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Independent Audit of the Harrisburg Incinerator finds it in $13.5 million debt by 2000

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225 Market Street
Suite 300
PO Box 1190
Harrisburg, PA 17108-1190

Independent Auditors' Report

Members of the Board
The Harrisburg Authority:

We have audited the financial statements of The Harrisburg Authority (a component unit of the City of Harrisburg, Pennsylvania) as of and for the year ended December 31, 1999, as listed in the accompanying table of contents. These financial statements are the responsibility of The Harrisburg Authority's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Harrisburg Authority at December 31, 1999, and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles.

The waste incinerator, operated by the Resource Recovery Facility of The Harrisburg Authority, is required by the Environmental Protection Agency to undertake a modernization program prior to December 1, 2000, to maintain operations in its present capacity. It is probable that this modernization will not occur prior to December 1, 2000, and alternative methods of operation, which are currently under consideration, will be necessary at that time. Additionally, the Resource Recovery Fund has experienced significant operating losses and has an accumulated deficit of $13,494,792 at December 31, 1999. These issues are discussed further in note 11 to the financial statements.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The combining financial statements listed in the accompanying table of contents are presented for purposes of additional analysis rather than to present the financial position and results of operations of the individual funds. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

May 25, 2000

KPMG LLP KPMG LLP, a US limited liability partnership is
a member of KPMG International, a Swiss association.

(a component unit of the City of Harrisburg, Pennsylvania)

Notes to Financial Statements December 31, 1999

(10) Inter-fund Transfers

(11) Commitments and Contingencies