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MINUTES - 05241994 - 1.67
HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA TO: BOARD OF COMMISSIONERS FROM: Richard J. Martinez, Executive Director DATE: June 7, 1994 SUBJECT: ACCEPTANCE OF AUDIT REPORT FOR FISCAL YEAR ENDING MARCH 31, 1993 SPECIFIC REQUEST(S) OR RECOMMENDATIONS) & BACKGROUND AND JUSTIFICATION I. RECOMMENDED ACTION: ACCEPT financial audit report for the period April , 1 1992 through March 31, 1993, performed by Harn and Rowe, Pleasant Hill , California, as recommended by the Advisory Housing Commission. II. FINANCIAL IMPACT: Funding has been provided in the Housing Authority's Fiscal Year 1993/94 Consolidated Operating Budget for the $10,500 due the certified public accountancy firm of Harn and Rowe for performing this financial audit. III. REASONS FOR RECOMMENDATION/BACKGROUND: On April 14, 1992 the Board of Commissioners awarded a bid to Harn and Rowe to perform annual financial audits for the Housing Authority of the County of Contra Costa for the years 1992, 1993 and 1994. Harn and Rowe has completed their audit of the financial records of the Housing Authority of the County of Contra Costa. All financial records of the Housing Authority are in order. One finding was made pertaining to tenant files and rent rolls. The auditor's recommendation and Housing Authority response are found on page 39 of the audit report. Additionally, a separate management letter contains 3 items to strengthen the internal controls and operating efficiency of the Housing Authority. The Housing Authority agrees with both the audit finding and the recommendations stated in the management letter. Full implemention of the audit recommendation has been made and the Housing Authority has implemented changes to further strengthen its internal controls. These changes will be reviewed by the auditors during their next engagement. IV. CONSEQUENCES OF NEGATIVE ACTION: Should the Board of Commissioners elect to not accept the financial audit report as performed by the certified public accountancy firm of Harn and Rowe, it would become necessary to expend additional funds to either redo the financial audit report or contract with another certified public accountancy firm. CONTINUED ON ATTACHMENT: YESSIGNATURX—, s? / �Z6 RECOMMENDATION OF EXECUTIVE DIRECTOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S) : ACTION OF BOARD ON MAY 2 4 1994 APPROVED AS RECOMMENDED ---_ OTHER VOTE OF COMMISSIONERS I HEREBY CERTIFY THAT THIS IS A UNANIMOUS (ABSENT 1 TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF COMMISSIONERS ON THE DATE SHOWN. ATTESTED Y 2 .41994 PHIL BATCHELOR, CLERK OF THE BOARD OF COMMISSIONERS AND COUNTY ADMINISTRATOR BY J, DEPUTY HARN:&ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510)686-5550 March 28, 1994 To the Board of Commissioners and Management The Housing Authority of the County of Contra Costa In planning and performing our audit of the financial statements of the Housing Authority of the County of Contra Costa for the year ended March 31, 1993, we considered the Authority's internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. However during our audit we became aware of several matters that are opportunities for strengthening internal controls and operating efficiency. The items that accompany this letter summarize our comments and suggestions regarding those matters. We have issued a separate report on the Authority's internal control structure which is included in our financial report dated March 28, 1994. This letter does not effect our report dated March 28, 1994 on the financial statements of the Housing Authority of the County of Contra Costa. We will review the status of these comments during our next engagement. We have already discussed these comments and sugges- tions with various Authority personnel, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations. Sincerely, Housing Authority of the County of Contra Costa March 28 , 1994 Page 2 1. Several adjustments were needed to correctly account for various grant programs administered .by the Authority. appears that the needed adjustments have now been made and changes have been made to correctly account for these pro- grams. 2. The interfund accounts receivable and accounts payable were not in exact agreement at March 31, 1993. , These differences were not material. The differences arose due to adjustments being made to one program at year end and no corresponding adjustment being made to another program. We recommend that care be taken at year end to ensure , that all interfund accounts receivable and accounts payable balances be in -exact agreement, 3 . Subsequent to the March 31, 1993 audit report date monies have been discovered as missing from one of the Authority's projects. It appears that efforts are currently being made to determine the amounts of missing funds. We recommend that the Authority examine its controls over cash ,receipts and make any needed changes to prevent such occurrences in the future. We also recommend that the Authority also make efforts to require . ;that tenants pay their rents and other charges by check or money orders. Efforts should be made to discourage payments being made in cash. o 0 HOUSING AUTHORITY O OF THE COUNTY OF CONTRA COSTA o GENERAL PURPOSE FINANCIAL STATEMMS YEAR ENDED NARCH 31, 1993 (Including Auditors' Reports Thereon) O 0 G 0 0 HARN & ROWE Certifies! Public Accountants 0 O HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 TABLE OF CONTENTS Page Independent Auditors' Report 1 Financial. Statements: Combined Balance Sheet - All Fund Types and Account Groups 2 r Combined Statement of Revenues Expenditures, and Changes in Fund Balances - All Governmental Fund Types 4 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - Special Revenue Fund 5 Notes to the General Purpose Financial Statements -6 Supplemental Data: Statement of Completed CIAP Project 18 Independent Auditors' Report on HUD Method Financial Statements 19 HUD Method Financial Statements: Balance Sheet - HUD Method 20 Statement of Income and Expenses - HUD Method 21 Analysis of Surplus - HUD Method 22 Notes to HUD Method Financial Statements 23 Independent Auditors' Report on Schedule of Federal Financial Assistance 25 Schedule of Federal Financial Assistance 26 Independent Auditors' Report on Compliance Based on an Audit of General Purpose Financial Statements Performed in Accordance with Government Auditing Standards 28 Independent Auditors' Report on Compliance with the General Requirements Applicable to Federal Financial Assistance Programs . 