CITY OF FREDERICK, OKLAHOMAThe City provides typical municipal services such as public safety,...

CITY OF FREDERICK, OKLAHOMA

ANNUAL FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORTS

AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2016

THE CITY OF FREDERICK, OKLAHOMA

ANNUAL FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORTS

AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2016

CITY OF FREDERICK, OKLAHOMA ANNUAL FINANCIAL REPORT

As of and for the Year Ended June 30, 2016

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TABLE OF CONTENTS Page Independent Auditor’s Report on Financial Statements……….………………………………… 5-6 Management’s Discussion and Analysis (Supplementary Information)…………………… 7-13 The Basic Financial Statements:

Government-Wide Financial Statements: Statement of Net Position (Modified Cash Basis)…………………………………………… 15 Statement of Activities (Modified Cash Basis)…………………………………………..… 16

Governmental Funds Financial Statements: Balance Sheet (Modified Cash Basis)……………………………………………………… 18 Statement of Revenues, Expenditures and Changes in Fund Balances (Modified Cash Basis)……… ……………………………………………………………………………… 19

Proprietary Funds Financial Statements:

Statement of Net Position (Modified Cash Basis) ………………………………………… 21 Statement of Revenues, Expenses and Changes in Net Position (Modified Cash Basis)…… 22 Statement of Cash Flows (Modified Cash Basis)……………………………………………. 23

Footnotes to the Basic Financial Statements ……………………………………………… 25-38

Supplementary Information:

Budgetary Comparison Information

Budgetary Comparison Schedule (Modified Cash Basis) – General Fund…………………… 40 Footnotes to Budgetary Comparison Schedule…………………………………………..…… 41

Combining General Fund Accounts Schedules

Combining Balance Sheet (Modified Cash Basis)…………………………………………… 42 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances (MCB)…… 43

Federal and State Awards Information

Schedule of Expenditures of Federal and State Awards (Modified Cash Basis)……………… 44

Internal Control and Compliance over Financial Reporting

Independent Auditor’s Report on Internal Control and Compliance……………………… 47-48 Schedule of Findings and Responses………………………………………………………… 49-51



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309 N. Bryant Ave. • Edmond, OK 73034 • 405.348.0615 • Fax 405.348.0931 • www.jmacpas.com Member of AICPA and OSCPA

INDEPENDENT AUDITOR’S REPORT

To the Honorable Mayor and City Council City of Frederick, Oklahoma

Report on the Financial Statements

We have audited the accompanying modified cash basis financial statements of the governmental activities, the business-type activities, and each major fund of the City of Frederick, Oklahoma (the “City”), as of and for the year ended June 30, 2016, 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 the modified cash basis of accounting described in Note 1; this includes determining that the modified cash basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances. Management is also responsible for 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 the 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 modified cash basis financial position of the governmental activities, the business-type activities, and each major fund, as of June 30, 2016, and the respective changes in modified cash basis financial position and, where applicable, cash flows thereof for the year then ended in accordance with the modified cash basis of accounting described in Note 1.

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Basis of Accounting

We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the modified cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter.

Supplemental and Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying supplemental combining schedules – modified cash basis, and federal and state awards information, and the other information including management’s discussion and analysis and budgetary comparison information, which are the responsibility of management, are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining schedules – modified cash basis, and federal and state awards information, as listed in the table of contents, were derived from and relate directly to the underlying accounting and other records used to prepare the basic 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 to 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 schedules and state awards information are fairly stated, in all material respects, in relation to the basic financial statements as a whole on the modified cash basis of accounting described in Note 1.

Management’s discussion and analysis and budgetary comparison information, as listed in the table of contents, has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated August 23, 2017, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

August 23, 2017

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CITY OF FREDERICK, OKLAHOMA Management’s Discussion and Analysis


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The management of the City of Frederick is pleased to provide this annual financial report to its citizens, taxpayers and other report users to demonstrate its accountability and communicate the City’s financial condition and activities as of and for the year ended June 30, 2016. Management of the City is responsible for the fair presentation of this annual report, for maintaining appropriate internal controls over financial reporting, and for complying with applicable laws, regulations, and provisions of grants and contracts. The City reports its financial statements and schedules on a modified cash basis which is a comprehensive basis of accounting other than generally accepted accounting principles. All of the financial analyses in this report must be considered within the context of the limitations of the modified cash basis of accounting. FINANCIAL HIGHLIGHTS ▪ As reported on a modified cash basis, the City’s total net position decreased by $323,053, and the

assets of the City exceed its liabilities at June 30, 2016, by $3,281,668. Of this amount, ($1,486,575) was considered to be an unrestricted net position (deficit).

▪ At June 30, 2016, the City’s governmental funds reported a total combined fund balance (deficit)

on a modified cash basis of ($2,681,369). ▪ At the end of fiscal year 2016, the unassigned fund balance (deficit) on a modified cash basis for

the General Fund was ($2,405,966) or 177% of General Fund revenues. ABOUT THE CITY The City of Frederick is a Council/Manager form of government with a population of approximately 3,940 located in Tillman County in southwestern Oklahoma. The City is governed by a five-member council and operates under state law and City ordinances through the three branches of democratic government.

Legislative – the City Council is a five-member governing body elected by the citizens at large Executive – the City Manager is the Chief Executive Officer and is appointed by the City Judicial – the Municipal Judge is a practicing attorney appointed by the City Council

The City provides typical municipal services such as public safety, street and alley maintenance, parks and recreation, streets, cemetery, electric, water, sewer, sanitation and economic development services. The City’s Financial Reporting Entity This annual report includes all activities for which the City Council is financially accountable. These activities, defined as the City’s financial reporting entity, are operated within separate legal entities. The City’s financial reporting entity includes the following separate legal entities.

The City of Frederick –operates the public safety, street and alley maintenance, parks and recreation, and cemetery services



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The Frederick Public Works Authority (FPWA) – public trust created August 18, 1969, pursuant to 60 O.S. § 176 that operates the electric, water, sewer, and sanitation services of the City

The Frederick Economic Development Authority (FEDA) – public trust created

November 3, 1986, pursuant to 60 O.S. § 176 that operates the economic development services of the City

For the above public trusts, the City of Frederick is the beneficiary of the trust and the entire City Council serves as the governing body of the trusts. In addition, as required by state law, all debt obligations incurred by the trust must be approved by two-thirds vote of the City Council. This is considered sufficient imposition of will to include the trust within the City’s financial reporting entity. These public trusts do not issue separate annual financial statements.

OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements of the primary government presented herein include all of the activities of the City of Frederick (the “City”), the Frederick Public Works Authority (the “FPWA”), and the Frederick Economic Development Authority (the “FEDA”). Included in this report are government-wide statements for each of the two categories of activities - governmental and business-type. The government-wide financial statements present the complete financial picture of the City from the modified cash basis of accounting. They present governmental and business-type activities separately and combined. For governmental activities and business-type activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City’s operations in more detail than the government-wide statements by providing information about the City’s most significant funds. Reporting the City as a Whole The Statement of Net Position and Statement of Activities One of the most important questions to ask about the City’s finances is, “Has the City’s overall financial condition improved, declined or remained steady as a result of the year’s activities?” The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. You will need to consider other non-financial factors, however, such as changes in the City’s sales tax base, the condition of the City’s roads, and quality of service to assess the overall health of the City. You will also need to keep in mind that these government-wide statements are prepared in accordance with the modified cash basis of accounting and include only those City assets and liabilities resulting from cash transactions with selected modifications. In the Statement of Net Position and the Statement of Activities, we divide the City’s primary government into two kinds of activities: Governmental activities - Most of the City’s basic services are reported here, including the police, fire, and streets. Sales taxes, franchise fees, fines, and state and federal grants finance most of these activities; and Business-type activities – Activities where the City charges a fee to customers to help cover all or most of the cost of certain services it provides are reported here. The City’s electric, water, sewer, and sanitation utilities are reported as business-type activities. Also included in business-type activities are certain limited recreation activities.



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Reporting the City’s Most Significant Funds - Fund Financial Statements Fund Financial Statements The fund financial statements provide detailed information about the City’s most significant (major) funds – not the City as a whole. Some funds are required to be established by State law and by debt covenants. However, the City Council may also establish certain other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. Governmental funds – All of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. Governmental funds report their activities on a modified cash basis of accounting. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps you determine (through a review of changes to fund balance) whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. Proprietary funds – When the City, through the Public Works Authority, charges customers for the services it provides, these services are generally reported in proprietary funds. Proprietary funds are also reported on the modified cash basis of accounting. The City’s proprietary funds are the Frederick Public Works Authority that accounts for the operation of the electric, water, sewer, and sanitation activities and the Frederick Economic Development Authority that operates the economic development of the City. Notes to the Financial Statements The notes provide additional information that is essential to gain an understanding of the data provided in the government-wide and fund financial statements. The Notes to the Financial Statements can be found on pages 25-38 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents Budgetary Comparison Schedules for the General Fund, a federal and state award schedule, and combining financial statements and schedules.



