Michigan Department of Treasury 496 (02/06) Auditing Procedures Report Issued under P.A. 2 of 1968, as amended and P.A. 71 of 1919, as amended. Local Unit of Government Type Local Unit Name County County City Twp Village Other Fiscal Year End Opinion Date Date Audit Report Submitted to State We affirm that: We are certified public accountants licensed to practice in Michigan. We further affirm the following material, “no” responses have been disclosed in the financial statements, including the notes, or in the Management Letter (report of comments and recommendations). Check each applicable box below. (See instructions for further detail.) YES YES NO 1. All required component units/funds/agencies of the local unit are included in the financial statements and/or disclosed in the reporting entity notes to the financial statements as necessary. 2. There are no accumulated deficits in one or more of this unit’s unreserved fund balances/unrestricted net assets (P.A. 275 of 1980) or the local unit has not exceeded its budget for expenditures. 3. The local unit is in compliance with the Uniform Chart of Accounts issued by the Department of Treasury. 4. The local unit has adopted a budget for all required funds. 5. A public hearing on the budget was held in accordance with State statute. 6. The local unit has not violated the Municipal Finance Act, an order issued under the Emergency Municipal Loan Act, or other guidance as issued by the Local Audit and Finance Division. 7. The local unit has not been delinquent in distributing tax revenues that were collected for another taxing unit. 8. The local unit only holds deposits/investments that comply with statutory requirements. 9. The local unit has no illegal or unauthorized expenditures that came to our attention as defined in the Bulletin for Audits of Local Units of Government in Michigan, as revised (see Appendix H of Bulletin). 10. There are no indications of defalcation, fraud or embezzlement, which came to our attention during the course of our audit that have not been previously communicated to the Local Audit and Finance Division (LAFD). If there is such activity that has not been communicated, please submit a separate report under separate cover. 11. The local unit is free of repeated comments from previous years. 12. The audit opinion is UNQUALIFIED. 13. The local unit has complied with GASB 34 or GASB 34 as modified by MCGAA Statement #7 and other generally accepted accounting principles (GAAP). 14. The board or council approves all invoices prior to payment as required by charter or statute. 15. To our knowledge, bank reconciliations that were reviewed were performed timely. If a local unit of government (authorities and commissions included) is operating within the boundaries of the audited entity and is not included in this or any other audit report, nor do they obtain a stand-alone audit, please enclose the name(s), address(es), and a description(s) of the authority and/or commission. I, the undersigned, certify that this statement is complete and accurate in all respects. We have enclosed the following: Enclosed Not Required (enter a brief justification) Financial Statements The letter of Comments and Recommendations Other (Describe) Certified Public Accountant (Firm Name) Telephone Number Street Address City State Zip Authorizing CPA Signature Printed Name License Number City of Madison Heights, Michigan Comprehensive Annual Financial Report June 30, 2007 City of Madison Heights, Michigan Contents Introductory Section Letter of Transmittal i-xix GFOA Certificate of Achievement xx Organizational Chart xxi List of Principal Officials xxii Financial Section Report Letter 1-2 Management’s Discussion and Analysis 3-10 Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets 11 Statement of Activities 12-13 Fund Financial Statements: Governmental Funds: Balance Sheet 14-15 Reconciliation of Fund Balances to the Statement of Net Assets 16 Statement of Revenue, Expenditures, and Changes in Fund Balances 17-18 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 19 Proprietary Fund - Enterprise - Water and Sewer Fund: Statement of Net Assets 20 Statement of Revenues, Expenses, and Changes in Net Assets 21 Statement of Cash Flows 22 Fiduciary Funds: Statement of Net Assets 23 Statement of Changes in Net Assets 24 Component Units: Statement of Net Assets 25 Statement of Activities 26-27 Notes to Financial Statements 28-54 City of Madison Heights, Michigan Contents (Continued) Required Supplemental Information 55 Budgetary Comparison Schedules: General Fund 56 Major