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1999 RHDC Financial and Compliance ReportI I 1 1 I I 1 j 1 1 1 0 1 1 i [1 ROSEMEAD HOUSING DEVELOPMENT CORPORATION FINANCIAL AND COMPLIANCE REPORT JUNE 30, 1999 1 [1 I I CONTENTS I 1 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS I and 2 FINANCIAL STATEMENTS Balance sheet - governmental fund type and general fixed assets account group 3 Statement of revenue, expenditures and changes in fund balance - governmental fund type 4 Statement of revenue, expenditures and changes in fund balance - budget and actual - governmental fund type 5 Notes to financial statements 6- 10 YEAR 2000 COMPLIANCE 5 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 12 and 13 I NI McGLADREY& PULLEN, LLP ® Certified Public Accountants RSM international n I INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS ' To the Governing Board Rosemead Housing Development Corporation Rosemead, California I I I I 1 I We have audited the accompanying general purpose financial statements of Rosemead Housing Development Corporation (the Corporation), a component unit of the Redevelopment Agency of the City of Rosemead, California, as of and for the year ended June 30, 1999. These general purpose financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits in Governmental 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 general purpose financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of June 30, 1999, and the results of its operations for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated August 31, 1999 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 grants. The Year 2000 supplementary information on page 11 is not a required part of the basic financial 1 statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and do not express an opinion on it. In addition, we do not provide ' assurance that the Corporation is or will become Year 2000 compliant, that the Corporation's Year 2000 remediation efforts will be successful in whole or in part, or that parties with which the Corporation does business are or will become Year 2000 compliant. v G~~ zzy ' Pasadena, California August 31, 1999 I I E 1 1 I i 2 1 F 1 ROSEMEAD HOUSING DEVELOPMENT CORPORATION BALANCE SHEET - GOVERNMENTAL FUND TYPE AND GENERAL FIXED ASSETS ACCOUNT GROUP June 30, 1999 Govern- mental Account Fund Type Group General General Fixed Fund Assets Totals (Memorandum Only) 1999 1998 I Assets u I I Cash Property and Improvements Total assets Liabilities, Equity and Fund Balance Liabilities Accounts payable Deposits Investment in General Fixed Assets Fund Balance, unreserved Total liabilities, equity and fund balance See Notes to Financial Statements. $ 365,616 $ - $ 365,616 $ 104,346 - 3,469,867 3,469,867 3,469,867 $ 365,616 $ 3,469,867 $ 3,835,483 $ 3,574,213 $ 888 $ - S 888 $ 1,276 14,559 - 14,559 14,431 15,447 - 15,447 15,707 - 3,469,867 3,469,867 3,469,867 350,169 - 350,169 88,639 350,169 3,469,867 3,820,036 3,558,506 $ 365,616 $ 3,469,867 S 3,835,483 $ 3,574,213 3 1 ROSEMEAD HOUSING DEVELOPMENT CORPORATION STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUND TYPE Year Ended June 30, 1999 1999 1998 General (Memorandum Fund Only) Revenue: Contribution from the Rosemead Redevelopment Agency $ 400,000 $ 150,000 Rental income 164,400 162,600 Miscellaneous - 160 564,400 312,760 Expenditures: Operating Professional fees City administrative services Revenue over expenditures Fund balance, beginning Fund balance, ending 201,065 173,512 11,805 7,540 90,000 90,000 302,870 271,052 261,530 41,708 88,639 46,931 $ 350,169 $ 88,639 See Notes to Financial Statements. 4 I I I I I I 0 0 1 A 1 I 1 1 ROSEMEAD HOUSING DEVELOPMENT CORPORATION STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GOVERNMENTAL FUND TYPE Year Ended June 30, 1999 General Fund Over (Under) Actual Contribution from the Rosemead Redevelopment Agency Rental income Other Expenditures: Current: Operating Professional fees City administrative services Revenue over (under) expenditures Fund balance, beginning Fund balance, ending See Notes to Financial Statements. $ 5,143,909 $ 400,000 $ (4,743,909) 161,350 164,400 3,050 5,000 - (5,000) 5,310,259 564,400 (4,745,859) 5,213,040 201,065 (5,011,975) 8,000 11,805 3,805 90,000 90,000 - 5,311,040 302,870 (5,008,170) $ (781) 261,530 $ 262,311 88,639 $ 350,169 5 I 1 I I I B ROSEMEAD HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS Note L 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 Redevelopment Agency (the Agency) 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 is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable state statutes. Reporting Entity Government 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 Agency and the Council members also serve as the Board of Directors of the Corporation, the Agency and the City, in effect, has the ability to influence and control operations. Therefore, the Agency 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 Agency and the City's financial report. The Corporation has the same fiscal year as the City and the Agency. These financial statements contain information for the Corporation only. The City and the Agency issue a stand-alone financial report which may be obtained by contacting the Financial Department of the City. The financial statements of the Corporation have been prepared in conformity with generally accepted accounting principals as applied to government units. The GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the Corporation's accounting principles are described below: Fund accounting The accounts of the Corporation are organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self-balancing accounts which comprise its assets, liabilities, equity, revenue and expenditures. The various funds and account groups are presented as follows: Governmental Fund Type, General Fund All receipts are allocated to this fund. The primary sources of revenue are contributions from the A Agency and rental income from tenants of the senior housing units. General operating expenses are paid out of this fund. I 8 I 1 I I I I 8 1 ROSEMEAD HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Group, and Significant Accounting Policies, Continued Account Group The General Fixed Assets Account Group accounts for all Corporation general fixed assets. The following is a summary of the significant accounting and reporting policies: Basis of accounting Governmental fund types are accounted for using the modified-accrual basis of accounting. Revenue is recognized in the accounting period in which it becomes both measurable and available to finance the expenditures of the current period. "Measurable" means the amount of the transaction can be determined. "Available" means collectible within the current period or soon enough thereafter to pay current liabilities. Expenditures are generally recognized in the accounting period in which the fund liability is incurred and measurable. Property and improvements 8 All property, building and leasehold improvements of the Corporation are accounted for in the General Fixed Assets Account Group. Property items acquired or constructed for general governmental e operations are recorded as expenditures in the fund making the expenditure and capitalized in the General Fixed Assets Account Group. e All general fixed assets which were purchased or constructed are stated at cost. Assets acquired by gift or bequest are recorded at their fair market value at the date of transfer. No depreciation is recorded on general fixed assets. Income taxes The Corporation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue e Code and a similar exemption under state law. Fund balances Unreserved fund balance represents the amount available for future appropriations. Rental income The management company collects rent payments on the first day of the month and recognizes revenue in the month due. Monthly rent income per unit ranges from $250 to $300 and is approved by the annual budget. 1 7 I ROSEMEAD HOUSING DEVELOPMENT CORPORATION 1 NOTES TO FINANCIAL STATEMENTS I Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Group, and Significant Accounting Policies, Continued "Memorandum Only" columns Included on the combined financial statements are total columns captioned "Memorandum Only" to indicate that they are presented only for informational purposes. Adjustments to eliminate interfund transactions have not been recorded in arriving at such amounts and the memorandum totals are not intended to fairly present the financial position or results of operations of the reporting entity taken as a whole. Additionally, the 1998 totals presented in the "Memorandum Only" columns are included to provide a summarized comparison with comparable 1999 amounts and are not intended to present all information necessary for a fair presentation of financial position and results of operations in accordance with generally accepted accounting principles. Budget matters Budgets presented in this report for comparison to actual amounts are presented in accordance with generally accepted accounting principles. Reported budget amounts represent the original adopted budget as amended. Unexpended budgeted amounts lapse at the end of the budget year. The legal level of budgetary control is at the entity level. Note 1. Cash Cash at June 30, 1999 consisted of cash in bank. The carrying amount of the Corporation's deposits was $365,616 and the bank balance was $366,090. Q 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. The cash deposits are classified in three categories of credit risk as follows: Category one includes A deposits that are insured or collateralized with securities held by the entity or by its agent in the entity's name; Category two includes deposits that are collateralized with securities held by the pledging financial institution's trust department or agent in the entity's name; Category three includes deposits e that are uncollateralized. I 8 I I I I I I I HJ I ROSEMEAD HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS Note 2. Cash, Continued Bank Category I Category 2 Category 3 Balance Cash deposits $ 140,133 $ 225,957 $ $ 366,090 Note 3. Reimbursement Agreements and Related Party Transactions The Corporation has entered into a reimbursement agreement with the City. The Corporation has also entered into a 55-year lease agreement with the City for the Angelus Senior Housing facility, expiring June 2047. The Corporation paid $90,000 for administrative services and $60,000 in lease payments to the City during the year ended June 30, 1999. Total lease commitments remaining are $2,880,000 at June 30, 1999. The Corporation is funded, in part, by the contributions from the Agency. Note 4. Property and Improvements Property and improvements at June 30, 1999 and 1998 consisted of land of $1,837,331 and building and improvements of $1,632,536. There were no acquisitions or deletions during the fiscal year ended June 30, 1999. Note 5. Risk Management The Corporation is exposed to various risks of loss related to torts; thefts of, damage to and destruction 8 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 which were in excess of insurance coverage in any of the three preceding years. Note 6. Property Management and Operations The Corporation has an agreement with a management company, dated July 1994, to operate the development housing. This agreement is 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 $18,600 during fiscal year ended June 30, 1999. 