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THE CITY AS A WHOLE

For the year ended June 30, 2016, net position on a modified cash basis for the governmental and business-type activities decreased $323,053. Following is a summary of net position reported on a modified cash basis for the City of Frederick primary government.

Net Position (Modified Cash Basis)

June 30, 2016

TABLE 1NET POSITION (In Thousands)

% Inc. % Inc. % Inc.(Dec.) (Dec.) (Dec.)

2016 2015 2016 2015 2016 2015

Current assets (1,345)$ (1,060)$ -27% 6,272$ 5,922$ 6% 4,927$ 4,862$ 1% Total assets (1,345) (1,060) -27% 6,272 5,922 6% 4,927 4,862 1%

Current liabilities 1,336 951 40% 309 306 1% 1,645 1,257 31% Total liabilities 1,336 951 40% 309 306 1% 1,645 1,257 31%Net position Restricted 1,420 1,436 -1% 3,349 3,443 -3% 4,769 4,879 -2% Unrestricted (deficit) (4,101) (3,447) -19% 2,614 2,173 20% (1,487) (1,274) -17% Total net position (2,681)$ (2,011)$ -33% 5,963$ 5,616$ 6% 3,282$ 3,605$ -9%

TotalGovernmental

Activities ActivitiesBusiness-Type

A portion of the City’s net position, $4,768,243, represents resources that are subject to external restrictions on how they may be used. The remaining balance creates an unrestricted net position (deficit) of ($1,486,575). Governmental activities borrowed more from business-type activities in the current year. Current liabilities increased approximately $385,000 due to an increase in the cash overdraft from prior year. The restricted net position of the business-type activities decreased approximately $94,000 or 3% due to the current year expending of project accounts held in a trustee bank.



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Changes in Net Position (Modified Cash Basis) Year Ended June 30, 2016

% Inc. % Inc. % Inc.(Dec.) (Dec.) (Dec.)

2016 2015 2016 2015 2016 2015Revenues

Charges for services 244$ 376$ -35% 8,333$ 8,590$ -3% 8,577$ 8,966$ -4%Operating grants and contributions 51 62 -18% - 15 - 51 77 -34%

Capital grants, contributions, and debt proceeds 371 1,800 -79% 99 3,470 -97% 470 5,270 -91%Taxes 929 965 -4% - - - 929 965 -4%

Intergovernmental revenue 58 58 0% - - - 58 58 0%

Investment income 16 6 - 8 4 100% 24 10 140%Miscellaneous 55 99 -44% 48 67 -28% 103 166 -38%

Total revenues 1,724 3,366 -49% 8,488 12,146 -30% 10,212 15,512 -34%

ExpensesGeneral government 132 141 -6% - - - 132 141 -6%

Public safety 1,634 1,416 15% - - - 1,634 1,416 15%Highway and streets 504 818 -38% - - - 504 818 -38%

Culture and recreation 169 149 13% - - - 169 149 13%Cemetery 160 133 20% - - - 160 133 20%

Airport 589 219 169% - - - 589 219 169%

Administration - - - 717 760 -6% 717 760 -6%Electric - - - 4,181 4,489 -7% 4,181 4,489 -7%

Water - - - 1,474 2,987 -51% 1,474 2,987 -51%Sewer - - - 552 1,764 -69% 552 1,764 -69%

Sanitation - - - 7 3 133% 7 3 133%Lake - - - 107 71 51% 107 71 51%

Swimming pool - - - 66 15 340% 66 15 340%

Economic development - - - 23 97 -76% 23 97 -76%Sales tax payments to hospital 220 236 -7% - - - 220 236 -7%

Total expenses 3,408 3,112 10% 7,127 10,186 -30% 10,535 13,298 -21%

Excess (deficiency) before

transfers (1,684) 254 763% 1,361 1,960 -31% (323) 2,214 -115%

Transfers 1,014 41 2373% (1,014) (41) 2373% - - -

Change in net position (670) 295 -327% 347 1,919 -82% (323) 2,214 -115%

Beginning net position (2,011) (2,306) -13% 5,616 3,697 52% 3,605 1,391 159%Ending net position (2,681)$ (2,011)$ -33% 5,963$ 5,616$ 6% 3,282$ 3,605$ -9%

TABLE 2CHANGES IN NET POSITION (In Thousands)

TotalGovernmental

ActivitiesBusiness-Type

Activities

The City’s capital grants, contributions and debt proceeds for governmental activities decreased approximately $1,429,000 or 79% due to debt proceeds received for street related debt in the prior year. Charges for services decreased approximately $132,000 or 35% due to a decrease in police fine revenue and airport revenues. Highways and streets expenses decreased approximately $314,000 or 38% due to debt service expense and debt issuance costs related to the issuance of new street related debt in prior year. Airport expenses increased approximately $370,000 due to activity related to an airport grant project. Capital grants, contributions, and debt proceeds for business-type activities decreased approximately $3,371,000 or 97% from the prior year due to the debt proceeds of $3,490,000 received in the prior year for the water and wastewater departments. Water expenses decreased approximately $1,513,000 or 51% due in part to work that was performed on the water treatment plant in the prior year related to the new debt issue. The sewer department expense decreased approximately $1,212,000 or 69% due to the prior year sewer department capital improvements project.



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Transfers changed by approximately $973,000 due mainly to a decrease in transfers from FPWA to Capital Improvement Fund for reimbursement of expenses, netted against a decrease in transfers from governmental activities to business-type activities related to capital expenses. Governmental Activities The City’s governmental activities had a decrease in net position of $669,882. This decrease is due in large part to the receipt of debt proceeds related to streets in the prior year.

Net Revenue (Expense) of Governmental Activities(In Thousands)

% Inc. % Inc.(Dec.) (Dec.)

2016 2015 2016 2015

General government 132$ 141$ -6% (132)$ (141)$ -6%Public safety 1,634 1,416 15% (1,605) (1,363) 18%Highways and streets 504 818 -38% (476) 1,025 -146%Culture, parks and recreation 169 149 13% (140) (139) 1%Cemetery 160 133 20% (97) (51) 90%Airport 589 219 169% (72) 32 -325%Sales tax payments to hospital 220 236 -7% (220) (236) -7%

Total 3,408$ 3,112$ 10% (2,742)$ (873)$ 214%

TABLE 3

Total Expenseof Services

Net Revenue(Expense)of Services

Business-type Activities The business-type activities had an increase in net position of $346,829. This increase is due in large part to transfers to governmental activities being less than the excess of program revenues over expenses.

% Inc. % Inc.(Dec.) (Dec.)

2016 2015 2016 2015

Administration 717$ 760$ -6% (709)$ (737)$ -4%Electric 4,181 4,489 -7% 1,356 1,304 4%Water 1,474 2,987 -51% 111 348 -68%Sewer 552 1,764 -69% 68 481 -86%Sanitation 7 3 133% 622 634 -2%Lake 107 71 51% (86) (65) 32%Swimming pool 66 15 340% (54) (13) 315%Economic development 23 97 -76% (3) (63) -95%

Total 7,127$ 10,186$ -30% 1,305$ 1,889$ -31%

of Services

Net Revenue(Expense)of Services

TABLE 4Net Revenue (Expense) of Business-Type Activities

(In Thousands)

Total Expense



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A FINANCIAL ANALYSIS OF THE CITY’S FUNDS

As the City completed its 2016 fiscal year, the governmental funds reported a total combined fund balance (deficit) of ($2,681,369). For the year ended June 30, 2016, the General Fund’s total fund balance (deficit) increased by $364,947 to a fund balance (deficit) of ($1,147,940), which is equivalent to 84.3% of annual revenues. The Frederick Public Works Authority Fund reported total net position of $5,176,537 which is an increase of 7.2% from the prior year.

Budgetary Highlights

For the year ended June 30, 2016, the General Fund reported actual budgetary basis revenues below final estimates by $78,065 or a 3.1% unfavorable variance. General Fund actual expenditures were over final appropriations by $152,667 or a 6.1% unfavorable variance.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES

The following information outlines significant known factors that will affect subsequent year finances:

The FY 2017 budget is relatively consistent to the prior year. Contacting the City’s Financial Management This report is designed to provide our citizens, taxpayers, customers and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City Clerk’s office at 200 W. Grand, Frederick, Oklahoma 73542-0399 or telephone at 580-335-7551.



