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2004 RHDC Financial and Compliance Reportr■ s ■ ■ ■ ■ ■ ■ ■ ■ ■ s ■ ■ ■ ■ ■ i ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Housing Development Corporation Financial and Compliance Report Fiscal Year Ended June 30, 2004 McGladrey &Pullen Certified Public Accountants McGladrey B Pullen, uP is a member firm of RSM International, an affiliation of separate and independent legal entities. ■ ■ ■ ■ ■ ■ ■ ■ Contents ■ Section I— Financial Section ■ Independent Auditor's Report on the Basic 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 activifies 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 9-14 ■ Required Supplementary Information Statement of revenues, expenditures and changes in fund balance -- budgetary comparison— general fund 15 Note to required supplementary information 16 ■ 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 17 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Financial Section ■ McGladrey &Pullen Certified Public Accountants s 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 component unit of the Community Development Commission of the City of Rosemead, California, as of and for the year ended June 30, 2004, 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, 2004, 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 October 8, 2004 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 and 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, uP is a member firm of RSM Intemational, an affiliation of separate and independent legal entities. ,� • ■ ■ ■ • ■ • ■ ■ ■ ■ • • • • ■ ■ [1 ■ • • ■ ■ ■ ■ ■ • • ■ • ■ ■ The budgetary comparison information on pate 15 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. //'/L��j f �we2c, -cam GAP Pasadena, California October 8, 2004 2 ■ r Rosemead Housing Development Corporation Statement of Net Assets — Governmental Activities June 30, 2004 Cash Due from the City of Rosemead Receivables, other Prepaid items Property and improvements Total assets Liabilities Accounts payable Deposits payable Total liabilities Net assets Invested in capital assets Unrestricted Total net assets See Notes to Financial Statements. 3 $ 636,119 14,400 14,658 3,000 10,305,272 $ 10,973,449 $ 4,262 35,555 $ 39,817 $ 10,305,272 628,360 $ 10,933,632 Rosemead Housing Development Corporation Statement of Activities — Governmental Activities Year Ended June 30, 2004 Program Revenues Net(Expense) Revenue Charges for and Changes in Functions /Programs Expenses Services Net Assets Governmental activities, general government Total primary government Gain on sale of property Other Change in net assets Net assets, beginning of year Net assets, end of year See Notes to Financial Statements. 9 $ 850,386 $ 406,200 $ (444,186) $ 850,386 $ 406,200 (444,186) 2,214 14,739 (427,233) 11,360,865 $ 10,933,632 ■ Rosemead Housing Development Corporation Balance Sheet — Governmental Fund — General Fund June 30, 2004 Cash Due from City of Rosemead Receivables, other Prepaid items Total assets Liabilities and Eaui $ 636,119 14,400 14,658 3,000 $ 668,177 Liabilities Accounts payable and accrued liabilities $ 4,262 Refundable deposits 35,555 Total liabilities 39,817 Equity Fund balance: Reserved for prepaid items Unreserved Total equity Total liabilities and equity See Notes to Financial Statements. I 3,000 625,360 628,360 $ 668,177 Rosemead Housing Development Corporation Reconciliation of Total Governmental Fund Balance to Net Assets of Governmental Activities in the Statement of Net Assets June 30, 2004 Total fund balance, governmental fund. $ 628,360 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. 10,305,272 Net assets of governmental activities $ 10,933,632 See Notes to Financial Statements. U. ■ ■ Rosemead Housing Development Corporation ■ Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental Fund — General Fund ■ Year Ended June 30, 2004 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 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 67,214 14,739 488,153 259,571 219,600 132,000 611,171 (123,018) 751,378 $ 628,360 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, 2004 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. In the statement of activities, only the gain on sale of the land is reported whereas in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the cost of the land sold. Change in net assets of governmental activities See Notes to Financial Statements. 7 $ (123,018) (239,215) (65,000) $ (427,233) ■ ■ 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 i 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. E C 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 govemment -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. ill] ■ 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 understate law. Fund equity: In the fund financial statements, govemmental 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 restrictedlunrestricted net assets: When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Commission'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 $300 and is approved by the annual budget. ■ Note 2. Cash ■ Cash at June 30, 2004 consisted of cash in bank. The carrying amount of the Corporation's deposits was $636,119 and the bank balance was $648,778. 