CITY OF DUNCAN, OKLAHOMA

CITY OF

DUNCAN, OKLAHOMA

ANNUAL FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORTS

AS OF AND FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012

THE CITY OF DUNCAN, OKLAHOMA

Annual Financial Statements And Independent Auditor's Report

As of and For the Fiscal Year Ended December 31, 2012

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CITY OF DUNCAN, OKLAHOMA TABLE OF CONTENTS

As of and for the Year Ended December 31, 2012

TABLE OF CONTENTS

Independent Auditor's Report on Financial Statements....................................

Page 1-6

The Basic Financial Statements:

Government-Wide Financial Statements: Statement of Net Position .............................................................................. 8 Statement of Activities ............................................................................... 9

Governmental Funds Financial Statements: Balance Sheet ............................................................................................. 11 Statement of Changes in Fund Balances............................................................... 12 Reconciliation of Governmental Fund and Government-Wide Financial Statements......... 13-14

Proprietary Funds Financial Statements: Statement of Net Position............................................................................... 16 Statement of Changes in Net Position................................................................. 17 Statement of Cash Flows................................................................................. 18

Fiduciary Funds Financial Statements: Statement of Net Position............................................................................... 20 Pension Trust Fund Statement of Changes in Plan Net Position................................. 21

Discretely Presented Component Units Financial Statements: Statement of Net Position............................................................................... 23 Statement of Changes in Net Position................................................................. 24

Footnotes to the Basic Financial Statements ......................................................... 25-56

Required Supplementary Information:

Budgetary Comparison Information

Budgetary Comparison Schedule (Budgetary Basis) ? General Fund........................

58

Budgetary Comparison Schedule (Budgetary Basis) ? DEDTA........................

59

Footnotes to Budgetary Comparison Schedule...................................................... 59-60

Pension Plan Information Schedule of Funding Progress ? City Employee Retirement System.............................. 61

Schedule of Funding Progress ? OPEB............................................................... 62

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CITY OF DUNCAN, OKLAHOMA TABLE OF CONTENTS

As of and for the Year Ended December 31, 2012

Supplementary Information:

Combining Balance Sheet ? General Fund Accounts................................................... 64

Combining Schedule of Revenues, Expenditures and Changes in Fund Balance ? General Fund Accounts ...................................................................................................... 65

Combining Balance Sheet - Non-Major Governmental Funds....................................... 66-67

Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Non-Major Governmental Funds....................................................................................... 68-69

Combining Schedule of Net Position ? Duncan Public Utility Authority - Enterprise Fund Account...................................................................................................... 70

Combining Schedule of Revenues, Expenditures and Changes in Net Position? Duncan Public Utility Authority ? Enterprise Fund Accounts ......................................................... 71

Combining Schedule of Cash Flows ?Duncan Public Utility Authority ? Enterprise Fund Accounts...................................................................................................... 72

Combining Statement of Net Position ? Internal Service Funds..................................... 73

Combining Statement of Revenues, Expenses and Changes in Net Position? Internal Service Funds........................................................................................................... 74

Combining Statement of Cash Flows ? Internal Service Funds....................................... 75

Debt Service Coverage Schedule........................................................................ 76

Internal Control and Compliance over Financial Reporting

Independent Auditor's Report on Internal Control and Compliance........................... Schedule of Findings and Responses................................................................

79-81 83-86

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Independent Auditors' Report

Honorable Mayor and City Council City of Duncan Duncan, Oklahoma

Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Duncan, Oklahoma (the "City") as of and for the year ended December 31, 2012, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Duncan Industrial Authority, a discretely presented component unit of the City, which represents 97% of the total assets and 99% of the revenues of the aggregate discretely presented component units. The financial statements of the Duncan Industrial Authority were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for this entity, is based on the report of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements whether due to error or fraud. In making those risk assessments, the auditor consider 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.

Summary of Opinions: Opinion Unit Governmental Activities Business-Type Activities General Fund

Special Revenue Fund

Capital Improvement Fund

Enterprise Fund

Enterprise Fund Aggregate Remaining Fund

Information

Aggregate Discretely Presented Component Units

Financial Statement

Statement of Net Position Statement of Activities

Statement of Net Position Statement of Activities

Balance Sheet Statement of Revenues, Expenditures

and Changes in Fund Balances

Balance Sheet Statement of Revenues, Expenditures

and Changes in Fund Balances

Balance Sheet Statement of Revenues, Expenditures

and Changes in Fund Balances

Statement of Net Position Statement of Revenues, Expenses

and Changes in Net Position Statement of Cash Flows

Balance Sheet/Statement of Net Position Statement of Revenues, Expenditures/

Expenses and Changes in Fund Balance/Net Position Statement of Cash Flows

Statement of Net Position/ Combining Statement of Net Position

Statement of Activities/ Combining Statement of Activities

Type of Opinion Unmodified Unmodified Qualified Unmodified Unmodified

Unmodified Unmodified

Unmodified Unmodified

Unmodified Qualified

Unmodified Unmodified Unmodified

Unmodified Unmodified Adverse

Adverse

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Basis for Adverse Opinion on the Discretely Presented Component Units

The financial statements do not include the financial data for the Duncan Area Economic Development Foundation (the "Foundation"), which is a legally separate component unit of the City. The Foundation is a 501(c)(3) not-for-profit organization and its financial statements are audited but are prepared on the modified cash basis of accounting, which is a financial reporting framework other than accounting principles generally accepted in the United States of America. The amount by which this departure would affect the assets, liabilities, net position, and revenues and expenses of the financial statements of the aggregate discretely presented component units has not been determined.

Adverse Opinion

In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on the financial statements of the Discretely Presented Component Units, the financial statements referred to above do not present fairly the financial position of the Aggregate Discretely Presented Component Units as of December 31, 2011, or the changes in financial position of the Aggregate Discretely Presented Component Units in Government-Wide Statement of Activities for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

Basis for Qualified Opinions on Business-Type Activities and the Major Enterprise Fund

The Duncan Public Utilities Authority Enterprise Fund maintains inventory in the normal course of its operations. However, it has not performed a physical inventory or maintained adequate accounting records related to the carrying amount of its inventory, and at December 31, 2012, the City has not recorded any inventory on the financial statements of the Enterprise Fund or the Business-Type Activities. Inventory is required to be reported in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The amount by which this departure affects reported assets and net position in the financial statements of the Business-Type Activities and the Major Enterprise Fund is not readily determinable.

Qualified Opinions

In our opinion, except for the matter described in the Basis for Qualified Opinions paragraphs, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities and enterprise fund of the City of Duncan, Oklahoma, as of December 31, 2012, and the respective changes in financial position and, where applicable, cash flows thereof, for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

Unmodified Opinions

In our opinion, the financial statements referred to previously present fairly, in all material respects, the financial position of the governmental activities, major governmental funds, and aggregate remaining fund information of the City of Duncan, Oklahoma, as of December 31, 2012, and the respective changes in financial position for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

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