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BASIC FINANCIAL STATEMENTS – GOVERNMENT-WIDE



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Statement of Net Position (Modified Cash Basis) – June 30, 2016

Primary Government

Governmental Business-TypeActivities Activities Total

ASSETS

Cash and cash equivalents 307,002$ 3,780,909$ 4,087,911$ Investments 554,582 284,006 838,588Internal balances (2,206,715) 2,206,715 -

Total Assets (1,345,131) 6,271,630 4,926,499

LIABILITIES

Cash overdraft 1,311,530 - 1,311,530Deposit liability - 299,520 299,520Due to employees 6,435 - 6,435 Due to other governments 18,273 9,073 27,346

Total Liabilities 1,336,238 308,593 1,644,831

NET POSITION

Restricted for:Airport 1,258,026 - 1,258,026 Cemetery 161,493 - 161,493 Debt service - 404,313 404,313 Other purposes - 2,944,411 2,944,411

Unrestricted (deficit) (4,100,888) 2,614,313 (1,486,575)

Total Net Position (2,681,369)$ 5,963,037$ 3,281,668$

See accompanying notes to the basic financial statements.



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Statement of Activities (Modified Cash Basis) – Year Ended June 30, 2016

Program Revenues Net (Expense) Revenue and Changes in Net Position

Operating Capital Grants,Charges for Grants and Contributions Governmental Business-Type

Functions/Programs Expenses Services Contributions and Debt Proceeds Activities Activities Total

Primary Government: Governmental activities: General Government 131,903$ -$ -$ -$ (131,903)$ -$ (131,903)$ Public Safety 1,633,581 15,534 13,156 - (1,604,891) - (1,604,891) Highways and Streets 503,558 - 27,391 - (476,167) - (476,167) Culture and Recreation 169,042 2,940 10,477 15,978 (139,647) - (139,647) Cemetery 159,848 63,157 10 - (96,681) - (96,681) Airport 589,497 162,429 - 354,549 (72,519) - (72,519) Sales Tax Payments to Hospital 220,535 - - - (220,535) - (220,535)

Total governmental activities 3,407,964 244,060 51,034 370,527 (2,742,343) - (2,742,343)

Business-type activities: Administration 717,322 7,649 - - - (709,673) (709,673) Electric 4,181,036 5,537,363 - - - 1,356,327 1,356,327 Water 1,474,133 1,585,376 - - - 111,243 111,243 Sewer 552,331 520,764 - 99,391 - 67,824 67,824 Sanitation 6,821 629,219 - - - 622,398 622,398 Lake 106,604 20,548 - - - (86,056) (86,056) Swimming Pool 66,249 12,295 - - - (53,954) (53,954) Economic Development 23,116 19,674 - - - (3,442) (3,442)

Total business-type activities 7,127,612 8,332,888 - 99,391 - 1,304,667 1,304,667

Total primary government 10,535,576$ 8,576,948$ 51,034$ 469,918$ (2,742,343) 1,304,667 (1,437,676)

General revenues: Taxes: Sales and use tax 842,362 - 842,362 Franchise and public service taxes 87,056 - 87,056 Intergovernmental revenue not restricted to specific programs 57,509 - 57,509 Investment income 16,011 7,603 23,614 Miscellaneous 55,531 48,551 104,082Transfers - Internal activity 1,013,992 (1,013,992) - Total general revenues and transfers 2,072,461 (957,838) 1,114,623

Change in net position (669,882) 346,829 (323,053)

Net position - beginning (2,011,487) 5,616,208 3,604,721

Net position - ending (2,681,369)$ 5,963,037$ 3,281,668$




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BASIC FINANCIAL STATEMENTS – GOVERNMENTAL FUNDS



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Governmental Funds Balance Sheet (Modified Cash Basis) – June 30, 2016

Capital Cemetery TotalGeneral Improvement Trust Governmental

Fund Fund Fund Funds

ASSETS

Cash and cash equivalents 204,520$ -$ 102,482$ 307,002$ Investments 540,738 - 13,844 554,582 Due from other funds 875,927 168,622 46,742 1,091,291 Total Assets 1,621,185$ 168,622$ 163,068$ 1,952,875$

LIABILITIES AND FUND BALANCES

Liabilities: Cash overdraft -$ 1,311,530$ -$ 1,311,530$ Due to employees 6,435 - - 6,435 Due to other governments 18,273 - - 18,273 Due to other funds 2,744,417 553,589 - 3,298,006

Total Liabilities 2,769,125 1,865,119 - 4,634,244

Fund Balance:Restricted for:

Airport 1,258,026 - - 1,258,026Cemetery - - 161,493 161,493

Assigned to:Cemetery - - 1,575 1,575

Unassigned (Deficit) (2,405,966) (1,696,497) - (4,102,463)

Total Fund Balance (1,147,940) (1,696,497) 163,068 (2,681,369)

Total Liabilities and Fund Balances 1,621,185$ 168,622$ 163,068$ 1,952,875$




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Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance (Modified Cash Basis) – Year Ended June 30, 2016

Capital Cemetery TotalGeneral Improvement Trust Governmental

Fund Fund Fund FundsRevenues: Taxes 929,418$ -$ -$ 929,418$ Intergovernmental 107,033 354,549 - 461,582 Charges for services 220,631 - 7,895 228,526 Fines and forfeitures 15,534 - - 15,534 Investment income 15,600 26 385 16,011 Miscellaneous 73,019 - - 73,019

Total Revenues 1,361,235 354,575 8,280 1,724,090

Expenditures: Current: General Government:

Managerial 101,053 - - 101,053 Public Safety:

Police 647,390 - - 647,390Dispatchers 90,000 - - 90,000Fire 633,793 - - 633,793Emergency management 4,886 - - 4,886

Highways and streets:Streets 223,202 - - 223,202

Culture and RecreationParks 22,248 - - 22,248Library 91,234 - - 91,234

Airport 161,040 - - 161,040 Cemetery 159,117 - - 159,117 Capital outlay 220,985 779,334 - 1,000,319 Debt service:

Principal 56,034 - - 56,034Interest 2,777 - - 2,777

Total Expenditures 2,413,759 779,334 - 3,193,093

Excess (deficiency) of revenues over expenditures (1,052,524) (424,759) 8,280 (1,469,003)

Other Financing Sources (Uses): Sales tax payments to hospital (220,535) - - (220,535) Transfers in 1,320,821 403,920 - 1,724,741 Transfers out (412,709) (292,376) - (705,085)

Total Other Financing Sources (Uses) 687,577 111,544 - 799,121

Net change in fund balances (364,947) (313,215) 8,280 (669,882)

Fund balances - beginning (782,993) (1,383,282) 154,788 (2,011,487)

Fund balances - ending (1,147,940)$ (1,696,497)$ 163,068$ (2,681,369)$




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BASIC FINANCIAL STATEMENTS – PROPRIETARY FUNDS



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Proprietary Fund Statement of Net Position (Modified Cash Basis) – June 30, 2016

Enterprise Funds

FrederickFrederick Economic

Public Works DevelopmentAuthority Authority Totals

ASSETS

Current Assets: Cash and cash equivalents 359,798$ -$ 359,798$ Restricted cash and cash equivalents 3,421,111 - 3,421,111 Investments - 56,873 56,873 Restricted investments 227,133 - 227,133 Due from other funds 2,178,419 952,125 3,130,544

Total Assets 6,186,461 1,008,998 7,195,459

LIABILITIES

Current Liabilities: Due to other governments 9,073 - 9,073 Due to other funds 701,331 222,498 923,829 Deposit liability 299,520 - 299,520

Total Liabilities 1,009,924 222,498 1,232,422

NET POSITION

Restricted for debt service 404,313 - 404,313 Restricted for other purposes 2,944,411 - 2,944,411 Unrestricted 1,827,813 786,500 2,614,313

Total Net Position 5,176,537$ 786,500$ 5,963,037$




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Proprietary Fund Statement of Revenues, Expenses and Changes in Net Position (Modified Cash Basis) – Year Ended June 30, 2016

Enterprise Funds

FrederickFrederick Economic

Public Works DevelopmentAuthority Authority Totals

Operating Revenues: Charges for services: Water 1,571,109$ -$ 1,571,109$ Sewer 516,078 - 516,078 Sanitation 623,557 - 623,557 Electric 5,487,533 - 5,487,533 Penalties 65,665 - 65,665 Lake fees 20,548 - 20,548 Leases and rent 7,649 19,674 27,323 Other miscellaneous 8,780 - 8,780 Total Operating Revenues 8,300,919 19,674 8,320,593

