives and reported as depreciation expense. This is the amount by whichdepreciation exceeded capital outlays in the current period:

The issuance of long-term debt (e.g. bonds, leases) provides current financialresources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds.Neither transaction, however, has any effect on net position. Also, governmentalfunds report the effect of issuance costs, premiums, discounts, and similar itemswhen debt is first issued; whereas, these amounts are deferred and amortized inthe statement of activities. This amount is the net effect of these differences inthe treatment of long-term debt and related items:

Internal service funds are used by management to charge the costs of fleetmanagement and management information systems to individual funds. The netexpenses of certain activities of internal service funds is reported withgovernmental activities.

CITY OF MILANReconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances

of Governmental Funds to the Statement of ActivitiesFor the Year Ended June 30, 2014

Principal Payments on Long-Term DebtDecrease in Compensated AbsencesIncrease in OPEB Liability



GovernmentalActivities –

Internal Service

Water Nonmajor Motor Pool& Sewer Funds Total Fund

ASSETS

Current Assets: Cash and Cash Equivalents $ 584,388 $ 96,136 $ 680,524 $ 7,180 Accounts Receivable 729,452 - 729,452 1,307 Due From Other Funds - - - 59,892 Inventory 77,865 - 77,865 - Prepaid Expense 5,187 - 5,187 264 Total Current Assets 1,396,892 96,136 1,493,028 68,643

Restricted Assets: Cash – Debt Retirement and RRI 793,377 - 793,377 - Total Restricted Assets 793,377 - 793,377 -

Property, Plant and Equipment: Land and Land Improvements 981,712 - 981,712 - Building 8,155,412 - 8,155,412 - Water and Sewer Infrastructure 25,596,968 - 25,596,968 - Machinery, Equipment and Vehicles 4,585,928 - 4,585,928 1,890,965 Less: Accumulated Depreciation (16,504,050) - (16,504,050) (1,468,957) Net Property, Plant and Equipment 22,815,970 - 22,815,970 422,008

Total Assets $ 25,006,239 $ 96,136 $ 25,102,375 $ 490,651

LIABILITIES AND NET POSITION

Current Liabilities: Accounts Payable $ 15,553 $ - $ 15,553 $ 9,274 Accrued Liabilities 19,902 - 19,902 7,261 Due to Other Funds 14,152 - 14,152 2,861 Current Portion of Contracts Payable (Act 99) - - - 32,000 Current Portion of Bonds Payable 655,000 - 655,000 - Total Current Liabilities 704,607 - 704,607 51,396

Long-Term Liabilities: Contracts Payable (Act 99) - - - 200,860 Bonds Payable 11,697,000 - 11,697,000 - Total Long-Term Liabilities 11,697,000 - 11,697,000 200,860

Net Position: Net Investment in Capital Assets 10,463,970 - 10,463,970 189,148 Restricted 793,377 - 793,377 - Unrestricted 1,347,285 96,136 1,443,421 49,247 Total Net Position 12,604,632 96,136 12,700,768 238,395

Total Liabilities and Net Position $ 25,006,239 $ 96,136 $ 25,102,375 $ 490,651

Business Type Activities

Enterprise Funds

CITY OF MILANBalance Sheet

Proprietary FundsJune 30, 2014




Internal Service


Operating Revenues:Intergovernmental $ - $ 2,538 $ 2,538 $ - Water Charges 925,877 - 925,877 - Sewer Charges 2,061,496 - 2,061,496 - Billing Fees 10,390 - 10,390 8,936 Other Charges for Services 87,660 - 87,660 165,200 Total Operating Revenues 3,085,423 2,538 3,087,961 174,136

Operating Expenses:

Water Operating Expenses:Wages 62,076 - 62,076 - Administrative Fees 115,773 - 115,773 - Fringe Benefits 105,654 - 105,654 - Other Operating Costs 350,510 - 350,510 -

Total Water Operating Expenses 634,013 - 634,013 - Sewer Operating Expenses:

Wages 91,341 - 91,341 - Administrative Fees 115,773 - 115,773 - Fringe Benefits 136,463 - 136,463 - Other Operating Costs 653,451 - 653,451 -

Total Sewer Operating Expenses 997,028 - 997,028 - Other Operating Expenses - 2,046 2,046 174,771 Depreciation 772,257 - 772,257 28,357

Total Operating Expenses 2,403,298 2,046 2,405,344 203,128

Operating Income (Loss) 682,125 492 682,617 (28,992)

Non-Operating Revenues (Expenses):Interest Earned 146 18 164 - Interest Expense and Paying Agent Fees (535,210) - (535,210) (3,431) Total Non-Operating Revenues (Expenses) (535,064) 18 (535,046) (3,431)

Income (Loss) before Operating Transfers and Contributions 147,061 510 147,571 (32,423)

Operating Transfers:Operating Transfers (Out) (73,271) - (73,271) 21,374 Net Operating Transfers (73,271) - (73,271) 21,374

Capital Contributions 63,000 12,000 75,000 -

Net Income (Loss) 136,790 12,510 149,300 (11,049)

Net Position – Beginning 12,467,842 83,626 12,551,468 249,444

Net Position – Ending $ 12,604,632 $ 96,136 $ 12,700,768 $ 238,395

Type ActivitiesEnterprise Funds

CITY OF MILANStatement of Revenues, Expenses and Changes in Net Position

Proprietary FundsFor the Year Ended June 30, 2014

Business




Internal Service


CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers and Users $ 2,861,467 $ - $ 2,861,467 $ 173,980 Receipts from Quasi-External Transactions - 2,538 2,538 - Payments to Suppliers (1,232,553) (445) (1,232,998) (113,095) Payments to Employees (395,534) - (395,534) (79,829) Net Cash Provided (Used) by Operating Activities 1,233,380 2,093 1,235,473 (18,944)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfer to other funds (73,271) - (73,271) 21,374 Net Cash (Used) by Noncapital Financing Activities (73,271) - (73,271) 21,374

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Charges 63,000 12,000 75,000 - Purchases of Capital Assets (115,792) - (115,792) (247,860) Proceeds from Long Term Debt 460,000 - 460,000 232,860 Principal Paid on Capital Debt (978,000) - (978,000) - Interest Paid on Capital Debt (535,210) - (535,210) (3,431) Net Cash Provided (Used) by Capital and Related Financing Activities (1,106,002) 12,000 (1,094,002) (18,431)

CASH FLOWS FROM INVESTING ACTIVITIES Interest Earned 146 18 164 -

Net Increase (Decrease) in Cash and Cash Equivalents 54,253 14,111 68,364 (16,001)

Cash and Cash Equivalents – Beginning 1,323,512 82,025 1,405,537 23,181

Cash and Cash Equivalents – Ending $ 1,377,765 $ 96,136 $ 1,473,901 $ 7,180

Balance Sheet Classifications:Cash and Cash Equivalents $ 584,388 $ 96,136 $ 680,524 $ 7,180 Restricted Assets – Cash and Cash Equivalents 793,377 - 793,377 - Total $ 1,377,765 $ 96,136 $ 1,473,901 $ 7,180

Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities: Operating Income (Loss) $ 682,125 $ 492 $ 682,617 $ (28,992) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization Expense 772,257 - 772,257 28,357 (Increase) Decrease in Receivables (223,956) - (223,956) (156) (Increase) Decrease in Due from Other Funds - 1,601 1,601 (27,192) (Increase) Decrease in Prepaid Expenses (4,776) - (4,776) 58 (Increase) Decrease in Inventory (9,975) - (9,975) - Increase (Decrease) in Accounts Payable 10,761 - 10,761 7,614 Increase (Decrease) in Accrued Liabilities 6,007 - 6,007 837 Increase (Decrease) in Due to Other Funds 937 - 937 530 Net Cash Provided (Used) by Operating Activities $ 1,233,380 $ 2,093 $ 1,235,473 $ (18,944)