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. L_I 11 ■ Rosemead Housing Development Corporation ■ Notes to Financial Statements ■ Note 2. Cash, Continued ■ The cash deposits are classified in three categories of credit risk as follows: Category 1 includes deposits that are ■ insured or collateralized with securities held by the entity or by its agent in the entity's name; Category 2 includes ■ deposits that are collateralized with securities held by the pledging financial institution's Trust Department or agent in the entity's name; Category 3 includes deposits that are uncollateralized. ■ Bank ■ Category 1 Category 2 Category 3 Balance ■ Cash deposits $ 210,660 $ 438,118 $ $ 648,778 ■ 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, 2004. 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 $2,580,000 for the Angelus Senior Housing facility at June 30, 2004. 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 $3,846,000 for the Garvey Senior Housing facility at June 30, 2004. The Corporation paid $60,000 and $72,000 in lease payments to the City during the year ended June 30, 2004 for the Angelus and Garvey Senior Housing facilities, respectively. 12 ■ Rosemead Housing Development Corporation ■ Notes to Financial Statements Note 4. Capital Assets ■ During the year ended June 30, 2004, the changes in capital assets were as follows: Balance Balance July 1, 2003 Increases Deletions June 30, 2004 . Governmental Activities Capital assets not being depreciated: Land $ 65,000 $ $ (65,000) $ - Total capital assets not being depreciated 65,000 (65,000) 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 608,291 220,852 - 829,143 . Furniture and equipment 18,363 18,363 - 36,726 Total accumulated depreciation 626,654 239,215 - 865,869 Total capital assets being depreciated, net 10,544,487 (239,215) - 10,305,272 Governmental activities capital assets, net $ 10,609,487 $ (239,215) $ (65,000) $ 10,305,272 . 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 M any settlements that were in excess of insurance coverage in any of the three preceding years. N 0 13 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 $20,000 for the Angelus Senior Housing facility and $26,257 for the Garvey Senior Housing facility during fiscal year ended June 30, 2004. Note 7. Pronouncements Issued, Not Yet Effective The GASB has issued several pronouncements prior to June 30, 2004 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. 40, Deposit and Investment Risk Disclosures • GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and Insurance Recoveries 14 ■ ■ ■ ■ ■ ■ ■ ■ k ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Required Supplementary Information ■ 0 Rosemead Housing Development Corporation M Statement of Revenues, Expenditures and Changes in Fund Balance- Budgetary Comparison- . General Fund Year Ended June 30, 2004 Budgeted Amounts Original Final Actual Amounts Variances from Final Budget Over (Under) Fund balance, July 1, 2003 $ 173,068 $ 173,068 $ 751,378 $ 578,310 Resources (inflows): Rental income 405,600 405,600 406,200 600 Use of money and property - - 67,214 67,214 ■ Other 7,800 7,800 14,739 6,939 Intergovernmental, Rosemead Community Development Commission 400,000 400,000 - (400,000) Amount available for appropriations 813,400 813,400 488,153 (325,247) Charges to appropriations: Operating 593,740 593,740 259,571 (334,169) ■ City administrative servcies 219,600 219,600 219,600 Facility charges paid by City 146,400 146,400 132,000 (14,400) Total charges to appropriations 959,740 959,740 611,171 (348,569) Excess of resources over (under) charges to appropriations (146,340) (146,340) (123,018) 23,322 Fund balance, June 30, 2004 $ 26,728 $ 26,728 $ 628,360 $ 601,632 See Note to Required Supplementary Information. 15 Rosemead Housing Development Corporation ■ 0 Note to Required Supplementary Information 0 0 Budgetary Information 0 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. E 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. 16 ■ ■ ■ ■ ■ ■ ■ ■ ■ 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 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, 2004, which collectively comprise the Corporation's basic financial statements, and have issued our report thereon dated October 8, 2004. 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 Govemment 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 October 8, 2004 ■ ■ McGladrey 8 Pullen, uP is a member firm of RSM International, an affiliabon of separate and independent legal entries. 17 ■ ■ �� �! �, �, ,� o � e �. ■. 7