Operating Expenses: Administrative 704,679 - 704,679 Water 1,023,775 - 1,023,775 Sewer 171,962 - 171,962 Sanitation 5,821 - 5,821 Electric 4,086,644 - 4,086,644 Lake 91,575 - 91,575 Swimming pool 65,749 - 65,749 Economic development - 3,116 3,116

Total Operating Expenses 6,150,205 3,116 6,153,321

Operating Income 2,150,714 16,558 2,167,272

Non-Operating Revenues (Expenses):Investment income 7,040 563 7,603Miscellaneous 60,846 - 60,846Debt proceeds 99,391 - 99,391Capital outlay (208,447) - (208,447)Debt service:

Principal retirement (425,207) (20,000) (445,207)Interest expense and fees (314,973) - (314,973)

Total Non-Operating Revenues (Expenses) (781,350) (19,437) (800,787)

Net Income (Loss) Before Transfers 1,369,364 (2,879) 1,366,485

Transfers in 602,822 - 602,822 Transfers out (1,622,478) - (1,622,478)

Change in net position 349,708 (2,879) 346,829 Total net position - beginning 4,826,829 789,379 5,616,208

Total net position - ending 5,176,537$ 786,500$ 5,963,037$




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Proprietary Fund Statement of Cash Flows (Modified Cash Basis) – Year Ended June 30, 2016

Enterprise FundsFrederick

Frederick EconomicPublic Works Development

Authority Authority Totals

CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 8,300,919$ 19,674$ 8,320,593$ Payments to suppliers (4,876,177) (3,116) (4,879,293)Payments to employees (1,280,126) - (1,280,126)Receipts from (Payments to) other funds (219,642) 14,734 (204,908)Receipts of customer utility deposits 79,560 - 79,560Refunds of customer utility deposits (70,890) - (70,890)Other receipts 60,846 - 60,846

Net Cash Provided by Operating Activities 1,994,490 31,292 2,025,782

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESTransfers from other funds 602,822 - 602,822Transfers to other funds (1,622,478) - (1,622,478)

Net Cash Provided by (Used in) Noncapital Financing Activities (1,019,656) - (1,019,656)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESPurchase of capital assets (208,447) - (208,447)Principal paid on debt (425,207) (20,000) (445,207)Interest and fiscal agent fees paid on debt (314,973) - (314,973)Debt proceeds 99,391 - 99,391

Net Cash Provided by (Used in) Capital and Related Financing Activities (849,236) (20,000) (869,236)

CASH FLOWS FROM INVESTING ACTIVITIESInterest and dividends 7,040 563 7,603Purchase of investments (6,318) (11,855) (18,173)

Net Cash Provided by (Used in) Investing Activities 722 (11,292) (10,570)

Net Increase in Cash and Cash Equivalents 126,320 - 126,320

Balance - beginning of the year 3,654,589 - 3,654,589

Balance - end of the year 3,780,909$ -$ 3,780,909$

Reconciliation of operating income to net cash provided by operating activities: Operating income 2,150,714$ 16,558$ 2,167,272$ Adjustments to reconcile operating income to net cash provided by operating activities: Other receipts 60,846 - 60,846 Change in assets and liabilities: Due from other funds (273,461) - (273,461) Due to other governments (6,098) - (6,098) Due to other funds 53,819 14,734 68,553 Deposit liability 8,670 - 8,670

Net cash provided by operating activities 1,994,490$ 31,292$ 2,025,782$




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FOOTNOTES TO THE BASIC FINANCIAL STATEMENTS



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1. Summary of Significant Accounting Policies A. Financial Reporting Entity

The City’s financial reporting entity includes the primary government and two blended component units as follows.

The City of Frederick – that operates the public safety, street and alley maintenance, parks

and recreation, transportation and cemetery services, governed by the City Council The Frederick Public Works Authority (FPWA) – public trust created August 18, 1969,

pursuant to 60 O.S. § 176 that operates the electric, water, sewer, and sanitation services of the City, governed by trustees comprised of the entire City Council

The Frederick Economic Development Authority (FEDA) – public trust created

November 3, 1986, pursuant to 60 O.S. § 176 that operates the economic development services of the City, governed by trustees comprised of the entire City Council

In determining the financial reporting entity, the City complies with the provisions of Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity as modified by Statement 61. The component units are Public Trusts established pursuant to Title 60 of Oklahoma State law. Public Trusts (Authorities) have no taxing power. The Authorities are generally created to finance City services through issuance of revenue bonds or other non-general obligation debt and to enable the City Council to delegate certain functions to the governing body (Trustees) of the Authority. The Authorities generally retain title to assets which are acquired or constructed with Authority debt or other Authority-generated resources. In addition, the City has leased certain existing assets at the creation of the Authorities to the Trustees on a long-term basis. The City, as beneficiary of the Public Trusts, receives title to any residual assets when a Public Trust is dissolved. B. Basis of Presentation and Accounting

Government-Wide Financial Statements: The statement of net position and activities are reported on a modified cash basis of accounting. The modified cash basis of accounting is based on the recording of cash and cash equivalents and changes therein, and only recognizes revenues, expenses, assets and liabilities resulting from cash transactions adjusted for certain modifications that have substantial support in generally accepted accounting principles. These modifications include adjustments for the following balances arising from cash transactions:

cash-based interfund receivables and payables other cash-based receivables/payables investments utility deposit liabilities



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As a result of the use of this modified cash basis of accounting, certain assets and their related revenues (such as accounts receivable and revenue for billed or provided services not yet collected, and accrued revenue and receivables), capital assets and certain liabilities and their related expenses (such as accounts payable and expenses for goods or services received but not yet paid, and accrued expenses and long-term debt) are not recorded in these financial statements. Program revenues within the statement of activities are derived directly from each activity or from parties outside the City’s taxpayers. The City has the following program revenues in each activity:

Public safety: Fine revenue, dispatching and officer fees and capital grants Highways and streets: Gas excise taxes, commercial vehicle taxes Culture and recreation: Library fines Cemetery: Lot sales, opening and closing fees Airport: Hanger rent, fuel sales, farming lease

Governmental Funds: The City’s governmental funds are comprised of the following: Major Funds:

General Fund – The general fund is the general operating fund of the City. It is used to account

for all financial resources except for those required to be accounted for in another fund.

Capital Improvement Fund – Accounts for capital improvement activities.

Cemetery Trust Fund – Accounts for 12.5% of cemetery revenue restricted by state law for cemetery capital improvements.

The governmental funds are reported on a modified cash basis of accounting. Only current financial assets and liabilities resulting from cash transactions are included on the fund balance sheets. The operating statements present sources and uses of available spendable financial resources during a given period. These fund financial statements use fund balance as their measure of available spendable financial resources at the end of the period.

Proprietary Funds:

The City’s proprietary funds are comprised of the following:

Enterprise Funds: Frederick Public Works Authority – accounts for the operation of the electric, water, sewer, and

sanitation activities. Frederick Economic Development Authority – accounts for the economic development of the City.

For purposes of the statement of revenues, expenses and changes in fund net position, operating revenues and expenses are considered those whose cash flows are related to operating activities, while revenues and expenses related to financing, capital and investing activities are reported as non-operating or transfers and contributions.



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C. Cash, Cash Equivalents, and Investments Cash and cash equivalents includes all demand and savings accounts, certificates of deposit or short-term investments with an original maturity of three months or less, and money market accounts. Investments consist of long-term certificates of deposits. D. Long-Term Debt The City’s long-term debt is not reported in the accompanying financial statements due to its modified cash basis of accounting. However, the City’s long-term debt is disclosed in the commitment section of these notes. E. Compensated Absences As a result of the use of the modified cash basis of accounting, liabilities related to accrued compensated absences are not recorded in the financial statements. Expenditures/expenses related to compensated absences are recorded when paid. The amount of accrued compensated absences for accumulated, unpaid compensatory time that would be due to employees upon termination is reported as a commitment in Note 8. F. Fund Balances and Net Position Fund Balances: Fund balances reported in the governmental funds financial statements are typically displayed in up to five components:

a. Nonspendable – includes amounts that cannot be spent because they are either (a) not in a spendable form or (b) legally or contractually required to be maintained intact.

b. Restricted – consists of fund balance with constraints placed on the use of resources either by (a) external groups such as creditor, grantors, contributors, or laws and regulations of other governments, or (b) law through constitutional provisions or enabling legislation.

c. Committed – includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the City’s highest level of decision-making authority. The City’s highest level of decision-making authority is made by ordinance.

d. Assigned – includes amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted not committed. Assignments of fund balance may be made by city council action or management decision when the city council has delegated that authority. Assignments for transfers and interest income for governmental funds are made through budgetary process.

