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2005 RHDC Financial and Compliance Reporte e FJ V E:l et �1 r_ k F If! Rosemead Housing Development Corporation Financial and Compliance Report Fiscal Year Ended June 30, 2005 McGladrey & Pullen Certified Public Accountants WGladrey 8 Pullen, LLP is a member fin of RSM Intematoual, an affiratlon of sepamte and independent legal entifies. ■ ■ ■ ■ ■ ■ ■ ■ Contents ■ Section I— Financial Section ■ Independent Auditors 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 — governmental 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 Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements ■ Performed in Accordance with GovemmentAuditina Standards 16 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Financial Section ■ ■ ■ ■ ■ ■ r^ ■ 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, Califomia ■ We have audited the accompanying financial statements of the governmental activities and the govemmental 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, 2005, 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, 2005, 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 Govemmental 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 October 3, 2005 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 intemal 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 entities. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Cl ■ ■ ■ ■ ■ The budgetary comparison information on page 14 is not a required part of the basic financial statements but is supplementary information requited 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. ///cj! K4 W� /k41'- / z L"� Pasadena, California October 3, 2005 2 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Statement of Net Assets — Governmental Activities June 30, 2005 Assets Cash $ 417,420 Receivables, other 50,187 Prepaid items 3,000 Capital assets, net 10,066,057 Total assets $ 10,536,664 Liabilities Accounts payable $ 4,718 Deposits payable 35,555 Total liabilities $ 40,273 Net Assets Invested in capital assets $ 10,066,057 Unrestricted 430,334 Total net assets $ 10,496,391 See Notes to Financial Statements. 3 Rosemead Housing Development Corporation Statement of Activities — Governmental Activities Year Ended June 30, 2005 Program Net(Expense) Revenues Revenue Charges for and Changes in Functions /Programs Expenses Services Net Assets Governmental activities, general government Total primary government Other Change in net assets Net assets, beginning of year Net assets, end of year See Notes to Financial Statements. 4 $ 843,895 $ 406,200 $ (437,695) $ 843,895 $ 406,200 (437,695) 454 (437,241) 10,933,632 $ 10,496,391 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Balance Sheet — Governmental Fund — General Fund June 30, 2005 Assets Cash $ 417,420 Receivables, other 50,187 Prepaid items 3,000 Total assets $ 470,607 Liabilities and Accounts payable and accrued liabilities $ 4,718 Refundable deposits 35,555 Total liabilities 40,273 Equity, fund balance Reserved for prepaid items 3,000 Unreserved 427,334 Total equity 430,334 Total liabilities and equity $ 470,607 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, 2005 Total fund balance, governmental fund. $ 430,334 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. 10,066,057 Net assets of governmental activities $ 10,496,391 See Notes to Financial Statements. 0 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental Fund — General Fund Year Ended June 30, 2005 Revenues: Rental income Use of money and property Other Total revenues Expenditures: Operating City administrative services Facility charges paid to City of Rosemead Total expenditures Revenues (under) expenditures and net change in fund balance Fund balance, beginning Fund balance, ending See Notes to Financial Statements. 7 $ 406,200 454 406,654 253,080 219,600 132,000 604,680 (198,026) 628,360 $ 430,334 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, 2005 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. 9 $ (198,026) (239,215) $ (437,241) IN 0 Rosemead Housing Development Corporation 0 Notes to Financial Statements N Note 1. Nature of Operations, Reporting Entity, Description of Funds and Account Group, and IN 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. There were no . interfund activities to be eliminated. 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 are . 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. 9 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. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. Capital assets: Capital assets, which include land, buildings 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 fixed asset category upon approval by the City Council, which approximates the completion date. 10 ■ 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 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 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. S 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. Use of restricted /unrestricted net assets: When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Corporation's policy is to apply restricted net assets first. 