Type ActivitiesEnterprise Funds

CITY OF MILANStatement of Cash Flows

Proprietary FundsFor the Year Ended June 30, 2014

Business



RetirementHealth Agency

ASSETS Savings Funds

Cash $ - $ 82,878 Investments, at Fair Value 274,666 - Accounts Receivable - -

Total Assets 274,666 82,878

LIABILITIES

Accounts Payable - 80,952 Due to Other Funds - 1,926

Total Liabilities - 82,878

Net Position Held in Trust $ 274,666 $ -

CITY OF MILANStatement of Net Position

Fiduciary FundsJune 30, 2014


PSLZ LLP-Certified Public Accountants

RetirementHealth

ADDITIONS SavingsInvestment Income: Net Appreciation (Depreciation) in Fair Value of Investments $ 24,379 Total Additions 24,379

DEDUCTIONSAdministrative (1,387) Benefits Paid (1,518) Total Deductions (2,905)

Net Increase (Decrease) 21,474

Net Position Held in Trust: July 1 253,192

June 30 $ 274,666

CITY OF MILANStatement of Changes in Net Position

Fiduciary FundsFor the Year Ended June 30, 2014

CITY OF MILAN

Notes to Financial Statements June 30, 2014

I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity

The City of Milan, Michigan, a Municipal Corporation, was established in 1831, chartered as a Village in 1885 and became a City in 1967. Located 12 miles south of Ann Arbor, 45 miles southwest of Detroit and 25 miles north of the Ohio State line, the City covers an area of 3.00 square miles. Milan is a Home-Rule City, which operates under an elected City Council which consists of the Mayor and six Council members, with the daily activity managed by the City Administrator and Department Heads. The City provides services to its more than 5,200 residents in many areas including law enforcement, fire protection, water, sewer, transportation, parks and recreation.

As required by generally accepted accounting principles, these financial

statements present the City of Milan and its component units, entities for which the government is considered to be financially accountable. The discretely presented component units are reported in a separate column in the combined financial statements to emphasize they are legally separate from the government. Each discretely presented component unit has a June 30 year-end.

Discretely Presented Component Units The City of Milan Downtown Development Authority (DDA) Board is comprised of

the Mayor and eight (8) members appointed by the City Council. The DDA is responsible for the creation of a development and financing plan for the downtown district or a development area within the district to promote economic growth. The Authority must obtain City Council approval of all development and financing plans. The annual operating budget and any modifications also require the approval of the Milan City Council.

The City of Milan Economic Development Corporation (EDC) is governed by a

nine (9) member board appointed by the City Council. The EDC was established to promote economic development within the City. The annual operating budget and any modifications require the approval of the Milan City Council.

The City of Milan Brownfield Redevelopment Authority (BRA) was established

pursuant to Public Act 381 of 1996 to promote the revitalization of environmentally distressed areas in the City. The BRA is governed by a seven member board appointed by the Milan City Council. The annual operating budget and any modifications require the approval of the Milan City Council.

The City of Milan Historical Commission (HC) was established to preserve the Hack

House property. The Historical Commission consists of a five (5) member board appointed by the Milan City Council. The annual operating budget and any modifications require the approval of the Milan City Council.

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CITY OF MILAN


I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

A. Reporting Entity – Continued

Discretely Presented Component Units – Continued

The above component units are discretely presented with the City’s financial statements because they are legally separate and financially accountable to the City. Financial accountability is demonstrated by the City Council making the appointments to the respective Boards, approving the annual operating budgets and any amendments of each component unit, and approving the projects undertaken by the BRA and HC and the development and financing plans of the EDC and DDA (condensed financial information represented below).

Brownfield Downtown Other Nonmajor TotalRedevelopment Development Governmental Component

Authority Authority Funds UnitsASSETSCash $ 262,321 $ 35,005 $ 9,200 $ 306,526 Accounts Rec. - 21 - 21 Cash $ 262,321 $ 35,026 $ 9,200 306,547

NET POSITIONUnrestricted $ 262,321 35,026$ 9,200$ 306,547$

STATEMENT OF NET POSITION - COMPONENT UNITS

Brownfield Downtown Other Nonmajor TotalRedevelopment Development Governmental Component

Authority Authority Funds UnitsExpenses $ - $ (1,385) $ - $ (1,385) Program Revenues - 225 - 225 Net Revenues - (1,160) - (1,160) General Revenues: Property Taxes - 6,043 - 5,818 Unrestricted Interest 70 - - 70 Change in Net Position 70 4,883 - 4,728 Net Position – Beginning 262,251 30,368 9,200 301,819 Net Position – Ending $ 262,321 $ 35,251 $ 9,200 $ 306,547

STATEMENT OF ACTIVITIES - COMPONENT UNITS

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CITY OF MILAN



A. Reporting Entity – Continued Joint Venture

The City is a participant with London Township, Milan Township, and York Township

in the Milan Area Fire Department. The Department was established by inter local agreements between the parties in 1980, and was established to provide fire protection services to the participating communities. The Department is governed by an executive committee consisting of the chief executive from each of the communities, along with appointed members by each community’s governing body. No share ownership of the assets is available since the Department does not maintain the separate accounting of the fixed assets required by the agreements. Financial statements are available by contacting the Milan Area Fire Department.

B. Government-wide and Fund Financial Statements

The government-wide financial statements (i.e. the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity 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. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

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CITY OF MILAN



C. Measurement Focus, Basis of Accounting and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements are reported using the current financial

resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

Property taxes, franchise taxes, licenses, and interest associated with the current

fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City.

Governmental Funds

The City reports the following major governmental funds: The General Fund is the government's primary operating fund. It accounts for

all financial resources of the general government, except those required to be accounted for in another fund.

Major Street Special Revenue Fund is used to account for gas and weigh taxes returned by the state to be used for streets designated as “major”.

Southside Sewer Special Assessment Debt Service Fund and Arkona Road Special Assessment Debt Service Fund are used to account for financial resources accumulated to pay principal and interest on the special assessment bonds.

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CITY OF MILAN



C. Measurement Focus, Basis of Accounting and Financial Statement Presentation – Continued

Governmental Funds – Continued

In addition, the City reports on the following fund types:

The Special Revenue funds account for revenue sources that are legally restricted to expenditures for specific purposes (not including expendable trusts or major capital projects).

The Debt Service funds account for the resources accumulated and payments made for principal and interest on long-term debt of governmental funds.

The Capital Project funds are used to account for construction projects and their related revenue sources.

Proprietary Funds

Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Proprietary funds include the following fund types:

Enterprise funds are used to account for those operations that are financed and operated in a manner similar to private business or where the City Council has decided the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The City’s enterprise fund includes the Water and Sewer Fund, which is reported as a major fund, and the nonmajor enterprise funds: Storm Sewer and Mooreville Sewer funds.

Internal Service funds account for operations that provide services to other departments or agencies of the City on a cost reimbursement basis. As these services predominantly benefit governmental rather than business-type functions, they have been included within the governmental activities in the government-wide financial statements.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance.

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CITY OF MILAN



C. Measurement Focus, Basis of Accounting and Financial Statement Presentation – Continued

Fiduciary Funds

Fiduciary funds account for assets held by the government in a trustee capacity or as an agent on behalf of others. Fiduciary funds include the following fund types:

The trust funds are used to account for assets held by the City in a trustee capacity for individuals, private organizations, other governments or other funds.

The agency funds are used to account for assets that the government holds

for others in an agency capacity. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Agency funds are accounted for using the modified accrual basis of accounting.

Restricted Resources

When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as needed.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

D. Assets, Liabilities, and Net Position or Equity

1. Deposits and Investments

The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the City to invest in obligations of the U.S. Treasury, commercial paper of certain investment grades, and deposits of Michigan commercial banks.

