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2006 RHDC Financial and Compliance Report■ • ■ • Rosemead Housing Development Corporation ■ Financial and Compliance Report ■ Fiscal Year Ended June 30, 2006 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ • • ■ ■ ■ ■ ■ ■ McGladrey&Pullen • Certified Public Accountants McGladrey & Pullen, LLP is a member fin of RSM Intematlonal, an affiliation of separate and independent legal entities. ■ 0 ■ ■ ■ ■ ■ ■ ■ ■ Contents Section I-Financial Section ■ Independent Auditor's Report on the Financial Statements and Supplementary Information 1 and 2 Basic Financial Statements Government-wide Financial Statements ■ Statement of net assets-governmental activities 3 Statement of activities-govemmental activities 4 ■ Fund Financial Statements Balance sheet-governmental fund-general fund 5 ■ Reconciliation of total governmental fund balance to net assets of governmental activities in the statement of net assets 6 ■ Statement of revenues, expenditures and changes in fund balance-governmental fund- general fund 7 ■ Reconciliation of the statement of revenues, expenditures and changes in fund balance of the governmental fund to the statement of activities 8 ■ Notes to financial statements 9-13 Required Supplementary Information ■ Statement of revenues, expenditures and changes in fund balance-budgetary comparison- ■ general fund 14 Note to required supplementary information 15 ■ Section II-Compliance Section ■ 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 16 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ w ■ ■ ■ I■ ■ ■ ■ ■ ■ Financial Section L_] ■ ■ McGladrey&Pullen Certified Public Accountants ■ ■ ■ ■ Independent Auditor's Report on the Financial Statements ■ and Supplementary Information ■ To the Governing Board Rosemead Housing Development Corporation ■ Rosemead, California We have audited the accompanying financial statements of the governmental activities and the governmental fund of the Rosemead Housing Development Corporation (the Corporation), a blended component unit of the Community ■ Development Commission of the City of Rosemead, California, as of and for the year ended June 30, 2006, which comprise the Corporation's basic financial statements as listed in the table of contents. These financial statements ■ are the responsibility of the Corporation's management. Our responsibility is to express opinions on these financial ■ statements based on our audit. ■ We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the ■ Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 respective ■ financial position of the governmental activities of the general fund of the Corporation as of June 30, 2006, and the respective changes in financial position thereof for the year then ended, in conformity with accounting principles ■ generally accepted in the United States of America. ■ The Corporation has not presented a Management's Discussion and Analysis required by Governmental Accounting Standards Board (GASB) Statement No. 34 that the GASB has determined is necessary to supplement, although not ■ required to be part of, the basic financial statements. ■ In accordance with Government Auditing Standards, we have also issued our report dated January 15, 2007 on our consideration of the Corporation's internal control over financial reporting and our tests of its compliance with certain ■ provisions of laws, regulations, contracts, 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 the financial reporting or on compliance. That report ■ is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. ■ ■ ■ ■ McGladrey 8 Pullen, LLP is a member firm of RSM International, ■ an affiliation of separate and independent legal embes, 1 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ The budgetary comparison information as listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Pasadena, California ■ January 15, 2007 2 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Statement of Net Assets-Governmental Activities June 30, 2006 Assets Cash $ 194,391 Receivables, other 62,170 Capital assets, net 9,826,842 Total assets $ 10,083,403 Liabilities Accounts payable and accrued liabilities $ 11,773 Refundable deposits 35,350 Total liabilities $ 47,123 Net Assets Invested in capital assets $ 9,826,842 Unrestricted 209,438 Total net assets $ 10,036,280 See Notes to Financial Statements. 3 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Statement of Activities-Governmental Activities Year Ended June 30, 2006 Program Net(Expense) Revenues Revenue Charges for and Changes in Functions/Programs Expenses Services Net Assets Governmental activities, general government $ 866,611 $ 406,200 $ (460,411) Total $ 866,611 $ 406,200 (460,411) Other Change in net assets 300 (460,111) Net assets, beginning of year Net assets, end of year See Notes to Financial Statements. 4 10,496,391 $ 10,036,280 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Balance Sheet-Governmental Fund-General Fund June 30, 2006 Assets Cash Receivables, other Total assets Liabilities and Fund Balance $ 194,391 62,170 $ 256,561 Liabilities Accounts payable and accrued liabilities $ 11,773 Refundable deposits 35,350 Total liabilities 47,123 Fund balance, unreserved 209,438 Total liabilities and fund balance $ 256,561 See Notes to Financial Statements. 5 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Reconciliation of Total Governmental Fund Balance to Net Assets of Governmental Activities in the Statement of Net Assets June 30, 2006 Total fund balance, governmental fund. Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental fund. Net assets of governmental activities See Notes to Financial Statements. 