29 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major Federal Financial Assistance Programs 30 Independent Auditors' Report on Internal Control Structure Based on an Audit of General Purpose Financial Statements Performed in Accordance with Government Auditing Standards 32 Independent Auditors' Report on the Internal Control Structure used in Administering Federal Financial Assistance Programs 35 Status of Prior Audit Findings 38 Findings and Recommendations 39 HARN &ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 INDEPENDENT AUDITORS' REPORT To the Board of Commissioners Housing Authority of the County of Contra Costa Martinez, California We have audited the accompanying general purpose financial statements of the Housing Authority of the County of Contra Costa, California, as of March 31, 1993, and for the year then ended. The general purpose finan- cial statements are the responsibility of the Housing Authority of the County of Contra Costa, California, management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. r We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes exam- ining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial ' statements 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 Housing Authority of the County of Contra Costa, California, as of March 31, 1993, and the results of its operations for the year then ended in conformity with generally accepted accounting principles. r Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The information presented in the supplemental data section of this report is presented for purposes of additional analysis and is not a required part of the general purpose financial statements of the Housing Authority of the County of Contra Costa, California. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial state- ments and, in our opinion, is fairly presented in all material respects in relation to the general purpose financial statements taken as a whole. 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S"i r-t r-I CL W U � •r1 P Cd H 4J g N d 'd O0 coCd Cd H •rl 4J 41 r--I 4J H Cd 1p� �Q) -A 4J 4J � H N O O ul 4J 4TJ �4) b O d 4) H a 'd 4) a) 1-1 N H H P4 b o o >~ •a 1-1 tU 4J �4 4J 4J ,n to N a) 'd H 4J4J )a 7-1 f. �4 r to N d to .[ o a� >4 cd to bo to •d 04 x a� En 4) N U U 44 U 44 r 1.avAaci a) AqHAa Hw � 4 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES FOR THE YEAR ENDED MARCH 31, 1993 Governmental Fund Types Total Special Debt (Memorandum Revenue Service Only) Revenues Federal and state grants $43,305,876 $ 409,323 $43,715,199 Dwelling rent 2,436,737 2,436,737 Interest 44,870 - 44,870 Other 613,812 - 613,812 Total revenues 46,401,295 409,323 46,810,618 Expenditures Current: Administration 3,042,161 - 3,042,161 Utilities 785,943 785,943 Maintenance 2,541,035 - 2,541,035 Protective services 173,247 173,247 General 1,990,037 - 1,990,037 Rehabilitation loans 306,817 - 306,817 Housing assistance payments 29,972,124 - 29,972,124 Grants 114,362 - 114,362 Shelter Costs 2,063,737 - 2,063,737 Debt Service: Principal - 270,955 270,955 Interest - 136,421 136,421 Capital additions 6,341,004 - 6,341,004 . r Total expenditures 47,330,467 407.376 47,737,843 Excess of revenues over (under) expenditures (929,172) 1,947 (927,225) Other financing sources (uses) : - - - Excess of revenues and other sources over (under) expenditures and other uses (929,172) 1,947 (927,225) Fund balances - beginning of year 2,967,672 11,426 2,979,098 Fund balances - end of year $ 2,038,500 $ 13,373 1_2_,051.873 The accompanying notes are an integral part of this statement. 4 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - SPECIAL REVENUE FUND FOR THE YEAR ENDED MARCH 31, 1993 Variance Favorable Budget Actual (Unfavorable) Revenues: Federal and state grants $48,145,253 $43,305,876 $(4,839,377) Dwelling rent 2,619,530 2,436,737 (182,793) Interest 121,990 44,870 (77,120) Other 170,540 613,812 443,272 Total revenues 51.057,313 46.401,295 (4.656.018) Expenditures: Current: Administration 3,521,810 3,042,161 479,649 Utilities 778,790 785,943 (7,153) Maintenance 2,301,300 2,541,035 (239,735) Protective services 237,210 173,247 63,963 General 2,170,050 1,990,037 180,013 Rehabilitation loans 300,000 306,817 (6,817) Housing assistance payments 29,296,521 29,972,124 (675,603) Grants - 114,362 (114,362) Shelter Costs 1,860,032 2,063,737 (203,705) Capital additions 10,591,550 6.341.004 4,250,546 Total expenditures 51,057.263 47,330.467 3,726,796 Excess of revenues over (under) expenditures 50 (929,172) (929,222) r Fund balance - beginning of year 2.967.672 2.967.672 Fund balance - end of year $ 2.967.722 S 2.038.500 $ (929,222) The accompanying notes are an integral part of this statement. 5 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • Description of the Reporting Entity The Housing Authority of the County of Contra Costa (the Authority) was M established pursuant to the laws of the State of California in 1941. The Authority's Board of Commissioners are appointed by the County of Contra Costa Board of, Supervisors. The Authority's financial statements include activities over which the Board of Commissioners have oversight responsi- bility. • The financial statements present information for the activities of only that portion of funds and account groups of the Housing Authority of the County of Contra Costa. These financial statements do not present informa- tion of any other component unit or department of the County of Contra Costa, r Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the Authority are described in the following sections. (a) Basis of Presentation - Fund Accountinr� • The accounts of the Authority are organized on the basis of funds or account groups, each of which is considered a sepa- rate accounting entity. The operations of each fund are accounted for within a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues,. and expenditures or expenses., as appropriate. The various funds are. summarized by type in the financial state- ments. Fund types and account groups used by the Agency are described as follows: Governmental Fund Types Special Revenue Funds - Special Revenue Funds account for the proceeds of specific revenue sources (other than expend- able trusts or major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Funds - Debt Service Funds account for the accumulation of resources for, and payment of, general long- term debt principal, interest and related costs. Fiducia1y Funds Fiduciary funds are trust and/or agency funds used to account for assets held by the Authority in a trustee capac- ity. The Authority utilizes an agency fund to account for deferred compensation funds. 