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CITY OF MILAN



D. Assets, Liabilities, and Net Position or Equity – Continued

2. Receivables and Payables

Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds" (i.e. the current portion of interfund loans) or "advances to/from other funds" (i.e. non-current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.”

Advances between funds, as reported in the fund financial statements, are

offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources.

All trade, property tax and special assessment receivables are shown net of

allowances for uncollectible accounts, which are recorded $-0- at June 30, 2014.

3. Inventory Inventories are valued at cost using the first-in/first-out (FIFO) method. The costs

of governmental fund-type inventories are recorded as expenditures when consumed rather than when purchased.

4. Restricted Assets Resources for the debt service and construction activity within the Water and

Sewer Fund (enterprise fund) are segregated and classified as "restricted assets". Assets restricted for debt service total $541,944 at June 30, 2014, while assets restricted for repair, replacement and improvement total $251,433.

5. Capital Assets

Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

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CITY OF MILAN



D. Assets, Liabilities, and Net Position or Equity – Continued

5. Capital Assets – Continued

Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed.

Property, plant and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over the following estimated useful lives:

Assets Years Buildings 15-30 Equipment 5-20 Infrastructure 15-30

6. Compensated Absences

In accordance with contracts negotiated with the various employee groups of the City, individual employees have vested rights upon termination of employment to receive payment for unused vacation and sick leave under formulas and conditions specified in the contracts. All sick and vacation pay is accrued when incurred in the government-wide, proprietary, and fiduciary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured. The long-term portion of compensated absences related to the governmental funds is a liability recorded in the statement of net position.

7. Long-Term Obligations

In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt.

Long-term debt is recognized as a liability of a governmental fund when due. For other long-term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. The remaining portion of such obligations is reported in the statement of net position. Long-term liabilities expected to be financed from proprietary funds are reported as liabilities in those funds.

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CITY OF MILAN


Il. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information 1. The City is legally subject to the budgetary control requirements of the State of

Michigan P.A. 621 of 1978 (Uniform Budgeting Act). The following is a summary of the requirements of this act:

a. Budgets must be adopted for the General and Special Revenue funds. b. Budgets must be balanced.

c. Budgets must be amended as necessary. d. Public hearings must be held prior to adoption. e. Expenditures cannot exceed budget appropriations. f. Expenditures must be authorized by a budget appropriation prior to being

incurred. 2. The City follows these procedures in establishing the budgetary data reflected

in these financial statements:

a. In accordance with State law, prior to May 1, the Mayor and City Administrator submit to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and means of financing them for the upcoming year. Detail line item budgets are included for administrative control. The level of control for the detail budgets is at the department level.

b. Public hearings are conducted at City Hall to obtain taxpayer comments.

c. Prior to June 30, the budgets are legally enacted at the activity level for the General Fund and at the total fund expenditure level for the Special Revenue funds through passage of a resolution.

d. Formal budgetary integration is employed as a management control device during the year for all budgetary funds.

e. Budget appropriations lapse at year end.

f. The City does not employ encumbrance accounting as an extension of formal budgetary integration in the governmental funds.

g. Budgeted amounts are reported as originally adopted or as amended by the City Council.

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CITY OF MILAN


Il. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY – Continued

B. Compliance with P.A. 621 of 1978

1. Deficit Fund Balance

The City has no fund balance deficits. 2. Excess of Expenditures Over Appropriations in Budgetary Funds There were no expenditures in excess of appropriations during the year.

C. Public Act 245 of 1999 Compliance

In accordance with the State Construction Code Act, Public Act 245 of 1999, the City must account for cumulative excess revenues over or under expenditures generated by the City’s building department from January 1, 2000 and forward.

The cumulative amounts for the period January 1, 2000 through June 30, 2014 are as follows:

Balance at July 1, 2013 $ (985,165 ) Fees Collected 49,658 Expenditures (140,400 ) Excess Revenues Over (Under Expenditures) $ (1,075,907 )

III. DETAILED NOTES ON ALL FUNDS

A. Deposits and Investments Under State law the City is permitted to make deposits and invest in the accounts

of federally insured banks, credit unions, and savings and loan associations that have offices in Michigan. The City is allowed to invest in bonds, securities, and other direct obligations of the United States or any agency or instrumentality of the United States; repurchase agreements; bankers' acceptances of United States banks; commercial paper rated within the two highest classifications, which mature not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivisions, which are rated as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan.

The Retiree Health Savings Fund is also authorized by Michigan Public Act 149 of

1999, as amended, to invest in certain reverse repurchase agreements, stocks, diversified investment companies, annuity investment contracts, real estate leased to public entities, mortgages, real estate (if the trust fund's assets exceed $250

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CITY OF MILAN


III. DETAILED NOTES ON ALL FUNDS – Continued

A. Deposits and Investments – Continued million), debt, or equity of certain small businesses, certain state and local government obligations, and certain other specified investment vehicles. The City's cash and investments are subject to several types of risk, which are detailed below:

Custodial Credit Risk of Bank Deposits In the event of a bank failure, the City's deposits may not be recovered. The City

does not have a deposit policy for custodial credit risk. As of June 30, 2014, the City's book balance of its deposits was $4,763,892; the total book balance was $4,764,192, due to $300 in cash on hand. The bank balance was $4,542,944 which was exposed to custodial credit risk, as follows:

Bank Balance Insured by F.D.I.C $ 354,052 Uninsured and Uncollateralized 4,188,892 Total $ 4,542,944

Carrying Bank FDIC Amount Balance Insured Downtown Development Authority $ 35,005 $ 35,005 $ 35,005 Economic Development Corporation 9,615 9,615 1,073 Brownfield Redevelopment Authority 262,321 262,321 3,457 Historical Commission (415) (415) - $ 306,526 $ 306,526 $ 39,535

A reconciliation of cash to the accompanying financial statement follows: Statement of Net Position: Cash and Cash Equivalents $ 3,887,937 Restricted Assets – Cash 793,377 Fiduciary Fund: Cash 82,878 Total $ 4,764,192

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CITY OF MILAN



A. Deposits and Investments – Continued

Credit Risk State law limits investments in commercial paper to the top two ratings issued by

nationally recognized statistical rating organizations. The City has no investment policy that would further limit its investment choices. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows:

Investment Fair Value Rating Rating Organization I.C.M.A. Retirement Funds $274,666 - Not Rated- Concentration of Credit Risk The City places no limit on the amount the City may invest in any one issuer. The

City has more than 5 percent of its investments in the following: I.C.M.A. Retirement Funds 100% Custodial Credit Risk of Investments Custodial credit risk is the risk that, in the event of the failure of the counterparty,

the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City does not have a policy for custodial credit risk. At year end, the following investment securities were uninsured and unregistered, with securities held by the counterparty or by its trust department or agent but not in the City's name.