6 $ 209,438 9,826,842 $ 10,036,280 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Statement of Revenues, Expenditures and Changes in Fund Balance-Governmental Fund- General Fund Year Ended June 30, 2006 Revenues: Rental income Other Total revenues Expenditures: Operating Administrative services paid to the City of Rosemead Facility rent paid to the City of Rosemead Total expenditures Net change in fund balance Fund balance, beginning Fund balance, ending See Notes to Financial Statements. 7 $ 406,200 300 406,500 275,796 219,600 132,000 627,396 (220,896) 430,334 $ 209,438 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ill Rosemead Housing Development Corporation Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of the Governmental Fund to the Statement of Activities Year Ended June 30, 2006 Net change in fund balance. Amounts reported for governmental activities in the statement of activities are different because: Depreciation expense on capital assets is reported in the government-wide statement of activities and changes in net assets, but they do not require the use of current financial resources. Therefore, depreciation expense is not reported as expenditures in the governmental fund. Change in net assets of governmental activities See Notes to Financial Statements. 8 $ (220,896) (239,215) $ (460,111) ■ Rosemead Housing Development Corporation Notes to Financial Statements Note 1. Nature of Operations, Reporting Entity, Description of Funds and Account Group, and ■ Significant Accounting Policies Nature of operations: The Rosemead Housing Development Corporation (the Corporation) is a nonprofit corporation whose purpose is to provide assistance to the Rosemead Community Development Commission (the Commission) to account for the construction, financing and operations of low- and moderate-income housing for the benefit of the City of Rosemead (the City). The Corporation currently maintains the Angelus and Garvey Senior Housing facilities. The Corporation is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code (IRC) and applicable state statutes. Description and scope of the reporting entity: Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, defines the reporting entity as the primary government and those component units for which the primary government is financially accountable. Financial accountability is defined as appointment of a voting majority of the component unit's Board and either (a) the primary government has the ability to impose its will or (b) the possibility that the component unit will provide a financial benefit to or impose a financial burden on the primary government. Since the Board of Directors of the Commission and the Council members also serve as the Board of Directors of the Corporation, the Commission and the City, in effect, have the ability to influence and control operations. Therefore, the Commission has oversight responsibility for the Corporation. Accordingly, in applying the ■ criteria of GASB Statement No. 14, the financial statements of the Corporation are included in the Commission's and the City's financial reports. The Corporation has the same fiscal year as the City and the Commission. These financial statements contain . information for the Corporation only. The City's and the Commission's financial reports may be obtained by contacting the Financial Department of the City. Government-wide and fund financial statements: The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on the activities of the Corporation. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities are primarily supported by revenues received from the Commission. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable to a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly classified as program revenues are reported as general revenues. Measurement focus, basis of accounting and financial statement presentation: The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. ■ Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements of ■ the provider have been met. Amounts reported as program revenues include (1) charges to customers or applicants for goods, services or privileges provided; (2) operating grants and contributions; and (3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Net assets are reported as restricted when constraints placed on their use are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or imposed by law through local enabling legislation. When both restricted and unrestricted resources are available for use, it is the Corporation's policy to use restricted resources first, then unrestricted resources as they are needed. 0 0 ■ Rosemead Housing Development Corporation Notes to Financial Statements Note 1. Nature of Operations, Reporting Entity, Description of Funds and Account Group, and ■ Significant Accounting Policies, Continued . Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Revenues that are accrued generally include interest. The Corporation reports the general fund as its only major governmental fund. Governmental fund type, general fund: All receipts are allocated to this fund. The primary sources of revenue are contributions from the Commission and rental income from tenants of the senior housing units. General operating . expenses are paid out of this fund. ■ Management has the ultimate responsibility for the appropriateness of the accounting policies and procedures used by the Corporation. Cash and investments: Cash includes amounts in demand and time deposits. Investments, if any, are reported in . the accompanying balance sheet at fair value, except for certain money market and investment contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. Changes in fair value that occur during a fiscal year are recognized as income from property and investments reported for that fiscal year. Income from property and investments includes interest earnings; changes in fair value; any gains or losses realized upon the liquidation, maturity or sale of investments; property rentals; and the sale of City-owned property. Capital assets: Capital assets, which include buildings and improvements, and