6 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 ' (Continued) NOTE 1 - (Continued) Account Groups * General Fixed Assets Account Group - The General Fixed Assets Account Group accounts for fixed assets of the Agency. General Long-Term Debt Account Group - The General Long-Term Debt Account. Group accounts for the long-term obligations of the Authority and the long-term vacation and vested portion of sick leave related to the governmental funds. (b) Basis of Accounting Governmental fund types are accounted for using the modified accrual method of accounting. Revenues are recognized in the accounting period in which they become available and measurable; expenditures are recognized in the accounting period in which the liability is incurred, if measurable, except for unmatured interest on general long=term debt which is recognized when due. Significant revenue sources that have been treated as susceptible to accrual under the modified accrual basis include interest on investments and grants. The revenues from grants which are received as reimbursement for specific expenditures are recognized based upon the expenditures recorded. (c) Total Columns on Combined Financial Statements Total columns on the combined financial statements are cap- tioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these col- umns does not present financial position or results of oper- ations in conformity with generally accepted accounting principles nor is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregate of this data. (d) Fixed Assets Fixed assets are valued at historical cost. Contributed fixed assets are recorded atfair market value at the time received. Interest expense incurred during the development period is capitalized. Fixed assets used in Governmental Fund Type operations (general fixed assets) are accounted for in the General Fixed Assets Account Group rather than in the Governmental Fund Types. No depreciation has been provided on the general fixed assets. 7 • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) NOTE 1 - (Continued) (e) Collection Losses • The direct write-off method has been adopted for providing for uncollectible accounts. (f) Encumbrances Encumbrance accounting is not employed by the Authority. (g) Differing Year Ends The Authority's Aftercare Housing Assistance and Homeless Programs operate on a fiscal year from July 1 through June 0 30. This differs from its other programs which have a fiscal year ending March 31. Our reporting period for these programs was July 1, 1992 through June 30, 1993. The effect on the financial statements of these differing year ends is not material. Due, however, to these programs having dif- fering fiscal year ends the due to/from other funds is not in exact agreement as reflected on the accompanying balance sheet. (h) Grant Restrictions The Authority has received loans and grants from the U.S. Department of Housing and Urban Development and the Califor- nia Department of Housing and Community Development to build and improve housing projects. The grants require that only individuals and families that meet various income, age and employment standards be housed or aided. Further, if the fund balance of the Authority's Public Housing program exceeds certain levels, the excess funds must .be paid to HUD. Note 2 - CASH AND INVESTMENTS All cash and investments held by the Authority is maintained in checking or savings accounts or in certificates of deposit. The California Government Code requires California banks and savings and loan associations to secure the Authority's deposits not cov- ered by federal deposit insurance by pledging mortgages or govern- ment securities as collateral. The market value of mortgages must equal at least 150% of the face value of deposits. The market value of governments securities must equal at least 110% of the face value of deposits. Such collateral must be held in the pledging bank's trust department in a separate depository in an account for the Authority. 8 • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 (Continued) Note 3 - CASH WITH TRUSTEE Funds totaling $18,997 are maintained in the Authority's name by the Bank of America, which acts as the fiscal agent for previous bond issuances of the Authority. These funds are required to be invested in insured or registered U. S. Government securities and commercial paper. As indicated in Note 8, $397,758 of assets of the deferred compen- sation plan are also recorded as cash with trustee. Note 4 - PREPAID HOUSING ASSISTANCE PAYMENTS The Authority prepares and mails its Section 8 Programs' Housing Assistance Payments to the landlords on the last working day of each month. These amounts are not actually payable until the first working day of the following month. The reimbursement from HUD for these landlord payments is also not received until the first working day of the following month. The prepayment of these housing assistance payments caused the Section 8 Program Special Revenue Funds to have a deficit cash balance of $1,851,689 at March 31, 1993. Note 5 - DEFERRED LOANS At March 31, 1993, there are $716,032 of Community Development Block Grant, $854,903 of Rental Rehabilitation Grant Loans, and $153,404 of other loans outstanding. There are various types of these loans. Some loans require monthly principal reductions, others are deferred over several years. Interest rates on the loans range from zero interest to 7% per annum. Many of these loans will be forgiven at some specified future date. The agency has elected to record the loan and interest receivable on these notes as deferred revenue. Revenue is recognized as these loans are collected. During the fiscal year ended March 31, 1993 $65,297 of Community Development Block Grant and $65,296 of Rental Rehabilitation Grant loans were determined to be worthless and were written off the books of accounts. 