Type of Investment Carrying Value How Held I.C.M.A. Retirement Funds $ 274,666 Counterparties Reported as: Statement of Net Position: Fiduciary Funds $ 274,666

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CITY OF MILAN


III. DETAILED NOTES ON ALL FUNDS – Continued B. Capital Assets Capital asset activity for the year ended June 30, 2014 was as follows:

Beginning Ending

Governmental Activities: Balance Additions Deletions Balance

Capital Assets, not Depreciated: Land $ 73,500 $ - $ - $ 73,500 Capital Assets, being Depreciated: Land Improvements 1,927,163 - - 1,927,163 Building 3,343,966 - - 3,343,966 Building Improvements 137,520 - - 137,520 Machinery and Equipment 1,192,875 63,560 - 1,256,435 Infrastructure 10,466,647 168,568 - 10,635,215

17,068,171 232,128 - 17,300,299 Internal Service Fund 1,643,105 247,860 - 1,890,965

18,711,276 479,988 - 19,191,264 Less: Accumulated Depreciation: Land Improvements (941,538) (46,822) - (988,360) Building (1,597,500) (65,207) - (1,662,707) Building Improvements (39,446) (5,327) - (44,773) Machinery and Equipment (1,084,215) (26,893) - (1,111,108) Infrastructure (6,403,991) (302,490) - (6,706,481)

(10,066,690) (446,739) - (10,513,429) Internal Service Fund (1,440,600) (28,357) - (1,468,957)

(11,507,290) (475,096) - (11,982,386) Governmental ActivitiesCapital Assets, net $ 7,277,486 $ 4,892 $ - $ 7,282,378

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CITY OF MILAN



B. Capital Assets – Continued

Beginning EndingBusiness-type Activities: Balance Additions Deletions Balance

Capital Assets, not Depreciated: Land $ 30,500 $ - $ - $ 30,500

Capital Assets, being Depreciated: Water and Sewer 39,173,728 115,792 - 39,289,520

39,173,728 115,792 - 39,289,520

Less: Accumulated Depreciation: Water and Sewer (15,731,793) (772,257) - (16,504,050)

(15,731,793) (772,257) - (16,504,050)

Business ActivitiesCapital Assets, net $ 23,472,435 $ (656,465) $ - $ 22,815,970

Depreciated expense was charged to functions of the primary governmentas follows:

General Government $ 101,133 Public Safety 26,898 Public Works 292,035 Recreation and Culture 26,673 Charged though Internal

Service Funds 28,357 $ 475,096

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CITY OF MILAN



C. Interfund Receivables, Payables and Transfers

1. Interfund Receivables and Payables

Receivable Fund Payble Fund AmountGeneral Fund Agency Funds $ 1,926

Rubbish Fund 117,816 Water and Sewer 14,152 Motor Pool 2,861

136,755 Grants Fund General Fund 25,000 Capital Improvement Fund General Fund 111,942 Donation Fund General Fund 580 Motor Pool Major Street Fund 21,259

General Fund 21,374 Local Street Fund 17,259

59,892 Total $ 334,169

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CITY OF MILAN



C. Interfund Receivables, Payables and Transfers – Continued

2. Interfund Transfers – Continued

Transfer In Transfer Out AmountPolice Reserve General Fund $ 1,000 Grants Fund 25,000 Donation Fund 5,465 Capital Improvement 103,766 Southside Debt 21,801 Motor Pool 21,374

178,406 Local Streets Major Streets 40,000 Arkona Road SAD 10,950

50,950 General Fund Drug/Alcohol Law 6,000 Local Streets Uptown SAD 10,145 General Fund 14,598

24,743 Major Streets Water and Sewer 15,000 Southside Debt 10,350 Northside Debt 1,716 Local Streets 20,000 General Fund 500 G.O. Bond 25,705

73,271 Total $ 333,370

Interfund accounts payable/receivable represents un-cleared balances from trade accounts payable at year end, and short-term advances. Transfers are the results of planned (budgeted) operating for the following:

• General Fund to other funds – budgeted operating assistance, fund future capital improvement and City’s share of debt service.

• Major Streets to Local Streets – transfer to accomplish local street

projects.

• Drug/Alcohol Enforcement to General-Reimburse for costs of enforcement related activities not charged to SRF.

• Major Streets to Arkona Road SAD-assist with financing SAD shortfalls

due to collection issues (financed with local revenues transferred to MSF).

• Water and Sewer to various funds – Water and Sewer Fund share of

projects accomplished in other funds.

• Other funds to General Fund – reimburse for expenditures. 37


CITY OF MILAN



D. Long-Term Debt

The following is a summary of long-term debt transactions of the City for the year ended June 30, 2014:

Balance Balance Balance DueJuly 1, 2013 Additions Reductions June 30, 2014 Within 1 Year

Gov. Activities:G.O. Bonds $ 105,000 $ - $ 20,000 $ 85,000 $ 20,000 Special Assess. Bonds 950,000 - 170,000 780,000 165,000 Subtotal 1,055,000 - 190,000 865,000 185,000 ISF--Act 99 Financing - 232,860 - 232,860 32,000 Subtotal 1,055,000 232,860 190,000 1,097,860 217,000 Comp. Absences 156,258 82,112 - 238,370 -

$ 1,211,258 $ 82,112 $ 190,000 $ 1,103,370 $ 217,000

Business-Type Activities:G.O. Bonds $ 10,170,000 $ - $ 595,000 $ 9,575,000 $ 620,000 U.S.D.A. Loan 2,700,000 460,000 383,000 2,777,000 35,000

$ 12,870,000 $ 460,000 $ 978,000 $ 12,352,000 $ 655,000

The following is a summary of general obligation debt outstanding (excluding

compensated absences) of the City as of June 30, 2014:

Issues Rate Through OutstandingGovernmental Activities:

General Obligation Bonds 1 4.50%-5.10% 2018 $ 85,000 ISF Act 99 Financing 1 3.4% 2021 232,860 Special Assessment Bonds 3 2.50%-5.10% 2018 780,000

Total Governmental Activities $ 1,097,860

Business-Type Activities:General Obligation Bonds 1 3.0%-4.250% 2026 $ 9,575,000 Revenue Bonds-U.S.D.A. 2 4.25% 2051 2,777,000

$ 12,352,000

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CITY OF MILAN



D. Long Term Debt – Continued The annual debt service requirements to maturity for debt outstanding as of June 30:

Year Ended Principal Interest Principal Interest2015 185,000 38,747 655,000 512,709 2016 195,000 30,717 686,000 486,421 2017 185,000 22,150 712,000 458,891 2018 195,000 13,835 744,000 430,319 2019 105,000 7,525 780,000 400,461

2020-2024 - 4,451,000 1,496,581 2025-2029 - - 2,249,000 604,392 2030-2051 - - 2,075,000 1,090,168

$ 865,000 $ 112,974 $ 12,352,000 $ 5,479,942

Governmental Activities Business-Type Activities

E. Fund Balance

In accordance with Generally Accepted Accounting Principles, the City’s fund balance in governmental funds is classified as follows:

• Non-Spendable – Amounts classified as “non-spendable” include

balances in prepaid insurance $32,754, which are deemed “non-spendable,” as they cannot be liquidated to spend in the following year.

• Restricted – Equity in Capital Projects and Debt Service funds are

restricted to those activities by State law or by resolutions of City Council. Equity in Special Revenue funds (Major and Local Street funds, Donations Fund, Drug Enforcement, Police Reserve, Police Training, E911) are restricted by various State laws or resolutions of City Council to the specific purposes of the particular Special Revenue funds.

• Committed Fund Balances – Cable T.V. Fund, Health Benefits, and

Inspection and Engineering Special Revenue funds are “committed” to the activities in these funds by resolutions of City Council. In addition, a portion of the General Fund has been committed by resolutions of the City Council.

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CITY OF MILAN



E. Fund Balance – Continued

• Assigned Fund balances are developed by City Administration and

are generally reviewed and approved by City Council. Expenditures are first applied to “assigned” then to “unassigned” balances.

The City’s General and Special Revenue funds have the following allocations:

2014

General Fund

Non-Spendable:

Prepaid Insurance 31,772$

Unrestricted:

Unassigned 1,186,564

Total 1,218,336$

Special Revenue Funds

Non-Spendable 982.00$

Restricted to Specific

Purposes 1,265,276

Committed to:

Cable T.V. 162,145

Eng./Inspection 1,294

Health Benefits 83,127

Total 1,512,824$

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CITY OF MILAN



F. Property Taxes

Property taxes are assessed as of each December 31. The City tax levy is billed on July 1 of the following year; taxes are considered delinquent on March 1, at which time the applicable property is subject to lien and penalty and interest is assessed. The maximum authorized operating levy for the City is 20 mills prior to “rollback” required by State laws. The City's tax levy for the 2013 tax roll is as follows (tax rate per $1,000 of assessed valuation):

Pre-Rollback Post Rollback Auth. Auth. Purpose Authorization Term Rate Rate Levied Operating Charter - 20.0000 18.3166 14.4000

IV. OTHER INFORMATION A. Employee Retirement Systems and Plans 1. Municipal Employees Retirement System Defined Benefit Plan a. Plan Description

The City of Milan is in an agent multiple-employer defined pension plan with the Municipal Employees' Retirement System (MERS). The system provides the following provisions: normal retirement, deferred retirement, service retirement allowance, disability retirement allowance, nonduty-connected death and postretirement adjustments to plan members and their beneficiaries. The service requirement is computed using credited service at the time of termination of membership, multiplied by a certain percentage based on the benefit program in effect as of the date of termination of membership, times the final average compensation (FAC). The most recent period for which actuarial data was available was for the actuarial valuation as of December 31, 2012.