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. t ■ Note 2. Cash ■ Cash at June 30, 2005 consisted of cash in bank. The carrying amount of the Corporation's deposits was $417,420 and the bank balance was $763,823. In accordance with state statutes, the Corporation maintains deposits at those depository institutions insured by the Federal Deposit Insurance Corporation. The California Government 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 pledged 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 an agency's total deposits. Pledged securities are not held in the name of the Corporation. Citywide information concerning cash and investments for the year ended June 30, 2005, including authorized 1 investments, custodial credit risk, credit and interest rate risk for debt securities and concentration of investments, carrying amount and market value of deposits and investments may be found in the notes of the City's Comprehensive Annual Financial Report. 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, 2005. 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 $2,520,000 for the Angelus Senior Housing facility at June 30, 2005. 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 $3,774,000 for the Garvey Senior Housing facility at June 30, 2005. The Corporation paid $60,000 and $72,000 in lease payments to the City during the year ended June 30, 2005 for the Angelus and Garvey Senior Housing facilities, respectively. Note 4. Capital Assets During the year ended June 30, 2005, the changes in capital assets were as follows: Governmental activities: Capital assets being depreciated: Buildings and improvements Furniture and equipment Total capital assets being depreciated Less accumulated depreciation for: Buildings and improvements Furniture and equipment Total accumulated depreciation Total governmental activities capital assets, net Balance Balance June 30, 2004 Increases Deletions June 30, 2005 0 w $ 11,042,597 $ $ 11,042,597 128,544 128,544 11,171,141 11,171.141 829,143 220,852 1,049,995 36,726 18,363 55,089 865,869 239,215 1,105,084 $ 10,305,272 $ (239,215) $ - $ 10,066,057 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. 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 t an on -site manager and maintaining financial records. Total fees paid to the management company were $20,217 for the Angelus Senior Housing facility and $26,257 for the Garvey Senior Housing facility during fiscal year ended June 30, 2005. . Note 7. Pronouncements Issued, Not Yet Effective . The GASB has issued several pronouncements prior to June 30, 2005 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. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries • GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions • GASB Statement No. 46, Net Assets Restricted by Enabling Legislation (an amendment of GASB Statement . No. 34) . • GASB Statement No. 47, Accounting for Termination Benefits 1 13 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Required Supplementary Information m ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ i ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Statement of Revenues, Expenditures and Changes in Fund Balance- Budgetary Comparison - General Fund Year Ended June 30, 2005 Variances from Budgeted Amounts Actual Final Budget Original Final Amounts over (under) Fund balance, July 1, 2004 $ 436,238 $ 436,238 $ 628,360 $ 192,122 Resources (inflows) Rental income 405,600 405,600 406,200 600 Use of money and property - - - 67,214 Other 7,800 7,800 454 (7,346) Intergovernmental, Rosemead Community Development Commission - - - Amount available for appropriations 413,400 413,400 406,654 60,468 Charges to appropriations Operating 454,140 454,140 253,080 (334,169) City administrative servcies 219,600 219,600 219,600 Facility charges paid by City of Rosemead 146,400 146,400 132,000 (14,400) Total charges to appropriations 820,140 820,140 604,680 (348,569) (Deficiency) of resources (under) charges to appropriations (406,740) (406,740) (198,026) 208,714 Fund balance, June 30, 2005 $ 29,498 $ 29,498 $ 430,334 $ 400,836 See Note to Required Supplementary Information. 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 government's Council for review. The Council 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 City Council. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the department level. 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 ■ ■ ■ ■ ■ ■ ! ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ i f ■ IN ■ ■ ■ ■ ■ ■ ■ ■ ■ Compliance Section ■ ■ McGladrey &Pullen Certified Public Accountants ■ ■ ■ 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 Goveming Board ■ Rosemead Housing Development Corporation Rosemead, Califomia 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, 2005, which collectively comprise the ■ Corporation's basic financial statements, and have issued our report thereon dated October 3, 2005. 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 IN 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 Goveming Board and management of the Corporation, and ■ is not intended to be, and should not be, used by anyone other than those specified parties. ■ �v/CaEl�w•wccy f ���i GLP Pasadena, California ■ October 3, 2005 ■ McGladrey & Pullen, LLP is a member firm of RSM International, ■ an affiliation of separate and independent legal entities. 16 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 1