9 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) Note 6 - LAND AND EQUIPMENT A summary of the changes in general fixed assets for the year r ended March 31, 1993 is as. follows: Balance Balance Program 411/92 Additions Deletions 3/31193 Conventional $50,915,019 $4,781,816 $ 70,678 $55,626,157 Section 8 1,125,738 73,601 23,315 1,176,024 Management 166,606 1,485,587 7,654 1,644,539 Drug Elimination 756 - - 756 $52,208,119 $6,341,004 101 647 $58,447,476 NOTE 7 - LONG-TERM OBLIGATIONS A summary of the changes in general long-term obligations for the year ended March 31, 1993 is as follows: Balance Balance 4/1192 Additions Retirements 3131/93 Federal Financing • Bank Notes $ 290,298 $ - $ 40,955 $ 249,343 Bonds 3,480,000 - 230,000 3,250,000 Compensated Absences (Note 12) 206,287 6,727 - 213,014 $ 3,976,585 $ 6,727 270.955 $ 3,712,357 M Following is a schedule of debt payment requirements to maturity for long-term obligations other than compensated absences: Federal Year Ending Financing March 31 Bank Notes Bonds Total 1994 $ 60,166 $ 348,137 $ 408,303 1995 60,166 343,062 403,228 1996 60,166 351,693 411,859 1997 60,166 347,944 408,110 1998 60,166 349,794 409,960 Thereafter 2,039,549 2,039,549 300,830 3,780,179 4,081,009 Less amount representing interest 51,487 530,179 581,666 S 249,343 $3,250,000 $3,499.343 The Federal Financing Bank Notes accrue interest at 6.6% per annum. The Bonds accrue interest at rates from 3-1/8% to 5% per annum. 10 • • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) NOTE 7 - (Continued) The Consolidated Omnibus Budget Act of 1985 authorized the Secre- tary of the Department of Housing and Urban Development (HUD) to forgive all permanent notes held by the U. S. Treasury. In the event that the notes are not forgiven by HUD, the Conventional Program's Annual Contribution Contract (ACC) states that all debt service requirements related to the notes will be HUD's responsi- bility. It is management's opinion that the Authority is not lia- ble for these notes unless the federal government fails to honor the ACC, therefore, they should not be included on the Authority's financial statements. Accordingly, $7,239,865 of permanent notes • and accrued interest, recorded on the Authority's books of account as of March 31, 1993, has not, been reflected on the Authority's current financial statements. Per the financial reports received from HUD, there is actually $27,536,804 of the permanent notes payable, and interest on these • notes, that have not been forgiven as of March 31, 1993. The difference between the amount of notes recorded on the Authority's books of accounts and the amounts recorded on the HUD reports are the amount of notes reflected on part III of the HUD report which the Authority believed had been forgiven prior to March 31, 1989. • NOTE 8 - DEFERRED COMPENSATION PLAN The Authority offers its employees a deferred compensationplan created in accordance with Internal Revenue Code Section 457. The plan, available to all Authority employees, permits them to defer a portion of their salary until future years. The deferred com- pensation is not available to employees until termination, retire- mens, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attribut- able to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the proper- ty and rights of the Authority (without being restricted to the provisions of benefits under the plan) , subject only to the claims of the Authority's general creditors. Participants' rights under the plan are equal to those of general creditors of the Authority in an amount equal to the fair market value of the deferred • account for each participant. 11 • • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) NOTE 8 - (Continued) It is the Authority's position that it has a fiduciary obligation for the due care required of a prudent investor in the management of the plan's resources but is not responsible for any loss due the investment or failure of investment funds and assets of the plan nor shall the Authority be required to replace any loss which may result from such investments. In the past, plan assets have been used for no purpose other than - to pay benefits. The • Authority believes it is unlikely that it will use the assets to satisfy the claims of general creditors in the future. As of March 31, 1993, the assets of the plan, recorded at their fair market value, amounted to $397,758. This amount is held under the Authority's name for named employees. • NOTE 9 - EMPLOYER RETIREMENT PIAN The Authority participates in a defined benefit retirement plan that is administered by the Contra Costa County Employees' Retire- ment Association. All full-time employees of the Authority par- ticipate in this plan. The plan provides death, disability and service retirement benefits. Benefits are based on the employee's highest level of annual salary, years of service and age at the time of retirement. The Authority's retirement plan had 82 par- ticipants at March 31, 1993. The Authority contributes 8.25% of eligible employees' annual compensation. In addition, the Author- ity also paid approximately 50% of the employees basic annual contribution pursuant .to agreements during salary negotiations. Employer contributions are vested (1) .after 10 years of service and employee has attained age 50 or (2) 30 years of service regardless of age or (3) at mandatory retirement age regardless of the amount of service. Employees contribute to the retirement system through biweekly payroll deductions. The rate of contribution for employees is determined by age at the time of entrance into the system. Employee contributions and interest thereon may be withdrawn only at termination of employment or at retirement. Total payroll sub- ject to contribution was $3,040,056 for the year ended March 31, 1993. Employer contributions were $448,291 and employee