MERS was organized pursuant to Section 12a of Act #156, Public Acts of

1851 (MSA 5.333(a); MCLA 46.12(a)), as amended by the State of Michigan. MERS is regulated under Act No. 427 of the Public Acts of 1984, sections of which have been approved by the State Pension Commission. MERS issues a publicly available financial report that includes financial statements and required supplementary information for the system. That report may be obtained by writing to the system at 1134 Municipal Way, Lansing, Michigan 48917.

b. Funding Policy

The plan adopted by the City Council requires no member contributions. The City is required to contribute at an actuarially determined rate; the

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CITY OF MILAN


IV. OTHER INFORMATION – Continued A. Employee Retirement Systems and Plans – Continued 1. Municipal Employees Retirement System Defined Benefit Plan – Continued

b. Funding Policy – Continued

rate for 2014 was 44.82% for employees in management group; all other employee groups are subject to flat rate charges. The contribution requirements of plan members and the City are established and may be amended by the City, depending on the MERS contribution program adopted by the City.

c. Annual Pension Costs

During the fiscal year ended June 30, 2014 the City's contributions, totaling $530,544, were made in accordance with contribution requirements determined by an actuarial valuation of the plan as of December 31, 2011. The employer contribution rate has been determined based on the entry age, normal funding method. Under the entry age, normal cost funding method, the total employer contribution is comprised of the normal cost plus the level annual percentage of payroll payment required to amortize the unfunded actuarial accrued liability over 30 years. The employer normal cost is, for each employee, the level percentage of payroll contribution (from entry age to retirement) required to accumulate sufficient assets at the member's retirement to pay for his projected benefit. Significant actuarial assumptions used include a long-term investment yield rate of 8% and annual salary increases of 4.5% based on an age-related scale to reflect merit, longevity, and promotional salary increases.

Three Year Trend Information

Fiscal Year Valuation Annual Percentage Net Ended Date Pension of APC Pension June 30, Dec. 31 Cost (APC) Contributed Obligation 2012 2009 455,124 100% -0-

2013 2010 611,730 100% -0- 2014 2011 530,544 100% -0- 2. Defined Contribution Plan

a. Plan Description

The City of Milan contributes to the City of Milan defined contribution plan, which is a defined contribution money purchase pension plan. The plan is administered by M.E.R.S who sponsors

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CITY OF MILAN


IV. OTHER INFORMATION – Continued A. Employee Retirement Systems and Plans – Continued

2. Defined Contribution Plan - Continued

a. Plan Description – Continued

the prototype plan. Amendments are developed by M.E.R.S. and submitted to the City Council for approval.

A defined contribution money purchase pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual’s account are to be determined instead of specifying the amount of benefits the individual is to receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant’s account, the returns earned on investments of those contributions, and forfeitures of other participants’ benefits that may be allocated to such participant’s account. All employees hired on or after July 1, 1998 are eligible to participate in the plan. Contributions made by the City or an employee vest immediately.

b. Contributions Required and Contributions Made

Each participating employee contributes 3% of gross earnings to the plan which the City will match. The employees may contribute an additional 2% for a total of 5% to the plan which will also be matched by the City. Employer contributions on behalf of the employee shall not exceed 5% of an employee’s gross earnings. During the year, employee contributions totaled $61,706 and the City’s required and actual contributions amounted to $55,932.

B. Post Retirement Health Care Benefits

GASB Statement No. 45 establishes standards for the measurement, recognition

and display of other postemployment benefits (OPEB) and related liabilities and note disclosures in other plans in which the City participates. GASB No. 45 was effective for the City for the year beginning July 1, 2009. Current year expenses include the current year “pay-as-you-go” amount and the recognition of the unfunded current year actuarial recommended contribution (ARC) in the governmental activities. The changes in financial reporting as a result of this statement are outlined below.

Plan Description – The City provides retiree healthcare benefits to eligible employees upon retirement in accordance with labor contracts. Currently, ten

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CITY OF MILAN


IV. OTHER INFORMATION – Continued

B. Post Retirement Health Care Benefits – Continued employees receive this benefit. At the fund level, the expense is recognized by the City as the payments to the employees are made. During the year, this amounted to $63,079.

Funding Policy – The City has no obligation to make contributions in advance of

when the insurance premiums are due for payment (in other words, this may be financed on a “pay-as-you-go” basis). The City has made no contributions in advance.

Funding Progress – For the year ended June 30, 2014, the City has estimated the cost of providing retiree healthcare benefits through an actuarial study that complies with the requirements of GASB 45. The study computes an annual required contribution that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed 30 years.

The computed contribution and actual funding are summarized as follows:

Annual required contribution (recommended) $ 359,089 Interest on the prior year’s net OPEB obligation - Less: Adjustment to the annual required contribution -

Annual OPEB Cost 359,089

Amounts contributed: Payments of current premiums (63,079 ) Advanced funding -

Increase in net OPEB obligation 296,010

OPEB obligation – Beginning of Year 918,635 OPEB obligation – End of Year $ 1,214,645

The OPEB obligation is recorded as follows: Governmental Activities $ 1,214,645 Business-Type Activities -

Total $ 1,214,645

Fiscal Year Ended

Actuarial Valuation

Date

Annual Required

ContributionAnnual

OPEB Costs

Percentage of ARC

ContributedNet OPEB

Obligation 6/30/2012 7/1/2009 $ 223,906 $ 44,834 20% $ 563,572 6/30/2013 7/1/2013 $ 415,916 $ 60,853 15% $ 918,635 6/30/2014 7/1/2013 $ 359,089 $ 63,079 17% $ 1,214,645

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CITY OF MILAN



B. Post Retirement Health Care Benefits – Continued

The funding progress of the plan as of the most recent valuation date is as follows:

Valuation as of July 1, 2013: Actuarial value of assets $ - Actuarial accrued liability (AAL) 5,417,294 Unfunded AAL (UAAL) 3,212,877 Funded ratio 0.0% Ratio of UAAL to covered payroll Not Available

C. Risk Management The City purchases insurance coverage through traditional means. The City’s

property and liability and workers compensation coverages are on file in the Risk Administrator’s office.

D. Major Customers

The City receives a major portion of its revenue generated from utility billing and real estate taxes from certain major customers.

The following is a summary of the fiscal 2014 revenue and percentage of total revenue for its major customers:

Utility Property Billing Taxes Federal Corrections Institution $ 989,603 32.07% $ - ACH LLC 229,974 7.3% $ 151,048 6%

E. Subsequent Events

1. Mooreville Sewer System

On August 18, 2014 Milan City Council approved a “Memorandum of Understanding” with York Township concerning utility services provided to the Hamlet of Mooreville. The agreement calls for the City to transfer $34,375.13 from the Mooreville sewer fund to York Township as well as modifications to the rate structure.

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CITY OF MILAN



E. Subsequent Events - Continued

2. Arkona Road Special Assessment

The City repaid Washtenaw County approximately $129,000 in the current year for “charge backs” for uncollectible special assessments for the 2012 tax roll (and prior years), which had been previously paid through Washtenaw County’s Delinquent Revolving Fund. About $55,000 of delinquent special assessments was placed on the 2013 delinquent tax roll; management is in the process of determining the city’s exposure to future “charge backs” and to ascertain budgetary impact.