1 I 9 I ROSEMEAD HOUSING DEVELOPMENT CORPORATION I NOTES TO FINANCIAL STATEMENTS Note 7. Pronouncements Issued But Not Yet Adopted In December 1998, the GASB issued Statement of Governmental Accounting Standards No. 33, Accounting and Financial Reporting for Nonexchange Transactions. This Statement establishes accounting and financial reporting standards for nonexchange transactions involving financial or capital resources (e.g., most taxes, grants and private donations). In a nonexchange transaction, a government gives (or receives) value without directly receiving (or giving) equal value in return. Statement No. 33 is required to be adopted for years beginning after June 15, 2000. The Corporation has not completed its assessment of the effect that the adoption of Statement No. 33 will have on its financial statements. In June 1999, the GASB issued Statement of Governmental Accounting Standards No. 34, Basic Financial Statements and Management's Discussion and Analysis - for State and Local Governments. This Statement establishes new financial reporting requirements for state and local governments. The Corporation will have to disclose the details about the full cost of providing government services and to allocate expenses and revenue to allow calculation of net costs program by program. In addition, the Corporation will need to report all capital assets, including infrastructure assets, and begin to track depreciation on these items year to year. The Corporation will be required to implement the new financial model for its fiscal years ending after June 30, 2003. The Corporation has not completed its assessment of the effect that the adoption of Statement No. 34 will have on its financial statements. I I I C~ I 10 I I ROSEMEAD HOUSING DEVELOPMENT CORPORATION YEAR 2000 COMPLIANCE The Corporation's accounting is performed by the City using the City's computer and application software. The City's operations, like those of many governmental and business entities, may be affected by the inability of certain computer programs and electronic systems with embedded microprocessor chips to recognize calendar dates beyond the year 1999. Unless such programs or microprocessors are modified or replaced prior to the Year 2000, they may not function properly after December 31, 1999, causing system failures or miscalculations that could disrupt the City's operations. The following stages have been identified as necessary to implement a Year 2000 compliant system: I I klil 1 I I I 1 1 1 Awareness Stage - Establishing a budget and project plan for dealing with the Year 2000 issue. Assessment Stage - Identifying all of its mission critical systems and individual components of those systems. Remediation Stage- Making changes to systems and equipment. Validation/Testing Stage - Validating and testing the changes made during the conversion and remediation process. The City is in the process of completing comprehensive inventories of the City's software, hardware, embedded systems and business relationships (Assessment Stage). Preliminary inventories have been completed with the exception of potential embedded systems. The City's staff is currently developing this inventory for their functional areas. The City plans to be Year 2000 compliant by December 1999. As part of the ongoing, scheduled monitoring of progress, contingency plans will be initiated for any systems that appear to be noncompliant at that time. Because of the unprecedented nature of the Year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until the Year 2000 and thereafter. Management cannot assure that the City is or will be Year 2000 ready, that the City's remediation efforts will be successful in whole or in part, or that parties with whom the City business will be Year 2000 compliant. I McGLADREY& PULLEN, LLP ® Certified Public Accountants RSM I'1 I I I INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Governing Board Rosemead Housing Development Corporation Rosemead, California international We have audited the general purpose financial statements of the Rosemead Housing Development Corporation (the Corporation), a component unit of the Redevelopment Agency of the City of Rosemead, California, as of and for the year ended June 30, 1999, and have issued our report thereon dated August 31, 1999. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing .Standards, issued by the Comptroller General of the United States. 8 Compliance S I 0 I 4 1 I I 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 grants, 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 that are required to be reported under Government Auditing Standards. 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 assurance on internal control over financial reporting. Our consideration of internal control over financial reporting would not necessarily disclose all matters in internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more internal control component does not reduce to a relatively low level the risk that misstatements 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 internal control and its operations that we consider to be material weaknesses. 12 1 I This report is intended for the information 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 August 31, 1999 II I I I I I I I I I I 13 1