contribu- tions were $144,335, representing 15% and 5% of payroll subject to contribution, respectively, for the fiscal year ended March 31, 1993. • 12 • • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 (Continued) • NOTE 9 - (Continued) The 10 year trend analysis and other disclosures required by gen- erally accepted accounting principles are described in the general purpose financial statements of the County of Contra Costa, Cali- fornia as of June 30, 1993. • NOTE 10 - CONTINGENCIES Under the terms of Federal and State grants, audits may be required and certain costs may be questioned as not being appro- priate expenditures under the terms of the grants. Such audits could lead to requests for reimbursement to the grantor agencies. The Authority's management believes disallowances, if any, would be immaterial. NOTE 11 - JOINT POWERS AGREEMENT - PROPERTY AND LIABILITY INSURANCE • The Authority participates in a joint venture under a joint powers agreement (JPA) with the California Housing Authority's Risk Management Agency (CHARMA) . CHARMA was formed to provide general liability, property, anderrors and omissions risk financing. In addition to the Authority there are five other members. The Authority's property insurance has a $10,000 deductible per occur- rence. The Authority's liability insurance has a $250,000 deduct- ible per occurrence. The relationship between the Authority and CHARMA is such that CHARMA is not a component unit of the Authori- ty for financial reporting purposes. CHARMA's governing board controls the operations of the JPA, including selection of manage- ment and approval of operating budgets independent of any influ- ence by member authorities beyond their representation on the board. Each member pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportion- ately to their participation in CHARMA. Condensed audited financial information for the year ended May 31, 1993, (the latest available) is as follows: Total Assets $ 2,697,842 Total Liabilities 923.023 Retained Earnings $ 1.774.819 Total Revenues $ 1,458,032 Total Expenses 243.880 Net increase in fund balance $ 1.214.152 • 13 • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) NOTE 11 - (Continued). • CHARMA had no long-term debt outstanding at May 31, 1993. The Authority's share of year end assets, liabilities, or fund balance has not been calculated. NOTE 12 - COMPENSATED ABSENCES • It is the Authority's policy to permit employees to accumulate earned but unused vacation leave up to a maximum of 240 to 560 hours depending on the employee's length of service. This . leave will be used in future periods or paid to employees upon separa- tion from the Authority. Accrued vacation leave has been valued by the Authority and has been recorded in the General Long-Term • Debt Account Group at $213,014 as of March 31, 1993. It is the Authority's policy to permit employees to accumulate earned but unused sick leave; however, the value of unused sick leave is not payable to employees upon separation from the Author- ity. • The cost of vacation and sick leave is recognized, when payments are made to employees, in the Special Revenue Funds. NOTE 13 - HEALTH INSURANCE Health care benefits for active and retired employees are financed by the beneficiaries and by the Authority. The Authority's con- tribution during 1992 - 1993 for active employees was $347,603 and for retired employees $119,875. The Authority's liability for health care benefits is limited to its annual contribution. As of March 31, 1993, there were 98 active and 46 retired employees being covered by the Authority's health insurance. NOTE 14 - LEASE COMMITMENTS Total rental expense for the year ended March 31, 1993 for all operating leases amounted to $117,090. At March 31, 1993, the future minimum rental payments required under operating leases for operating facilities, are as follows: • 14 • • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) NOTE 14 - (Continued) r Fiscal Year Ending March 31. 1994 $ 168,097 1995 171,797 1996 175,477 • 1997 149,556 1998 74.391 S 739,318 NOTE 15 - JOINT POWERS AGREEMENT - WORKERS' COMP INSURANCE • The Authority participates in a joint venture under a joint powers agreement (JPA) with the California Housing Workers' Compensation Authority (CHWCA) . CHWCA was formed to provide workers' compensa- tion insurance coverage for member housing authorities. At Decem- ber 31, 1992 (the fiscal year end for the joint venture) ,, there were twenty-one members. The relationship between the Authority and CHWCA is such that CHWCA is not a component unit of the Authority for financial reporting purposes. Condensed audited financial information for the year ended Decem- ber 31, 1992, is as follows: • Total Assets $ 3,094,739 Total Liabilities 3.210.078 Retained Earnings (Deficit) $ (115,339) Total Revenues $ 2,931,358 Total Expenses 3,586,537 Net (decrease) in fund balance S (655,179) CHWCA had no long-term debt outstanding at December 31, 1992. The Authority's share of year end assets, liabilities, or fund balance has not been calculated. 15 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1993 • (Continued) NOTE 16 - SUBSEQUENT EVENTS Subsequent to March 31, 1993 the Agency discovered instances of possible thefts at one of its area offices. The exact amount of the thefts has not yet been determined. Management has indicated that the theft amounts are not material and that any losses will be covered by the Agency's insurance carriers. 16 s � ,.,.A�, pAZA SUpp1��t�"" 1� • r HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA STATEMENT OF COMPLETED CIAP PROJECT ANNUAL CONTRIBUTION CONTRACT SF-182 MARCH 31, 1993 CA 11-911 Funds approved $2,766,000 Funds expended 2.766.000 Excess of funds expended Funds advanced $2,766,000 Funds expended 2.766.000 Excess of funds expended $ - The accompanying notes are an integral part of this statement. 18 i • INDEPENDENT AUDITORS' REPORT ON HUD METHOD FINANCIAL STATEMENTS i To the Board of Commissioners Housing Authority of. the County of Contra Costa Martinez, California • We have audited the special purpose balance sheet - HUD method of the Housing Authority of the County of Contra Costa, California as of March 31, 1993 and the related special purpose statements of income and expenses and analysis of surplus for the year then ended. These financial statements are the i responsibility of the Authority's management. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An 'audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying HUD method financial statements were prepared for the purpose of complying with HUD Handbook 7476.1 REV-1 as discussed in Note 1 to the HUD method financial statements, and are not intended to be a presentation in conformity with generally accepted accounting principles. In our opinion, the special purpose financial statements referred to above present fairly, in all material respects, the financial position of the Housing Authority of the County of Contra Costa, California as of March 31, 1993 and the results of its operations for the year then ended, on the method of accounting described in Note 1 to the HUD method financial statements. This report is intended solely for the information and use of the Board of Commissioners and management of the Housing Authority of the County of Contra Costa, California and the U.S. Department of Housing and Urban Development. This restriction is not intended to limit distribution of this report, which is a matter of public record. d' March 28, 1994 . 19 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA BALANCE SHEET - HUD METHOD MARCH 31, 1993 Public Housing Section 8 ASSETS Cash $ 243,052 $ - Tenant accounts receivable 22,756 - Accounts receivable - HUD - 512,190 Due from other funds 1,216,759 - Accounts receivable - other 99,407 2,391 Accounts receivable - other agencies - 603,326 i Debt amortization funds 838,899 - Deferred charges 133,680 2,472,018 Land, structures, and equipment 55,626,157 1,176,024 Total Assets $58,180,710 $ 4,765,949 LIABILITIES AND SURPLUS Cash deficit $ - $ 1,851,689 Accounts payable 833,561 - Tenant security deposits 171,305 - Due to other funds - 492,490 Accounts payable - HUD - 308,488 Accrued interest payable 2,089,094 - Accrued liabilities 203,118 Tenant prepaid rents 5,730 - Permanent notes (Note 2) 5,215,204 - r FFB notes 249,343 - Bonds payable 3,250,000 - Total Liabilities 12,017,355 2,652,667 Surplus 46,163,355 2,113,282 r Total Liabilities and Surplus $58,180,710 ,$ 4,765,949 The accompanying Independent Auditors' Report and notes are an integral part of this statement. �I 20 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA STATEMENT OF INCOME AND EXPENSES - HUD METHOD FOR THE YEAR ENDED MARCH 31, 1993 Public Housing Section 8 OQRerating Income Dwelling rent $2,436,737 $ - Nondwelling rent - Portability income - 235,421 Interest on general fund investments 3,172 - Other income 83,207 7,305 Total operating income 2,523,116 242,726 Operating Expenses Administration 471,096 2,348,684 Tenant services 21,972 - Protective services 21,906 - Utilities 785,943 - Ordinary maintenance and operation 2,018,639 289,974 General expenses 852,862 1,075,000 Nonroutine maintenance 140,164 - Housing assistance payments - 29,972,124 Total operating expenses 4,312,582 33,685,782 Net operating loss 1,789,466 33,443,056 Other Charges Interest on notes and bonds payables 554,037 - Loss on the disposition of equipment 69,678 23,315 Net loss $2,413,181 S 33,466,371 The accompanying Independent Auditors' Report and notes are an integral part of this statement. 21 A HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA . ANALYSIS OF SURPLUS - HUD METHOD FOR THE YEAR ENDED MARCH 31, 1993 Public Housing Section 8 Unreserved Surplus Unreserved surplus as of April 1, 1992 $(57,264,650) $(246,177,848) Net loss for the year ended March 31, 1993 (2,413,181) (33,466,371) Provision for operating reserve for the year ended March 31, 1993 43,006 184,111 Provision for project account for the • year ended March 31, 1993 - 2,531,608 Unreserved surplus as of March 31, 1993 (59,634,825) (276,928,500) Operating Reserve Operating reserve as of April 1, 1992 1,095,115 895,237 . Provision for operating reserve for the year ended March 31, 1993 (43,006) 184,111 Withdrawals - (158,490) Operating reserve as of March 31, 1993 1,052,109 920,858 Project Account Project account as of April 1, 1992 - 20,763,934 Provision for project account for the year ended March 31, 1993 - (2,531,608) Project account as of March 31, 1993 - 18,232,326 Cumulative HUD Contributions Cumulative HUD Contributions as of April 1, 1992 96,414,069 225,969,719 Annual contributions 409,323 33,700,768 Operating subsidy 1,650,612 - CIAP grants 4,096,730 Cumulative HUD Contributions as of March 31, 1993 102,570,734 259,670,487 Cumulative Donations Cumulative donations as of April 1, 1992 1,526,697 218,111 Donated fixed assets 648,640 - Cumulative donations as of March 31, 1993 2,175,337 218,111 Total surplus as of March 31, 1993 $ 46,163,355 $ 2,113,282 The accompanying Independent Auditors' Report and notes are an integral part of this statement. 22 �1 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO HUD METHOD FINANCIAL STATEMENTS MARCH 31, 1993 NOTE 1 - HUD METHOD FINANCIAL STATEMENTS The HUD method financial statements were prepared to comply with the requirements of the U.S. Department of Housing and Urban Development (HUD) handbook 7476.1 Rev.l'. The required HUD method of preparation and maintenance of accounting records and presentation of financial statements differs significantly from generally accepted accounting principles. Some of the more significant of these differences are as follows: A. The financial statements present only information and activities pertaining to programs traditionally funded to Housing Authorities directly or indirectly by HUD. These programs are as follows: Public Housing - Public Housing Program (CFDA #14.850) and Public Housing -Comprehensive Improvement Assistance Program (CFDA #14.852) . Section 8 - Housing Assistance Payments Program for Housing Certificates, Moderate Rehabilitation, State Housing Agencies and Housing Vouchers (CFDA #14.156 and 14.177) . B. The required financial statements and financial statement presentation differ between the HUD method and generally accepted accounting principles. C. The HUD method of accounting requires that annual contributions, operating subsides, donations, and grants be recorded as credits directly to fund equity rather than as revenues. R D. Revenues and expense are recorded on the accrual basis of accounting versus the modified accrual basis required for governmental fund types under generally accepted accounting principles. E. The HUD method of accounting requires that losses on property dispositions of fixed assets be recorded as an expense upon disposition, while capital additions are not recorded as an expense. F. The HUD method of accounting requires that interest expense r accrued but not actually paid during the fiscal year be recorded as an expense. 