F. Upcoming Accounting Pronouncement The Governmental Accounting Standards Board (GASB) issued two new pronouncements in June 2012, GASB Statement No. 67, Financial Reporting for Pension Plans, which amends GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and GASB Statement No. 50, Pension Disclosures, and GASB Statement No. 68, Accounting and Financial Reporting for Pension Plans, which amends GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers and GASB Statement No. 50, Pension Disclosures. These statements establish a definition of a pension plan that reflects the primary activities associated with the pension arrangement – determining pensions, accumulating and managing assets dedicated for pensions, and measuring and recognizing liabilities and expenses. GASB No. 68 will require employers with defined benefit pension plans to recognize their unfunded pension benefit obligation as a liability on the government-wide and proprietary financial statements. These new standards will result in additional disclosures and required supplemental information, and will be effective beginning with the City’s fiscal year ended June 30, 2015.

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R E Q U I R E D S U P P L E M E N T A R Y I N F O R M A T I O N


CITY OF MILAN Required Supplementary Information – (Unaudited) Defined Benefit Pension Plans – Trend Information


Municipal Employees Retirement System Schedule of Funding Progress

Valuation Date Assets

Actuarial Accrued Liability (AAL)

UnfundedAAL-UAAL

Funded Ratio

Covered Payroll

UAAL as a % of

Covered Payroll

12/31/2002 5,029,143 7,263,495 2,234,352 69 1,343,043 166 12/31/2003 5,354,398 7,845,735 2,491,337 68 1,330,272 187 12/31/2004 5,664,975 8,457,910 2,792,935 67 1,372,432 204 12/31/2005 5,995,335 9,084,445 3,089,110 66 1,157,127 266 12/31/2006 6,302,165 9,656,218 3,354,053 65 1,233,706 272 12/31/2007 6,491,547 10,419,501 3,927,954 62 707,637 55512/31/2008 6,385,182 10,581,037 4,195,855 60 619,778 67712/31/2009 6,191,216 10,750,127 4,558,911 60 660,748 69012/31/2010 6,112,885 11,027,978 4,915,093 55 651,869 75412/31/2011 6,075,169 11,308,805 5,233,636 54 669,374 78212/31/2012 6,045,366 11,323,262 5,277,896 53 741,132 71212/31/2013 6,268,145 11,945,638 5,677,493 53 791,587 717

The information presented above was determined as part of the

actuarial valuations at the dates indicated. Additional information as of December 31, 2013 the latest actual valuation follows:

Actuarial cost method Entry age normal cost Amortization method Level percent Remaining amortization period 30 years Asset valuation method 5-year smoothed market Actuarial assumptions: Investment rate of return 8% Projected salary increases 4.50-8.66% includes inflation at 4.5% Cost of living adjustments None

47

PSLZ LLP – Certified Public Accountants

48PSLZ LLP- Certified Public Accountants

Variance withOriginal Final Actual Final Budget

Revenues:Property Taxes $ 2,495,568 $ 2,503,238 $ 2,454,290 $ (48,948) Licenses and Permits 25,090 28,590 49,658 21,068 Intergovernmental – State 461,073 461,073 475,967 14,894 Intergovernmental – Local 7,000 7,000 9,820 2,820 Charges for Services 348,720 348,720 349,930 1,210 Fines and Forfeitures 12,000 12,000 11,676 (324) Interest Earnings 500 500 178 (322) Other Revenues 98,336 98,336 147,641 49,305

Total Revenues 3,448,287 3,459,457 3,499,160 39,703

Expenditures:General Government:

City Council 91,150 115,988 103,869 12,119 City Administrator 171,737 171,255 133,434 37,821 Elections 9,977 5,449 4,427 1,022 Assessor 86,628 91,156 89,607 1,549 Clerk/Treasurer 293,640 293,640 259,165 34,475 City Hall 274,695 274,207 226,633 47,574 City Hall and Grounds 69,566 73,554 72,561 993

997,393 1,025,249 889,696 135,553 Public Safety:

Police 1,462,674 1,435,578 1,414,760 20,818 Fire 188,703 190,203 190,183 20 Building 129,971 140,785 140,400 385

1,781,348 1,766,566 1,745,343 21,223

Planning and Zoning 6,000 5,225 5,059 166

Public Works:Department of Public Works 265,101 280,658 278,057 2,601

Health and Welfare:Senior Citizens 34,207 34,232 31,086 3,146

Recreation and Cultural – Parks & Recreation 253,356 253,331 252,056 1,275 Capital Outlay 101,500 184,954 135,984 48,970

Total Expenditures 3,438,905 3,550,215 3,337,281 212,934

Excess (Deficiency) of Revenues Over Expenditures 9,382 (90,758) 161,879 252,637

Other Financing Sources (Uses):Operating Transfers In 16,645 16,645 16,645 - Operating Transfers Out (37,946) (188,586) (178,406) 10,180

Total Other Financing Sources (Uses) (21,301) (171,941) (161,761) 10,180

Net Change in Fund Balance (11,919) (262,699) 118 262,817

Fund Balance – Beginning 1,218,218 1,218,218 1,218,218 -

Fund Balance – Ending $ 1,206,299 $ 955,519 $ 1,218,336 $ 262,817

Budgeted Amounts

CITY OF MILANGeneral Fund

Statement of Revenues, Expenditures and Changes in Fund BalanceBudget and Actual


49


Variance with

Original Final Actual Final BudgetRevenues:

Intergovernmental – State $ 277,389 $ 277,389 $ 286,762 $ 9,373 Interest Earnings 70 70 54 (16) Other Revenues - - 448 448

Total Revenues 277,459 277,459 287,264 9,805

Expenditures:Public Works:

Administration 27,805 27,805 27,805 - Routine Maintenance 141,029 123,772 102,559 21,213 Right of Way (Forestry) 5,000 - - - Surface Reconstruction 15,000 78,684 78,684 - Bridge Maintenance 3,000 13,705 13,700 5 Traffic Services 29,900 31,661 13,628 18,033 Winter Maintenance 26,303 24,910 24,894 16

Total Expenditures 248,037 300,537 261,270 39,267

Excess (Deficiency) of Revenues Over Expenditures 29,422 (23,078) 25,994 49,072

Other Financing Sources (Uses):Operating Transfers In 15,000 15,000 15,000 - Operating Transfers Out (50,950) (50,950) (50,950) -

Total Other Financing Sources (Uses) (35,950) (35,950) (35,950) -

Net Change in Fund Balance (6,528) (59,028) (9,956) 49,072

Fund Balance – Beginning 541,497 541,497 541,497 -

Fund Balance – Ending $ 534,969 $ 482,469 $ 531,541 $ 49,072

Budgeted Amounts

CITY OF MILANMajor Street Fund

Statement of Revenues, Expenditures and Changes in Fund BalanceBudget and Actual


O T H E R S U P P L E M E N T A R Y I N F O R M A T I O N


50


Capital Total Project- Nonmajor

Special Debt Improvement GovernmentalRevenue Service Fund Funds

ASSETS

Cash and Cash Equivalents $ 999,124 $ 44,108 $ 13,207 $ 1,056,439 Accounts Receivable 183,338 - - 183,338 Special Assessment Receivable 251,513 71,387 - 322,900 Due from Other Governmental Units 16,687 - - 16,687 Due from Other Funds 25,580 - 111,942 137,522 Prepaid Expenditures 1,701 - - 1,701

Total Assets $ 1,477,943 $ 115,495 $ 125,149 $ 1,718,587

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE

Liabilities: Accounts Payable $ 100,663 $ - $ 11,529 $ 112,192 Due to Other Funds 135,075 - - 135,075 Accrued Liabilities 9,409 - - 9,409 Total Liabilities 245,147 - 11,529 256,676