furniture and equipment, are reported as part of governmental activities in the government-wide financial statements. Capital assets are defined by the Corporation as assets with an initial, individual cost of more than $500 and an estimated useful life in excess of one year. Such assets are recorded at historical cost, or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of an asset or materially extend an asset's useful life are not capitalized. Costs associated with construction in progress are recorded in their respective capital assets category upon approval . by the Corporation's governing board, which approximates the completion date. 10 • Rosemead Housing Development Corporation Notes to Financial Statements E Note 1. Nature of Operations, Reporting Entity, Description of Funds and Account Group, and ■ Significant Accounting Policies, Continued ■ Depreciation is charged to operations using the straight-line method based on the estimated useful life of an asset. The estimated useful lives of depreciable assets are as follows: Years Buildings 50 Improvements 15 Furniture and equipment 7 • GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, was adopted during the year ended June 30, 2006. Statement No. 42 requires an evaluation of prominent events or changes in circumstances to determine whether an impairment loss should be recorded and whether any insurance recoveries should be offset against the impairment loss. The effect of the implementation of GASB Statement No. 42 was not significant to the Corporation net assets or changes in net assets for the year ended June 30, 2006. Income taxes: The Corporation is exempt from federal income taxes under Section 501(c)(3) of the IRC and a . similar exemption under state law. . Fund equity: In the fund financial statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balances represent tentative management plans and are subject to change. Rental income: The management company collects rent payments on the first day of the month and recognizes revenue in the month due. Monthly rental income per unit ranges from $250 to $450 and is approved by the annual budget. Note 2. Cash • Cash at June 30, 2006 consisted of cash in bank. The carrying amount of the Corporation's deposits was $194,391 and the bank balance was $550,210. Custodial credit risk (deposits): Custodial credit risk for deposits is the risk that, in event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Corporation maintains its bank accounts at financial institutions that are collateralized with securities held by the pledging financial institution, or by its Trust Department or agent, but not in the Corporation's name. The primary difference between the carrying amount and the . bank balance are deposits in transit and outstanding checks. In accordance with state statutes, the Corporation maintains deposits at those depository institutions insured by the FDIC. The California Government Code (the Code) ■ requires California banks and savings and loan associations to collateralize the deposits of governmental entities by pledging government securities as collateral. The market value of pledge securities must equal at least 110% of ■ those deposits. California law also allows financial institutions to secure the deposits of governmental entities by pledging first trust deed mortgage notes having a collateral value of 150% of a corporation's total deposits; however, the collateralized securities are not held in the name of the Corporation. Of the bank balance noted above, $275,517 is federally insured and the balance is collateralized in accordance with the Code. 11 ■ Rosemead Housing Development Corporation Notes to Financial Statements Note 3. Reimbursement Agreements and Related-party Transactions The Corporation has entered into a reimbursement agreement with the City for the Corporation's administrative ■ services. The Corporation paid $219,600 for administrative services to the City during the year ended June 30, 2006. The Corporation is funded, in part, by advances from the Commission. The Corporation has also entered into a 55-year lease agreement with the City for the Angelus Senior Housing facility at $60,000 annually, expiring June 2047. Total lease commitments remaining are $2,460,000 for the Angelus Senior Housing facility at June 30, 2006. The Corporation has also entered into a 55-year lease agreement with the City for the Garvey Senior Housing facility at $72,000 annually, expiring November 2057. Total lease commitments remaining are $3,702,000 for the Garvey Senior Housing facility at June 30, 2006. The Corporation paid $60,000 and $72,000 in lease payments to the City during the year ended June 30, 2006 for the Angelus and Garvey Senior Housing facilities, respectively. Note 4. Capital Assets During the year ended June 30, 2006, the changes in capital assets were as follows: Balance Balance ■ June 30, 2005 Increases Deletions June 30, 2006 Governmental activities: Capital assets being depreciated: Buildings and improvements $ 11,042,597 $ $ $ 11,042,597 Furniture and equipment 128,544 128,544 . Total capital assets being depreciated 11,171,141 11,171,141 Less accumulated depreciation for: Buildings and improvements 1,049,995 220,852 1,270,847 Furniture and equipment 55,089 18,363 73,452 Total accumulated depreciation 1,105,084 239,215 1,344,299 . Total governmental activities capital assets, net $ 10,066,057 $ (239,215) $ $ 9,826,842 Depreciation expense is allocated to the general government function in the statement of activities. Note 5. Risk Management The Corporation is exposed to various risks of loss related to torts; thefts of, damage to and destruction of assets; errors and omissions; and natural disasters. The Corporation, through the City, carries commercial liability insurance coverage. The Corporation carries no insurance coverage for natural disasters. Since the Corporation does not have any