e. Unassigned – represents fund balance that has not been assigned to other funds and has not been restricted, committed, or assigned to specific purposes within the general fund. It is the City’s policy to first use restricted fund balance prior to the use of the unrestricted fund balance when an expense is incurred for purposes for which both restricted and unrestricted fund balance are available. The City’s policy for the use of unrestricted fund balance amounts require that committed amounts would be reduced first, followed by assigned amounts, and then unassigned amounts when



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expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used. The only exception to this policy is for assigned interest income in governmental funds other than the General Fund. On those funds, interest income is used first before other revenues. Fund Balance Deficit Prohibition Title 11, Section 17-211 of the Oklahoma Statutes prohibits the creation of a deficit fund balance in any individual fund (excluding public trusts). The City had the following fund balance deficits for the year ended June 30, 2016:

General Fund $1,147,940 Capital Improvement Fund 1,696,497

Net Position: Net position is displayed in two components:

a. Restricted net position - Consists of net position with constraints placed on the use either by 1)

external groups such as creditors, grantors, contributors, or laws and regulations of other governments, or 2) law through constitutional provisions or enabling legislation. b. Unrestricted net position - All other net position that does not meet the definition of “restricted”. It is the City’s policy to first use restricted net position prior to the use of unrestricted net position when an expense is incurred for purposes for which both restricted and unrestricted net position are available. G. Internal and Interfund Balances and Transfers The City’s policy is to eliminate interfund transfers and balances in the statement of activities and net position to avoid the grossing up of balances. Only the residual balances transferred between governmental and business-type activities are reported as internal transfers and internal balances then offset in the total column in the government-wide statements. Internal transfers and balances between funds are not eliminated in the fund financial statements.



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2. Deposits and Investments For the year ended June 30, 2016, the City recognized $23,614 of investment income. At June 30, 2016, the primary government held the following deposits and investments:

Carrying

Primary Government: Value

Deposits:

Demand deposits 543,297$

Petty cash 1,950

Time deposits 838,587

Credit

Rating

Investments:

Cavanal Hill Cash Management Fund Aaa 269,135

Federated Treasury Obligations Aaa 1,962,000

Total Deposits and Investments 3,614,969$

Reconciliation to Statement of Net Position:

Cash and cash equivalents 4,087,911$

Cash overdraft (See Note below) (1,311,530)

Investments 838,588

3,614,969$

Cash Overdraft The City’s unrestricted cash balances were negative due to outstanding checks on the City’s books. Custodial Credit Risk

Exposure to custodial credit related to deposits exists when the City holds deposits that are uninsured and uncollateralized; collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the City’s name; or collateralized without a written or approved collateral agreement. Exposure to custodial credit risk related to investments exists when the City holds investments that are uninsured and unregistered, with securities held by the counterparty or by its trust department or agent but not in the City’s name. The City’s policy as it relates to custodial credit risk is to comply with state law and secure its uninsured deposits with collateral, valued at no more than market value, at least at a level of 100% of the uninsured deposits and accrued interest thereon. Acceptable collateral is defined in state statutes and includes U.S. Treasury securities and direct debt obligations of municipalities, counties, and school districts in the state of Oklahoma, surety bonds, and letters of credit. As required by Federal 12 U.S.C.A., Section 1823(e), all financial institutions pledging collateral to the City must have a written collateral agreement approved by the board of directors or loan committee. At June 30, 2016, the City had no custodial credit risk as described above.



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Investment Credit Risk The City has no investment policy that limits its investment choices other than the limitations of state law that generally authorize investments in: (1) full faith and credit, direct obligations of the U. S. Government, its agencies and instrumentalities, and the State of Oklahoma and certain mortgage insured federal debt; (2) certificates of deposit or savings accounts that are either insured or secured with acceptable collateral; (3) negotiable certificates of deposit, prime bankers acceptances, prime commercial paper and repurchase agreements with certain limitations; (4) county, municipal or school district tax supported debt obligations, bond or revenue anticipation notes, money judgments, or bond or revenue anticipation notes of public trusts whose beneficiary is a county, municipality or school district; and government money market funds regulated by the SEC. Title 60 public trusts are not limited by the same investment limitations of their municipal beneficiary. The investments held by the Public Works Authority are part of the 2009 and 2014 revenue bond trustee accounts, which are covered and authorized under the said indentures and the utility deposits in the mutual securities account. The City’s marketable investments at June 30, 2016 are listed in the table above. Investment Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City has no investment policy that limits investments based on maturity. Concentration of Investment Credit Risk Exposure to concentration of credit risk is considered to exist when investments in any one issuer represent a significant percent of total investments of the City (any over 5% are disclosed). Investments issued or explicitly guaranteed by the U.S. government and investments in mutual funds, external investment pools, and other pooled investments are excluded from this consideration. The City has no investment policy regarding concentration of credit risk. At June 30, 2016, the City had no concentration of credit risk as defined above. Restricted Cash and Investments – The amounts reported as restricted assets on the proprietary fund statement of net position are comprised of amounts restricted for debt service, debt reserve, or construction purposes. The restricted assets as of June 30, 2016 are as follows:

CurrentCash and Cash Current

Type of Restricted Assets Equivalents Investments

Utility Deposits 136,014$ 163,506$ Water Surcharge 1,028,955 54,872 CWSRF Note 16,990 - Lake & Recreation 5,026 75 Landfill Escrow 288,779 - Sales Tax Reserve - 8,680 Mountain Park District 2014 269,135 - 2009 Bond Trust Accounts 51,260 - 2014 Bond Trust Accounts 1,624,952 -

Total Restricted Assets 3,421,111$ 227,133$



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3. Sales Tax Revenue Sales tax revenue represents a 3.5 cent local tax on each dollar of taxable sales within the City, of which one cent is not restricted and, therefore, stays in the General Fund; one and one-half cent is voter-restricted for capital improvements and debt service which is pledged for debt on FPWA; and one cent is voter restricted for the hospital in accordance with City ordinances. All three and a half cents of the sales tax are received and recorded in the General Fund and then transferred to the FPWA and/or Capital Improvement Fund as needed for capital projects and debt service, and one cent is paid to the hospital.

4. Property Tax Levy

The City presently levies no property tax. In accordance with state law, a municipality may only levy a property tax to retire general obligation debt approved by the voters and to pay judgments rendered against the City.

5. Internal and Interfund Balances and Transfers

Interfund Balances:

Due From Due To Amount Nature of Balance

General Fund FPWA 629,264$ Return of revenue posted in another fundGeneral Fund FPWA 1,334,796 Negative cashGeneral Fund (Recoveries Account) FPWA 251 Expenditures paid on behalf of another fundGeneral Fund FPWA 2,615 Expenditures paid on behalf of another fundGeneral Fund Cemetery Trust Fund 14,692 12.5% of lot sales and openings not yet transferredGeneral Fund FEDA 664,801 Sales tax received not yet transferredGeneral Fund (Airport Account) FEDA 97,303 Expenditures paid on behalf of another fundGeneral Fund (Airport Account) FPWA 695 Expenditures paid on behalf of another fundCapital Improvement Fund General Fund (Airport Account) 521,388 Water run-off expenditures paid on behalf of another fundCapital Improvement Fund General Fund 32,201 Expenditures paid on behalf of another fundFEDA FPWA 127,612 Negative cashFEDA General Fund (Airport Account) 11,700 Hanger Rent not yet transferredFEDA FPWA 83,186 Expenditures paid on behalf of another fundFPWA General Fund (Airport Account) 245,632 Expenditures paid on behalf of another fundFPWA Cemetery Trust Fund 32,050 Repayment of use of restricted fundsFPWA General Fund (Cemetery Care Account) 10,718 Repayment of use of restricted fundsFPWA General Fund 613 Repayment of revenue posted to wrong fundFPWA Capital Improvement Fund 148,732 Expenditures paid on behalf of another fundFPWA Capital Improvement Fund 19,890 FAA grant deposited in wrong fundFPWA General Fund (Recoveries Account) 53,675 Expenditures paid on behalf of another fundFPWA FEDA 190,021 Lease revenue not yet transferred

4,221,835$

Reconciliation to Statement of Net Position:Due From Due To Internal Balances

Governmental 1,091,291$ (3,298,006)$ (2,206,715)$ Business-Type 3,130,544 (923,829) 2,206,715 Total 4,221,835$ (4,221,835)$ -$

Interfund Receivables/Payables and Negative Cash:

The City has chosen to report negative shares of multiple pooled cash bank accounts as interfund receivables and payables within the funds. However, if certain funds have shares of pooled cash that are restricted, the city has chosen to report those restricted amounts at their positive value. This allows for a more accurate reporting of negative shares of unrestricted cash. The City has also elected



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to report in their fund financial statements unrestricted cash and cash equivalents in a net amount, i.e. all negative shares of pooled cash have been netted with other positive cash in each individual fund. Those funds whose overall unrestricted cash and cash equivalents result in a net amount that is negative are reported as a liability entitled “cash overdraft”.