Deferred Inflow of Resources: Unavailable Revenue-Spec.Assessments 251,513 71,387 - 322,900

Fund Balance: Committed 246,566 - - 246,566 Restricted : Capital Projects - - 113,620 113,620 Debt Service - 44,108 - 44,108 Special Revenue 734,717 - - 734,717 Total Fund Balance 981,283 44,108 113,620 1,139,011

Total Liabilities and Fund Balance $ 1,477,943 $ 115,495 $ 125,149 $ 1,718,587

CITY OF MILANCombining Balance Sheet

Nonmajor Governmental FundsJune 30, 2014

51


Capital TotalProject- Nonmajor

Special Debt Improvement GovernmentalRevenue Service Fund Funds

Revenues:Special Assessments $ - $ 25,603 $ - $ 25,603 Intergovernmental 169,787 - - 169,787 Charges for Services 594,379 - - 594,379 Interest 276 8 - 284 Other 146,274 - 8,176 154,450 Total Revenues 910,716 25,611 8,176 944,503

Expenditures:General Government 109,946 - - 109,946 Public Safety 21,719 - - 21,719 Public Works 671,938 - - 671,938 Debt Service: Principal - 45,000 - 45,000 Interest and Other Charges - 12,175 - 12,175

Capital Outlay - - 11,529 11,529 Total Expenditures 803,603 57,175 11,529 872,307

Excess (Deficiency) of Revenues Over Expenditures 107,113 (31,564) (3,353) 72,196

Other Financing Sources (Uses):Operating Transfers In 106,063 27,421 103,766 237,250 Operating Transfers Out (30,743) - - (30,743) Total Other Financing Sources (Uses) 75,320 27,421 103,766 206,507

Net Change in Fund Balances 182,433 (4,143) 100,413 278,703

Fund Balance – July 1 798,850 48,251 13,207 860,308

Fund Balance – June 30 $ 981,283 $ 44,108 $ 113,620 $ 1,139,011

Nonmajor Governmental FundsFor the Year Ended June 30, 2014

CITY OF MILANCombining Statement of Revenues, Expenditures and Changes in Fund Balance

52


Uptown Village Drug

Local Grant Special Assess LawStreet Donations Rubbish Fund District Enforce.

ASSETS

Cash and Cash Equivalents $ 334,206 $ 64,695 $ 124,339 $ - $ 10,264 $ 29,513 Accounts Receivable 308 1,857 155,660 - - - Special Assessment Receivable - - - - 251,513 - Due From Other Governmental Units 16,687 - - - - - Due From Other Funds - 580 - 25,000 - - Prepaid Expenditures 982 - - - - -

Total Assets $ 352,183 $ 67,132 $ 279,999 $ 25,000 $ 261,777 $ 29,513


Liabilities: Accounts Payable $ 10,764 $ 1,202 $ 83,169 $ 3,000 $ - $ - Due to Other Funds 17,259 - 117,816 - - - Accrued Liabilities 6,744 - - - - - Total Liabilities 34,767 1,202 200,985 3,000 - -

Deferred Inflow of Resources: Unavailable Revenue-Spec.Assessments - - - - 251,513 -

Fund Balance: Committed - - - - - - Restricted: Special Revenue Funds 317,416 65,930 79,014 22,000 10,264 29,513 Total Fund Balance 317,416 65,930 79,014 22,000 10,264 29,513

Total Liabilities and Fund Balance $ 352,183 $ 67,132 $ 279,999 $ 25,000 $ 261,777 $ 29,513


Nonmajor Special Revenue FundsJune 30, 2014

53


ConstructionPolice Police Health Cable Inspection

Reserve Training E 911 Benefits Television Engineering Total

$ 11,385 $ 6,716 $ 187,926 $ 83,127 $ 145,659 $ 1,294 $ 999,124 - 2,188 4,634 - 18,691 - 183,338 - - - - - - 251,513 - - - - - - 16,687 - - - - - - 25,580 - - - - 719 - 1,701

$ 11,385 $ 8,904 $ 192,560 $ 83,127 $ 165,069 $ 1,294 $ 1,477,943

$ 575 $ 1,694 $ - $ - $ 259 $ - $ 100,663 - - - - - - 135,075 - - - - 2,665 - 9,409

575 1,694 - - 2,924 - 245,147

- - - - - - 251,513

- - - 83,127 162,145 1,294 246,566

10,810 7,210 192,560 - - - 734,717 10,810 7,210 192,560 83,127 162,145 1,294 981,283

$ 11,385 $ 8,904 $ 192,560 $ 83,127 $ 165,069 $ 1,294 $ 1,477,943

54


Uptown Village Drug

Local Grant Special Assess LawRevenues: Street Donations Rubbish Fund District Enforce.Intergovernmental $ 133,221 $ - $ - $ - $ - $ 4,519 Charges for Services - - 563,191 - 31,188 - Interest 30 25 - - - 38 Other 2,586 23,087 626 - - 2,000 Total Revenues 135,837 23,112 563,817 - 31,188 6,557

Expenditures:General Government - 19,686 - - - - Public Safety - - - - - 4,064 Public Works 141,968 2,431 524,539 3,000 - - Capital Outlay - - - - - - Total Expenditures 141,968 22,117 524,539 3,000 - 4,064

Excess (Deficiency) of Revenues Over Expenditures (6,131) 995 39,278 (3,000) 31,188 2,493

Other Financing Sources (Uses):Operating Transfers In 74,598 5,465 - 25,000 - - Operating Transfers Out - - - - (24,743) (6,000) Total Other Financing Sources (Uses) 74,598 5,465 - 25,000 (24,743) (6,000)

Net Change in Fund Balance 68,467 6,460 39,278 22,000 6,445 (3,507)

Fund Balance – July 1 248,949 59,470 39,736 - 3,819 33,020

Fund Balance – June 30 $ 317,416 $ 65,930 $ 79,014 $ 22,000 $ 10,264 $ 29,513

Nonmajor Special Revenue FundsFor the Year Ended June 30, 2014

CITY OF MILANCombining Statement of Revenues, Expenditures and Changes in Fund Balance

55


ConstructionPolice Police Health Cable Inspection

Reserve Training E 911 Benefits Television Engineering Total$ - $ 6,577 $ 25,470 $ - $ - $ - $ 169,787

- - - - - - 594,379 7 6 121 39 10 - 276

2,930 - - 42,451 72,594 - 146,274 2,937 6,583 25,591 42,490 72,604 - 910,716

- - - 29,026 61,234 - 109,946 3,315 5,284 9,056 - - - 21,719

- - - - - - 671,938 - - - - - - -

3,315 5,284 9,056 29,026 61,234 - 803,603

(378) 1,299 16,535 13,464 11,370 - 107,113

1,000 - - - - - 106,063 - - - - - - (30,743)

1,000 - - - - - 75,320

622 1,299 16,535 13,464 11,370 - 182,433

10,188 5,911 176,025 69,663 150,775 1,294 798,850

$ 10,810 $ 7,210 $ 192,560 $ 83,127 $ 162,145 $ 1,294 $ 981,283

56


Northside

General Special Obligation Assessment Total

ASSETS

Cash and Cash Equivalents $ 715 $ 43,393 $ 44,108 Special Assessments Receivable - 71,387 71,387

Total Assets $ 715 $ 114,780 $ 115,495


Deferred Inflow of Resources:Unavailable Revenue-Spec.Assessments $ - $ 71,387 $ 71,387

Fund Balance: Restricted: Debt Service 715 43,393 44,108

Total Liabilities and Fund Balance $ 715 $ 114,780 $ 115,495

CITY OF MILAN

Nonmajor Debt Service FundsCombining Balance Sheet

June 30, 2014

57


Northside

General Special Obligation Assessment Total

Revenues:Special Assessment $ - $ 25,603 $ 25,603 Interest - 8 8 Total Revenues - 25,611 25,611