Streets Fund 57 Local Streets Fund 58 Revolving Fund 59 Pension System Schedule of Funding Progress 60 Pension System Schedule of Employer’s Contributions 61 Note to Required Supplemental Information 62-63 Other Supplemental Information 64 Nonmajor Governmental Funds: Combining Balance Sheet 65 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 66 Agency Funds: Combining Balance Sheet 67 Statement of Changes in Assets and Liabilities 68 Budgetary Comparison Schedules: Nonmajor Special Revenue Funds: Community Improvement Fund 69 Forfeiture Fund 70 Capital Projects - Fire Station Fund 71 Debt Service - Fire Station Fund 72 Police and Fire Retirement System - Schedule of Changes in Reserves 73 Component Units: Balance Sheet/Statement of Net Assets 74 Statement of Revenues, Expenditures, and Changes in Fund Balances/Statement of Activities 75 City of Madison Heights, Michigan Contents (Continued) Statistical Section 76 Financial Trend Information: Net Assets by Component 77 Changes in Governmental Net Assets 78 Changes in Business-type Net Assets 79 Fund Balances, Governmental Funds 80 Changes in Fund Balances, Governmental Funds 81-82 Revenue Capacity Information: Assessed Value and Actual Value of Taxable Property 83-84 Direct and Overlapping Property Tax Rates 85-86 Principal Property Taxpayers 87 Property Tax Levies and Collections 88 Debt Capacity Information: Ratios of Outstanding Debt 89-90 Ratios of General Bonded Debt Outstanding 91 Direct and Overlapping Governmental Activities Debt 92 Legal Debt Margin 93-94 Pledged-revenue Coverage 95 Demographic and Economic: Demographic and Economic Statistics 96 Principal Employers 97 Operating Information: Full-time Equivalent Government Employees 98-101 Operating Indicators 102-103 Capital Asset Statistics 104-105 September 12, 2007 To the Honorable Mayor and Members of the City Council City of Madison Heights, Michigan Introduction We are submitting herewith the Comprehensive Annual Financial Report of the City of Madison Heights for the fiscal year ended June 30, 2007. It is the responsibility of the City management to present fairly, with full disclosure and in conformity with accounting principles generally accepted in the United States of America, the financial position and results of operations of the City’s funds, as well as those of the City’s discretely presented component units. The Comprehensive Annual Financial Report contains necessary disclosures useful in providing an understanding of the combined and individual fund statements. Plante & Moran, PLLC has issued an unqualified “clean” opinion on the City of Madison Heights, Michigan’s financial statements for the year ended June 30, 2007. The independent auditor’s report is located at the front of the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. City Profile and Economic Conditions Regional Setting The City of Madison Heights is located near the southeast corner of Oakland County, adjacent to the western boundary of Macomb County and approximately two miles north of the city of Detroit. Freeway access to the southeast Michigan region is provided by Interstate-75 (I-75) and Interstate-696 (I-696). In addition, regional access is available using the bus system of the Suburban Mobility Authority for Regional Rapid Transit (SMART) system. i Local Economy Incorporated in 1955, Madison Heights has grown and prospered significantly over the past 52 years. The City of Madison Heights continues to welcome residents, businesses, and visitors alike to a vibrant and diverse community. The City is ideally located in southeastern Michigan, within Oakland County’s “Automation Alley”. Madison Heights provides a full range of services to residents, visitors, and the business community and is conveniently located for employers and employees alike at the intersection of I-75 and I-696. Oakland County continues to rank high in per capita income, employment opportunities, and overall quality of life. The City of Madison Heights exemplifies the very best in Oakland County through its excellent City services, road maintenance and snow removal, and variety of opportunities for residents and the business community. It is a fiscally sound and stable community with many advantages because of its favorable tax base, housing mix, business climate, and convenient access to other business and residential areas in southeastern Michigan. There are more than 1,300 commercial and industrial businesses and service enterprises within the City’s 7.25 square miles. The City is proud to have a majority of small businesses, as well