Transfers: Internal transfers between funds and activities for the year ended June 30, 2016, were as follows:

Transfer From Transfer To Amount Nature of Transfer

General Fund FPWA 331,267$ Sales tax allocationGeneral Fund CIF 41,967 Reimbursement of expensesGeneral Fund -Airport Account CIF 39,475 Reimbursement of expensesCapital Improvement Fund FPWA 271,555 Reimbursement of expensesCapital Improvement Fund General Fund -Recoveries Account 20,821 Reimbursement of expensesFPWA General Fund 1,300,000 Operating SubsidyFPWA CIF 322,478 Reimbursement of expenses

2,327,563$

Reconciliation to Statement of Changes in Net Assets:Reclass

Business-TypeActivity to

Transfers In Transfers Out Governmental Net TransfersGovernmental 1,724,741$ (705,085)$ (5,664)$ 1,013,992$ Business-Type 602,822 (1,622,478) 5,664 (1,013,992) Total 2,327,563$ (2,327,563)$ -$ -$

6. Risk Management

The primary government is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors and omissions; injuries to employees; employee health and life; and natural disasters. These risks are managed by securing commercial insurance for all risks, except for participation in the Oklahoma Municipal Assurance Group risk entity pool for worker’s compensation and property liability coverage. Management believes such insurance coverage is sufficient to preclude any significant uninsured losses. Settled claims have not exceeded this insurance coverage in any of the past three fiscal years.



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7. Pension Plan Participation

The City of Frederick participates in three pension or retirement plans:

1. Oklahoma Firefighter’s Pension and Retirement System (OFPRS) – a statewide cost-sharing plan

2. Oklahoma Police Pension and Retirement System (OPPRS) – a statewide cost-sharing plan 3. Oklahoma Municipal Retirement System Master Defined Benefit Plan and Trust (OMRF-DBP)

– an agent multiple-employer defined benefit plan

OFPRS The City of Frederick, as the employer, participates in a statewide cost-sharing multiple employer defined benefit pension plan through the Oklahoma Firefighter’s Pension and Retirement System (OFPRS) as a result of the employment of full-time firefighters. The OFPRS defined benefit pension plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Pursuant to the requirements of Title 11, Section 22-102, the City must participate in the plan if they employ fulltime or volunteer firefighters. OFPRS plan members are required to contribute 9% to the plan. The City is required by state law to contribute 14% per year of covered payroll for paid firefighters. The plan is funded by contributions from participants, employers, insurance premium taxes, and state appropriations, as necessary. For 2016, the City's annual required contribution was $45,348 for the OFPRS plan and was equal to the City's actual contribution.

The OFPRS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to:

OFPRS 4545 N. Lincoln Blvd., Suite 265 Oklahoma City, OK 73105-3414

OPPRS The City of Frederick, as the employer, participates in a statewide cost-sharing multiple employer defined benefit pension plan through the Oklahoma Police Pension and Retirement System (OPPRS). The OPPRS defined benefit pension plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Pursuant to the requirements of Title 11, section 22-102, the City must participate in the plan if they employ a certain number of fulltime police officers. The City is required by state law to contribute 13% of covered payroll per year for each police officer. Employees contribute 8% of covered payroll. The plan is funded by contributions from participants, employers, insurance premium taxes, and state appropriations, as necessary. For 2016, the City's annual required contribution was $29,539 for the OPPRS plan and was equal to the City's actual contribution.

The OPPRS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to:

OPPRS 1001 N.W. 63rd St., Suite 605 Oklahoma City, OK 73116-7335



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OFPRS OPPRS

Required Amount Required AmountFiscal Year Contribution Contributed Contribution Contributed

2014 37,715 100% 46,164 100%2015 40,490 100% 34,352 100%2016 45,348 100% 29,539 100%

OMRF Defined Benefit Plan The City contributes to the Employee Retirement System of Frederick, Oklahoma in the form of The Oklahoma Municipal Retirement System Master Defined Benefit Plan and Trust, an agent multiple employer - defined benefit plan, for all eligible employees except for those covered by the Police and Firefighter Pension Systems. Administration of the City’s individual plan rests with the City Council. The overall operations of OMRF are supervised by a nine-member Council of Trustees elected by the participating municipalities. Bank One Trust Company of Oklahoma City acts as administrator and securities custodian. The OMRF plan has annual actuarial valuations that determine the actuarially required contribution. For the year ended June 30, 2016, such required contributions were 11.61 percent of covered payroll, of which 7.28 percent and 4.33 percent were the required contributions by the employer and employee respectively. For the year ended June 30, 2016, contributions to the plan amounted to $130,563 which was more than the actuarially required contribution. The City funded 13.0% of covered payroll.

OMRF issues separate plan financial statements which may be obtained by contacting the Oklahoma Municipal Retirement Fund, 525 Central Park Drive, Suite 320, Oklahoma City, Oklahoma, 73105.



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Provision OMRF Plan

a. Eligible to Participate Full-time, non-uniformed employees of the City

b. Contribution Requirements:-Authorization By City ordinance-Actuarially Determined Yes-Employer Rate 7.28% of covered payroll-Employee Rate 4.33% of covered payroll

c. Period Required to Vest 10 years of credited service

d. Eligibility for Distribution -Normal retirement at age 65 with 10 years of vesting service-Early retirement at age 55 with 10 or more years of vesting service-Disability retirement with 10 or more years of vesting service-Marital death benefit with 10 or more years of vesting service

e. Benefit Determination Base Final average compensation - the average of the five highest consecutiveannual salaries out of the last 10 calendar years of service

f. Benefit Determination Methods:-Normal Retirement 2.25% of final average salary multiplied by credited years of service-Early Retirement The accrued benefit payable starting at normal retirement age, or the accrued

benefit reduced 5% per year for commencement prior to normal retirement age-Disability Retirement Same as normal retirement-Death Benefit 50% of employee's accrued benefit, but terminates upon spouse

remarriage-Prior to 10 Years Service Return of employee contributions with accrued interest

g. Form of Benefit Payments Normal form is a 5 years certain and life thereafter basis. Employee may elect, with City consent, optional form based on actuarial equivalent.

8. Commitments and Contingencies Long-term Debt Commitments:

Governmental activities had the following long-term debt-related commitments outstanding for June 30, 2016: Lease Agreements with Non-Appropriation Provisions:

$98,000 lease agreement with Prosperity Bank for a John Deere Backhoe, payable in monthly installments of $1,329, final payment due March 2019 of $13,486 $ 53,033



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Business-type activities long-term debt payable from net revenues generated by the utility revenue and pledged sales tax include the following:

Frederick Public Works Authority:

Notes Payable: $4,500,000 note payable to the Oklahoma Water Resources Board dated February 1, 2009, secured by net utility revenues and capital assets, interest rate of 3.08%, final payment due March 15, 2031. $2,439,714 $4,315,000 CWSRF 2014 note payable to the Oklahoma Water Resources Board dated October 25, 2013, secured by net utility revenues and capital assets, interest rate of 3.18%, final payment due September 15, 2045. 3,899,771

Total Notes Payable $6,339,485

Capital Lease Obligations: $79,500 capital lease obligation for a 2014 John Deere backhoe, payable in monthly installments of $1,233 interest rate of 2.70%, final payment due March 2019. $ 37,924 Revenue Bonds:

Mountain Park Master Conservancy District Taxable Revenue Refunding Note, Series 2014, original issue amount of $10,000,000, Dated October 30, 2014, issued by Frederick Public Works Authority, secured by gross utility revenues, interest rate of 3.26%, final payment due January 1, 2025. The City’s proportionate share is 16.9%. $1,523,535 Frederick Public Works Authority Sales Taxable Revenue Note, Series 2014, original issue amount of $1,800,000, dated November 24, 2014, issued by BancFirst, secured by pledged sales tax, interest rate of 2.75%, final payment due October 1, 2024. 1,800,000

Total Revenue Bonds Payable $3,323,535

Frederick Economic Development Authority:

Note Payable:

Frederick Economic Development Authority CDBG-ED Promissory Note, original issue amount of $400,000, dated January 1, 2005, interest rate of 0%, final payment due December 1, 2024. $170,000



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Business-Type Activities

FEDA FPWAYear Ended Notes Payable Revenue Bonds Payable Notes Payable

June 30, Principal Interest Principal Interest Principal Interest

2017 20,000 - 337,875 96,663 273,623 204,407 2018 20,000 - 347,945 86,576 277,708 195,749 2019 20,000 - 358,015 76,117 281,921 186,961 2020 20,000 - 373,085 65,356 286,099 178,2102021 20,000 - 379,000 54,223 290,744 168,990

2022-2026 70,000 - 1,527,615 99,134 1,525,931 704,1352027-2031 - - - - 1,661,188 454,5292032-2036 - - - - 719,167 256,8322037-2041 - - - - 719,167 142,9352042-2045 - - - - 575,333 32,017

Total 170,000$ -$ 3,323,535$ 478,069$ 6,610,881$ 2,524,765$

Less: OWRB amount left to be drawn 271,396

6,339,485$

Pledge of Future Revenues

Utility Net Revenues Pledge – The City has pledged future net water revenues to repay $10,000,000 of the Mountain Park Master Conservancy District Taxable Revenue Refunding Notes, Series 2014. Proceeds from the note provided funds to refund the outstanding principal amount of the District’s 2005 Bonds, finance additional improvements to the System and pay costs of issuance related to the 2014 Note. The note is payable through 2025. The total principal and interest payable for the remainder of the life of these bonds is $1,770,397. The note is payable from the above-mentioned utility net revenues. The debt service payment on the bonds this year was $196,843 which was 47.1% of pledged net utility revenues of $417,951.