employees (it uses employees from the City), it is not liable for injury to employees, workers' compensation, or employee health and accident insurance. The City has had no reduction in insurance coverage, nor did the City have ■ any settlements that were in excess of insurance coverage in any of the three preceding years. E 12 ■ Rosemead Housing Development Corporation ■ ■ Notes to Financial Statements ■ Note 6. Property Management and Operations ■ The Corporation has two agreements with a management company, dated July 1994 and April 2002, to operate the ® development housing. These agreements are automatically renewed for successive periods of one year, unless terminated by the Corporation. The management company is responsible for collecting rents and receipts, employing ■ an on-site manager and maintaining financial records. Total fees paid to the management company were $14,160 for the Angelus Senior Housing facility and $7,402 for the Garvey Senior Housing facility during fiscal year ended ■ June 30, 2006. ■ Note 7. Pronouncements Issued, Not Yet Effective ■ The GASB has issued several pronouncements prior to June 30, 2006 that have effective dates that may impact ■ future financial presentations. ■ Management has not currently determined what, if any, impact implementation of the following statements may have on the financial statements of the Corporation: ■ ■ GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Infra-Entity Transfers of Assets and Future Revenues ■ • GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ C 13 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Required Supplementary Information ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ e ■ ■ Rosemead Housing Development Corporation Statement of Revenues, Expenditures and Changes in Fund Balance-Budgetary Comparison- General Fund Year Ended June 30, 2006 Variances from Budgeted Amounts Actual Final Budget Original Final Amounts Over (Under) Fund balance, July 1, 2005 Resources (inflows): Rental income Other Intergovernmental, Rosemead Community Development Commission Amount available for appropriations Charges to appropriations: Operating City administrative servcies paid to the City of Rosemead Facility charges paid by City of Rosemead Total charges to appropriations (Deficiency) of resources (under) charges to appropriations Fund balance, June 30, 2006 See Note to Required Supplementary Information. $ 29,498 $ 29,498 $ 430,334 $ 400,836 405,600 405,600 406,200 600 5,700 5,700 300 (5,400) 40,000 40,000 - (40,000) 451,300 451,300 406,500 (44,800) 455,300 455,300 275,796 (179,504) 219,600 219,600 219,600 132,000 132,000 132,000 806,900 806,900 627,396 (179,504) (355,600) (355,600) (220,896) 134,704 $ (326,102) $ (326,102) $ 209,438 $ 535,540 14 ■ Rosemead Housing Development Corporation ■ Note to Required Supplementary Information ■ ■ Budgetary Information ■ Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States ■ of America for the governmental fund. All annual appropriations lapse at fiscal year end. ■ On or before the last day in March of each year, all agencies of the government submit requests for appropriations to the government's manager so that a budget may be prepared. Before the first Thursday of June, the proposed ■ budget is presented to the Corporation's governing board for review. The governing board holds public hearings and a final budget must be prepared and adopted no later than June 30. ■ The appropriated budget is prepared by fund, function and department. The Corporation's department heads, with ■ approval of the Finance Director and City Manager, may make transfers of appropriations within a department. Transfers of appropriations between departments must be approved by the governing board. The legal level of ■ budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the department level. Actual expenditures did not exceed budgeted expenditures for the fiscal year ended June 30, 2006. The ■ supplemental budgetary appropriations made in the governmental fund are detailed in the required supplementary information. ■ Encumbrance accounting is employed in governmental funds. Encumbrances (e.g., purchase orders, contracts) ■ outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities ■ because the commitments will be reappropriated and honored during the subsequent year. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 15 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Compliance Section n McGladrey& Pullen Certified Public Accountants 0 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 Governing Board Rosemead Housing Development Corporation Rosemead, California We have audited the financial statements of the governmental activities and the governmental fund of the Rosemead Housing Development Corporation (the Corporation), a component unit of the Community Development Commission of the City of Rosemead, California, as of and for the year ended June 30, 2006, which collectively comprise the Corporation's basic financial statements, and have issued our report thereon dated January 15, 2007. 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. ■ Internal Control over Financial Reporting . In planning and performing our audit, we considered the Corporation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Corporation's financial statements are free of 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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. . This report is intended for the information and use of the Governing Board and management of the Corporation, and is not intended to be, and should not be, used by anyone other than those specified parties. Pasadena, California January 15, 2007 M 0 McGladrey & Pullen, LLP is a member firm of RSM International, . an affiliation of separate and independent legal entities. 16 M ■ ■ ■ t ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 1 ■ ■ ■ ■ ■ ■ ■ ■ 1 ■ ■ ■