Expenditures:Debt Service Principal Retirement 20,000 25,000 45,000 Interest, Fiscal Charges 5,705 6,470 12,175 Total Expenditures 25,705 31,470 57,175

Excess (Deficiency) of Revenues Over Expenditures (25,705) (5,859) (31,564)

Other Financing Sources (Uses):Operating Transfers (Out) - - - Operating Transfers In 25,705 1,716 27,421 Total Other Financing Sources (Uses) 25,705 1,716 27,421

Net Change in Fund Balance - (4,143) (4,143)

Fund Balance – July 1 715 47,536 48,251

Fund Balance – June 30 $ 715 $ 43,393 $ 44,108


CITY OF MILAN

Nonmajor Debt Service FundsCombining Statement of Revenues, Expenditures and Changes in Fund Balance

58

POST, SMYTHE, LUTZ and ZIEL of Plymouth LLP - Certified Public Accountants

Storm Mooreville Sewer Sewer Total

ASSETS

Current Assets: Cash and Cash Equivalents $ 57,725 $ 38,411 $ 96,136 Due From Other Funds - - - Total Assets $ 57,725 $ 38,411 $ 96,136

LIABILITIES AND NET POSITION

Net Position – Unrestricted 57,725 38,411 96,136

Total Liabilities and Net Position $ 57,725 $ 38,411 $ 96,136


Nonmajor Proprietary FundsJune 30, 2014

59


Storm MoorevilleSewer Sewer Total

Operating RevenuesIntergovernmental – Local $ - $ 2,538 $ 2,538

Operating Expenses:Other 746 1,300 2,046

Operating Income (Loss) (746) 1,238 492

Non-Operating Revenues (Expenses):Interest Earned 8 10 18

Net Income (Loss) Before Contributions (738) 1,248 510

Capital Contributions 12,000 - 12,000

Net Income (Loss) 11,262 1,248 12,510

Net Position – Beginning 46,463 37,163 83,626

Net Position – Ending $ 57,725 $ 38,411 $ 96,136

CITY OF MILAN Combining Statement of Revenues, Expenses and Changes in Net Position

Nonmajor Proprietary FundsFor the Year Ended June 30, 2014

60


Storm Mooreville Sewer Sewer Total

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Quasi-External Transactions $ - $ 2,538 $ 2,538 Payments to Suppliers (746) 301 (445) Net Cash Provided (Used) by Operating Activities (746) 2,839 2,093

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Net Cash Provided (Used) by Capital and Related Financing Activities-Procceds from Capital Charges 12,000 - 12,000

CASH FLOWS FROM INVESTING ACTIVITIES Interest Earned 8 10 18 Net Cash Provided (Used) by Investing Activities 8 10 18

Net Increase (Decrease) in Cash and Cash Equivalents 11,262 2,849 14,111

Cash and Cash Equivalents – Beginning 46,463 35,562 82,025

Cash and Cash Equivalents – Ending $ 57,725 $ 38,411 $ 96,136

Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities: Operating Income (Loss) $ (746) $ 1,238 $ 492 Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: (Increase) Decrease in Due from Other Funds - 1,601 1,601 (Increase) Decrease in Prepaid Expenses - - - Increase (Decrease) in Accounts Payable - - - Increase (Decrease) in Due to Other Funds - - - Net Cash Provided (Used) by Operating Activities $ (746) $ 2,839 $ 2,093


Combining Statement of Cash Flows Nonmajor Proprietary Funds

CITY OF MILAN

Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements

Performed in Accordance with Government Auditing Standards


PSLZ LLP Certified Public Accountants PLYMOUTH Dennis M. Siegner, C.P.A., C.V.A. BLOOMFIELD HILLS David R. Williamson, C.P.A. 1034 WEST ANN ARBOR TRAIL Jane F. Wang, C.P.A. 3707 WEST MAPLE ROAD P.O. BOX 5520 Rana M. Emmons, C.P.A. SUITE 101 PLYMOUTH, MI 48170-1502 Jennifer A. Galofaro, C.P.A., C.V.A. BLOOMFIELD HILLS, MI 48301-3212 TELEPHONE (734) 453-8770 Susan H. Bertram, C.P.A. TELEPHONE (248) 644-9125

_______________ Deborah M. Cox, C.P.A.

Robert J. Sheu, C.P.A.

Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial

Statements Performed in Accordance with Government Auditing Standards

December 22, 2014

To the Honorable Mayor and Members of the City Council City of Milan, Michigan

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Accounting Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Milan, Michigan, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated December 22, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Milan’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Milan’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and responses we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control

61

Mayor and City Council City of Milan, Michigan December 22, 2014

such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and responses to be a material weakness – 2014-1. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying schedule of findings and responses to be significant deficiencies – 2014-2, 2014-3 and 2014-4. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Milan’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings and responses as items 2014-2, 2014-3 and 2014-4. City of Milan, Michigan’s Response to Findings City of Milan, Michigan’s response to the findings identified in our audit is described in the accompanying schedule of findings and responses. City of Milan, Michigan’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully,

PSLZ LLP Certified Public Accountants

62 PSLZ LLP – Certified Public Accountants

City of Milan, Michigan

SCHEDULE OF FINDINGS AND RESPONSES

Year Ended June 30, 2014

FINANCIAL STATEMENT FINDINGS 2014-1 Considered a Material Weakness

1) Bank reconciliations were not performed in a timely fashion. The City’s

accounts should be reconciled within a week to ten days of month end; ACH transactions should be reconciled daily.

Response – City officials are in agreement with findings and are in the process of implementing changes.

2) Audit trail for cash withdrawals from City’s general fund account to facilitate

transfers to other funds was insufficient to determine appropriateness of transactions.

Response - City agrees with findings and has eliminated this practice. We are currently using the software to track deposits to each fund.

3) City credit card charges were not reviewed nor approved by appropriate

parties in City government-personal charges were made during the year, and the previous year, and other charges were not always sufficiently documented.

Response - City agrees with findings and will fully comply with the City’s Credit Card Policy which requires levels of review and approval. The matter has been turned over to law enforcement agencies to recover the funds.

4) Bank Deposits: checks were held from being deposited, in some cases many

months, due to a former employee falling behind in the accounting duties, and the failure to use automated processes to record the transaction

Response - City agrees with findings and has eliminated the practice and is now depositing funds immediately and using automated processes.

5) Property Tax Payments to Other Governments: State law requires these

payments to be made within 10 business days of the first and 15th of the month during the collection period. The City was very late with these payments both in the 2013 and 2014 tax rolls.

Response - City agrees with findings are in the process of reorganizing the treasury and accounting functions to provide controls to detect these potential non compliance issues.


City of Milan, Michigan

SCHEDULE OF FINDINGS AND RESPONSES

Year Ended June 30, 2014

COMPLIANCE FINDINGS 2014-2, 2014-3 and 2014-4 are Considered Significant Deficiencies 2014 -2 Quarterly Reports The City did not have formal written procedures or controls necessary to provide assurance that required quarterly reports were prepared in a timely fashion. The first quarter (September 30, 2013) was filed late in the audit period. This comment is repeated from prior audit findings. City Response – we now have implemented formal procedures for preparing the reports and controls in place to assure they are done in a timely and accurate fashion. 2014-3 Annual Financial reports and Management The annual report is due sixty days after year end (June 30, 2014) and the management report is due thirty days prior to year end. The City did not file the reports in a timely fashion, due to the lack of procedures in place to assure timely completion. This also is a repeat from prior audit findings. City Response – We have developed formal procedures and controls to assure timely completion of all required reports. 2014-4 Reserve Requirements Required reserve funding was not made in accordance with City Ordinances, while the amount “short” appears to be $3,958.63, the City should have a process in place for review of the Clerk-Treasurer’s calculations. City Response – We will have a procedure in place where level of appropriate management reviews these calculations.


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