The City has also pledged future net water revenues to repay the $4,500,000 Oklahoma Water Resources Board Note Payable. Proceeds from the note provided financing for utility system capital assets. The note is payable through 2031. The note is payable from the above-mentioned utility net revenues. The debt service payment on the bonds this year was $204,984, which was 49.0% of pledged net utility revenues of $417,951. The City has also pledged future net water revenues to repay the $4,315,000 Oklahoma Water Resources Board Note Payable. Proceeds from the note provided financing for utility system capital assets. The note is payable through 2045. The note has not been fully advanced as of June 30, 2016. The note is payable from the above-mentioned utility net revenues. The debt service payment on the bonds this year was $271,555, which was 65.0% of pledged net utility revenues of $417,951. Sales Tax Pledge - The City has pledged 1.5 cents (or 43%) of future sales tax revenues to repay the $1,800,000 Series 2014 Frederick Public Works Authority Sales Taxable Revenue Note. Proceeds from the notes provided for the purchase or construction of capital assets. The note is payable from pledged sales tax revenues. The notes are payable through 2024. The total principal and interest payable for the remainder of the life of the note is $2,031,206. Pledged sales taxes received in the current year were $331,267. Debt service payments of $51,500 for the current fiscal year were 15.5% of pledged sales taxes.



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Compensated Absences: As a result of the City’s use of the modified cash basis of accounting, accrued liabilities related to compensated absences (vacation, sick and comp leave) earned but unpaid at year-end are not reflected in the basic financial statements. The compensated absence commitment at June 30, 2016 is $121,694. Litigation: The City and its public trusts are parties to various legal proceedings or have threatened litigation which normally occurs in the course of municipal governmental operations. The financial statements do not include accruals or provisions for loss contingencies that may result from these proceedings. State Constitution and statutes provide for the levy of an ad valorem tax over a three-year period by a Sinking Fund for the payment of any court assessed judgment rendered against the City. (This provision is not available to public trusts.) While the outcome of the above noted proceedings or threatened litigation cannot be predicted, due to the insurance coverage maintained by the City and the State statute relating to judgments, the City feels that any settlement or judgment not covered by insurance would not have a material adverse effect on the financial condition of the City.

Federal and State Award Programs: The City of Frederick participates in various federal or state grant/loan programs from year to year. Grants received in 2016 were not significant. The City has not been notified of any noncompliance with federal or state award requirements.

9. Landfill Closure and Post-Closure Requirements

At June 30, 2016, the Frederick Public Works Authority had deposited $288,779 for the closure and post-closure requirements dictated by the U.S. Environmental Protection Agency and the Oklahoma Department of Environmental Quality into a trust account established as the facility financial assurance mechanism. This cash is reported as restricted in the Frederick Public Works Authority fund.



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SUPPLEMENTARY INFORMATION



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Budgetary Comparison Schedules (Modified Cash Basis) – Year Ended June 30, 2016

GENERAL FUNDBudgeted Amounts Actual Final Budget

Original Final Amounts Positive (Negative)

Beginning Budgetary Fund Balance (Deficit): -$ -$ (2,335,202)$ (2,335,202)$

Resources (Inflows):Taxes 990,000 914,000 929,418 15,418 Intergovernmental 105,326 92,500 107,033 14,533 Charges for services 52,000 225,742 58,202 (167,540) Fines and Forfeitures 34,000 120,000 15,534 (104,466) Investment Income 100 500 1,872 1,372 Miscellaneous 18,000 6,500 9,118 2,618 Other Financing Sources - Transfers In 1,456,824 1,140,000 1,300,000 160,000

Total Resources 2,656,250 2,499,242 2,421,177 (78,065)

Amounts available for appropriation 2,656,250 2,499,242 85,975 (2,413,267)

Charges to Appropriations (Outflows):

Managerial 316,850 321,855 321,645 210 Police 750,000 633,236 697,762 (64,526) Dispatch 90,000 228,387 90,000 138,387 Fire 575,000 444,524 642,710 (198,186) Streets 275,000 275,125 240,377 34,748 Parks 50,000 83,273 22,248 61,025 Library 91,500 91,344 99,641 (8,297) Cemetery 128,000 78,998 159,406 (80,408) Emergency Management 9,650 5,000 4,886 114 Other Financing Uses - Transfers Out 306,000 337,500 373,234 (35,734)

Total Charges to Appropriations 2,592,000 2,499,242 2,651,909 (152,667)

Ending Budgetary Fund Balance (Deficit) 64,250$ -$ (2,565,934)$ (2,565,934)$



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Footnotes to Budgetary Comparison Schedules: 1. The budgetary comparison schedules are reported on the same modified cash basis as governmental

funds within the basic financial statements. 2. The legal level of appropriation control is the department level within a fund. Supplemental

appropriations require City Council approval. 3. In the General Fund, the City had negative variances in the following departments and for the

following amounts: General Fund – Police ($ 64,526) General Fund – Fire ($ 198,186) General Fund – Library ($ 8,297) General Fund – Cemetery ($ 80,408) General Fund – Transfers out ($ 35,734) 4. For financial reporting purposes there were three accounts added to the General Fund, but for

budgetary comparison purposes, these accounts are not included: General Fund, Ending Budgetary fund balance $(2,565,934) Airport Account fund balance 1,258,026 Cemetery Account fund balance 28,912 Recoveries Account fund balance 131,056 $(1,147,940)



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Combining Balance Sheet - General Fund Accounts (Modified Cash Basis) – June 30, 2016

Cemetery TotalGeneral Airport Care Recoveries General Fund

Fund Account Account Account Accounts

ASSETS

Cash and cash equivalents 16,044$ 89,051$ 16,264$ 83,161$ 204,520$ Investments 49,683 489,125 1,930 - 540,738 Due from other funds 32,814 778,720 10,718 53,675 875,927Due from other interaccounts 11,245 - - 4,844 16,089 Total Assets 109,786$ 1,356,896$ 28,912$ 141,680$ 1,637,274$

LIABILITIES AND FUND BALANCES

Liabilities: Due to employees 6,435$ -$ -$ -$ 6,435$ Due to other governments 18,273 - - - 18,273 Due to other funds 2,646,168 97,998 - 251 2,744,417 Due to other interaccounts 4,844 872 - 10,373 16,089

Total Liabilities 2,675,720 98,870 - 10,624 2,785,214

Fund Balance:Restricted for:

Airport - 1,258,026 - - 1,258,026 Unassigned (Deficit) (2,565,934) - 28,912 131,056 (2,405,966)

Total Fund Balance (2,565,934) 1,258,026 28,912 131,056 (1,147,940)

Total Liabilities and Fund Balances 109,786$ 1,356,896$ 28,912$ 141,680$ 1,637,274$



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Combining Schedule of Revenues, Expenditures and Changes in Fund Balances – General Fund Accounts (Modified Cash Basis) – Year Ended June 30, 2016

Cemetery TotalGeneral Airport Care Recoveries General Fund

Fund Account Account Account AccountsRevenues: Taxes 929,418$ -$ -$ -$ 929,418$ Intergovernmental 107,033 - - - 107,033 Charges for services 58,202 162,429 - - 220,631 Fines and forfeitures 15,534 - - - 15,534 Investment income 1,872 13,670 58 - 15,600 Miscellaneous 9,118 - 10 63,891 73,019

Total Revenues 1,121,177 176,099 68 63,891 1,361,235

Expenditures: Current: General Government:

Managerial 101,053 - - - 101,053 Public Safety:

Police 647,390 - - - 647,390Dispatchers 90,000 - - - 90,000Fire 633,793 - - - 633,793Emergency management 4,886 - - - 4,886

Highways and streets:Streets 223,202 - - - 223,202

Culture and RecreationParks 22,248 - - - 22,248Library 91,234 - - - 91,234

Airport - 161,040 - - 161,040 Cemetery 159,117 - - - 159,117 Capital outlay 26,406 - - 194,579 220,985 Debt service:

Principal 56,034 - - - 56,034Interest 2,777 - - - 2,777

Total Expenditures 2,058,140 161,040 - 194,579 2,413,759

Excess (deficiency) of revenues over expenditures (936,963) 15,059 68 (130,688) (1,052,524)

Other Financing Sources (Uses): Sales tax payments to hospital (220,535) - - - (220,535) Transfers in 1,300,000 - - 20,821 1,320,821 Transfers out (373,234) (39,475) - - (412,709)

Total Other Financing Sources (Uses) 706,231 (39,475) - 20,821 687,577

Net change in fund balances (230,732) (24,416) 68 (109,867) (364,947)

Fund balance - beginning (2,335,202) 1,282,442 28,844 240,923 (782,993)

Fund balance - ending (2,565,934)$ 1,258,026$ 28,912$ 131,056$ (1,147,940)$



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Schedule of Expenditures of Federal and State Awards (Modified Cash Basis) – Year Ended June 30, 2016 Federal/State Grantor AwardGrantor/Program Title Grant # CFDA # Amount Expenditures

FEDERAL AWARDS:

U.S. DEPARTMENT OF TRANSPORTATION:

Federal Aviation Administration AIP 3-40-033-008-2015 20.106 436,104 354,549

TOTAL FEDERAL AWARDS 436,104$ 354,549$

STATE AWARDS:

OKLAHOMA DEPARTMENT OF LIBRARIES:

Library State Aid N/A 6,477$ 6,477$

OKLAHOMA DEPARTMENT OF AGRICULTURE:

Rural Fire Grant - Oklahoma Department of Agriculture N/A 4,290 4,290

TOBACCO SETTLEMENT ENDOWMENT TRUST:

2016 Healthy Incentive Grant N/A 4,000 4,000

TOTAL STATE AWARDS 14,767$ 14,767$



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INTERNAL CONTROL AND COMPLIANCE INFORMATION



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309 N. Bryant Ave. • Edmond, OK 73034 • 405.348.0615 • Fax 405.348.0931 • www.jmacpas.com Member of AICPA and OSCPA

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

To the Honorable Mayor and City Council City of Frederick, Oklahoma

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 Auditing Standards issued by the Comptroller General of the United States, the modified cash basis financial statements of the governmental activities, the business-type activities, and each major fund of the City of Frederick, Oklahoma (the “City”) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City of Frederick’s basic financial statements and have issued our report thereon dated August 23, 2017.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the City’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 modified cash basis financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’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 questioned costs, 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 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 as findings 16-03, 16-04, and 16-05 to be material weaknesses.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City’s modified cash basis 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 questioned costs as Findings 16-01, 16-02, and 16-03.

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City of Frederick, Oklahoma’s Response to Findings

The City’s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The City’s response was not subjected to the auditing procedures applied in the audit of the modified cash basis 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.

August 23, 2017

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CITY OF FREDERICK, OKLAHOMA SCHEDULE OF FINDINGS AND RESPONSES Year Ended June 30, 2016 Finding 16-01 – Budgeted Appropriations (Repeat finding) Criteria: Oklahoma State law prescribes that no encumbrances or expenditures may be authorized or made by an officer or employee that exceeds the available appropriations for each object category within a department or fund. Condition: Expenditures exceeded appropriations at the legal level of control as follows: Fund Department Amount

General Fund Police Department $ 64,526 General Fund Fire Department $ 198,186 General Fund Library Department $ 8,297 General Fund Cemetery Department $ 80,408 General Fund Transfers Out $ 35,734

Cause: The lack of timely monitoring of budget results prevents management from taking corrective action as needed. Effect or Potential Effect: Expenditures may exceed appropriations at the legal level of control. Recommendation: We recommend that the City complete accurate budget-actual comparisons and adopt formal budget amendments, especially at or near year-end by department. City's Response: We concur with the auditor’s finding and recommendation. Management is taking steps to correct their internal records to agree with audited financial statements. After that is completed, then bank reconciliations will be caught up through the current month and kept current to allow for timely and accurate monitoring of budget. Finding 16-02 Negative Fund Balance (Repeat finding) Criteria: Oklahoma law prescribes that it shall be unlawful for an officer or employee to create or authorize the creation of a deficit in any fund. Condition: The following funds reported deficits at June 30, 2016: Fund Amount General Fund $ (2,565,934) Capital Improvement Fund $ (1,696,497) Cause: Expenditures in recent years have exceeded available revenues. Effect or Potential Effect: Funds have deficit balances at year end. Recommendation: We recommend that the City adopt and enforce formal budgets that provide for a restoration of fund balance to acceptable amounts. City’s Response: We concur with the auditor’s finding and recommendation. While it will take more than one year to fully fund these negative fund balances, management will begin taking steps to reduce the negative fund balances beginning with the fiscal year 2018 budget. 49

CITY OF FREDERICK, OKLAHOMA SCHEDULE OF FINDINGS AND RESPONSES (Continued) Year Ended June 30, 2016 Finding 16-03 Controls over Financial Reporting (Repeat finding) Criteria: The City’s management is responsible for ensuring the timeliness of financial records, related information and annual reports.

Condition: The City missed key reporting deadlines, i.e., filing the SA&I Form 2643 and audit report with the Oklahoma State Auditor and Inspector by December 31, 2016.

Cause and Effect: The requirement for, and value of, timely financial reporting was not understood and valued across all departments, management, and governance officials. The City’s audited financial statements are not available in a timely fashion to support decision making. Additionally, the City may lose tax revenues allocated by the State if reporting deadlines are not met.

Recommendation: Additional competent staff, additional training for existing staff and/or increased use of outside consultants within the Finance Department is needed to ensure the timeliness of reports. In addition, management and the City Council should adopt an expectation of timely financial reporting.

City’s Response: We concur with the auditor’s finding and recommendation. As mentioned above, we will take steps to correct the city’s internal records and complete bank reconciliations through the current month and keep those current.

Finding 16-04 Record Retention Requirements (Repeat finding) Criteria: City governments must maintain their records in accordance with state statutes. Oklahoma Statute 11§ 22-131, states that a municipal governing body may destroy documents and records after the expiration of ten years for various payment and cash receipt records. Further, O.S. 11§ 22-132 states that “Any officer or employee of a municipality having custody of records or other documents of the municipality shall keep and maintain such records in a manner and at a location prescribed by the governing body. Such records shall be available for use by officers and employees of the municipality as the governing body shall direct.”

Condition: During disbursement testing we noted that the City was unable to find purchase orders, invoices, and other supporting documentation for two of the thirty items tested.

Cause and Effect: The City does not maintain its records in accordance with state statutes. Inability to access financial records in a timely manner results in a delay in financial reporting and may contribute to errors in financial reporting.

Recommendation: The City should adopt policies and procedures that outline how and where the City records should be maintained and the City should monitor adherence to these policies. We also recommend that the City not allow original documents to leave the care of the City and that all supporting documentation be adequately maintained.

City’s Response: We concur with the auditor’s finding and recommendation. We are taking steps to obtain bank statements electronically from the bank which can then be saved in a folder on the computer server.

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CITY OF FREDERICK, OKLAHOMA SCHEDULE OF FINDINGS AND RESPONSES (Continued) Year Ended June 30, 2016 Finding 16-05 Control Environment (Repeat finding) Criteria: According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the City’s management is responsible for developing and monitoring a control environment, which should set the basis for carrying out internal control across the organization.

Condition: We noted during the performance of audit fieldwork that the airport and the police department lack a proper internal control environment, while some of the other departments of the City appeared to have adequate controls. The City has not established proper control activities in relation to these two departments, specifically segregation of duties over authority and record keeping and also, policies for updating airport hangar lease rental information among other things.

Cause and Effect: The requirement for, and value of, an effective internal control environment was not understood and valued across all departments, management, and governance officials. As a result, key internal control processes have not been developed and/or enforced and proper segregation of duties of functions have not been well maintained.

Recommendation: Management should select and develop control activities that contribute to the mitigation of internal control risks and outline those activities within policies to establish what is expected within the City’s operations. Additionally, management should have a system in place to evaluate and monitor if the control activities are functioning as expected.

City’s Response: We concur with the auditor’s finding and recommendation. Steps have already been taken to centralize financial transactions occurring in the police and airport departments.

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