23 !1 y HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO HUD METHOD FINANCIAL STATEMENTS MARCH 31, 1993 NOTE 2 - LONG-TERK OBLIGATIONS The Consolidated Omnibus Budget Act of 1985 authorized the Secretary of the Department of Housing and Urban Development (HUD) to forgive all permanent notes held by the U. S. Treasury. In the r event that the notes are not forgiven 'by HUD, the Conventional Program's Annual Contribution Contract (ACC). states that all debt service requirements related to the notes will be HUD's responsibility. It is management's opinion that the Authority is not liable for these notes unless the federal government fails to honor the ACC, therefore, they should not be included on the Authority's financial statements: Accordingly, $7,239,865 of permanent notes and accrued interest, recorded on the Authority's books of account ,as of March 31, 1993, has not been reflected on the Authority's current financial statements. Per the financial reports received from HUD, there is actually $27,536,804 of the permanent notes payable, and interest on these notes, that have not been forgiven as of March 31, 1993. The difference between the amount of notes recorded on the Authority's books of accounts and the amount recorded on the HUD report is the amount of notes reflected on part III of the HUD report which the Authority believed had been forgiven prior to March 31, 1989. i 24 r HARN &ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510)686-5550 INDEPENDENT AUDITORS' REPORT ON SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE To the Board of Commissioners Housing Authority of the County of Contra Costa Martinez, California We have audited the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, for the year ended March 31, 1993, and have issued our report thereon dated March 28, 1994. These general purpose financial statements are the responsibility of the Housing Authority of the County of Contra Costa, California, 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 stan- dards; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. Those stan- dards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose 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. Our audit was made for the purpose of forming an opinion on the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, taken as a whole. The accompanying schedule of federal financial assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly presented in all material respects in relation to the general purpose financial statements taken as a whole. i March 28, 1994 25 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED MARCH 31, 1993 CFDA Federal Grantor Number Expenditures Department of Housing and Urban Development Direct Programs: Drug Elimination Program 14.854 S 253,763 Public Housing 14.850 4.631.697 * . Comprehensive Improvement Assistance Program 14.852 3.876.544 * Section 8 Housing Voucher Program 14.177 4.677.598 * Supportive Housing Program 14.178 378.985 Lower Income Housing Assistance Program 14.156 28,427,244 Passed Through the State of California: Lower Income Housing Assistance Program 14. 156 813,031 Subtotal 14.156 29,240.275 Passed Through the City of Antioch: Community Development Block Grant 14.218 50,000 Passed Through the County of Contra Costa: Community Development Block Grant 14.218 884,984 Subtotal 14.218 934,984 © Rental Housing Rehabilitation, Contract No. U.C.-06-0223 14.230 188.244 Mckinney Act - Emergency Shelter Program 14.231 72.000 ' Total Department of Housing and Urban Development $44.254,090 * This is a major federal financial assistance program. 26 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED MARCH 31, 1993 (Continued) CFDA Federal Grantor Number Expenditures . Department of Health and Human Services Passed through the County of Contra Costa: Administration for Children, Youth and Families - Head Start 13.600 $ 339,226 Total Department of Health and Human Services 339.226 Federal Emergency Management Agency Disaster Assistance 83.516 65.609 Total Federal Emergency ,Management Agency 65.609 Total Federal Expenditures $44.658,925 f i The accompanying notes are an integral part of this statement. 27 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 • Pleasant Hill, CA 94523 (510) 686-5550 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE BASED ON AN AUDIT OF GENERAL PURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Commissioners Housing Authority of the County of Contra Costa Martinez, California We have audited the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, as of and for the year ended March 31, 1993 and have issued our report thereon dated March 28, 1994. We conducted our audit in accordance with generally accepted auditing Stan- dards; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. Those stan- dards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable to the Housing Authority of the County of Contra Costa, California, is the responsibility of the Housing Authority of the County of Contra Costa, California, management. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the Authority's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit of the general purpose financial statements was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. The results of our tests indicate that, with respect to the items tested, the Housing Authority of the County of Contra Costa, California, complied, in all material respects, with the provisions referred to in the preceding para- graph. With respect to items not tested, nothing came to our attention that caused us to believe that the Authority had not complied, in all .material respects, with those provisions. This report is intended for the information of the Board of Commissioners, management, and the U. S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. l d` March 28, 1994 28 • HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 • (510) 686-5550 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH THE GENERAL REQUIREKENTS APPLICABLE TO FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Board of Commissioners Housing Authority of the County of Contra Costa Martinez, California We have audited the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, as of and for the year ended March 31, 1993., and have issued our report thereon dated March 28, 1994. We have applied procedures to test the Housing Authority of the County of Contra Costa, California, compliance with the following requirements applicable to its federal financial assistance programs, which are identified in the schedule of federal financial assistance,. for the year ended March 31, 1993. Political activity Davis-Bacon Act Civil Rights Cash Management • Federal Financial Reports Relocation Assistance and Real Property Acquisition Allowable Cost/Cost Principles Drug-Free Workplace Act Administrative Requirements Our procedures were limited to the applicable procedures described in the • Office of Management and Budget's Compliance Supplement for Single Audits of State and Local Governments. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Housing Authority of the County of Contra Costa, California's compliance with the requirements listed in the preceding paragraph. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the requirements listed in the first paragraph of this report. With respect to items not tested, nothing came to our attention that caused us to believe that the Housing Authority of the County of Contra Costa, California, had not complied, in all material respects, with those requirements. However, the results of. our procedures disclosed immaterial instances of noncompliance with those requirements, which are described in the accompanying schedule of findings and recommendations. This report is intended for the information of the Board of Commissioners, management, and the U. S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution i.s not limited. March 28, 1994 29 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 • (510) 686-5550 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Board of Commissioners Housing Authority of the County of Contra Costa Martinez, California We have audited the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, as of, and for the year ended March 31, 1993, and have issued our report thereon dated March 28, 1994. We have also audited the Housing Authority of the County of Contra Costa, California, compliance with the requirements governing types of services allowed or unallowed; eligibility; reporting; special tests and provisions for 14.850 Public Housing, 14.852 - Comprehensive Improvement Assistance Program, 14.156 - Lower Income Housing Assistance Program and 14.177 - Section 8 Housing Voucher Program; and claims for advances and reimbursements • that are applicable to each of its major federal financial assistance programs, which are identified in the accompanying schedule of federal financial assistance, for the year ended March 31, 1993. The management of the Housing Authority of the County of Contra Costa, California is responsible for the Housing Authority of the County of Contra Costa, California, compliance withthose requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit of compliance with those requirements in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget Circular A-128, Audits of State and Local Govern- ments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Housing Authority of the County of Contra Costa, California, compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed immaterial instances of non- compliance with the requirements referred to above, which are described in the accompanying schedule of findings and recommendations. We considered these instances of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph. 30 In our opinion, the Housing - Authority of the County of Contra Costa, . California complied, in all material respects, with the requirements governing types of services allowed or unallowed; eligibility; reporting; special tests and provisions for 14.850 - Public Housing, 14.852 - Comprehensive Improvement Assistance Program, 14.156 - Lower Income Housing Assistance Program and 14.177 - Section 8 Housing Voucher Program; and claims for advances and reimbursements that are applicable to each of its major federal financial assistance programs for the year ended March 31, 1993. This report is intended for the information of the Board of Commissioners, management, and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. arch 28f, 1994 i 31 HARN &ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL STRUCTURE BASED ON AN AUDIT OF GENERAL PURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To The Board of Commissioners Housing Authority of the County of Contra Costa Martinez, California We have audited the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, as of and for the year ended March 31, 1993, and have issued our report thereon dated March 28, 1994. We conducted our audit in accordance with generally accepted auditing stan- dards; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. Those stan- dards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. In planning and performing our audit of the general purpose financial state- ments of the Housing Authority of the County of Contra Costa, California, for the year ended March 31, 1993, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the Authority's general purpose financial statements and not to provide reasonable assurance on the internal control structure. The management of the Housing Authority of the County of Contra Costa, California, is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the struc- ture to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. 32 P For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: Cycles of the Entity's Activity Revenue/Receipts Purchases/Disbursements Payroll r General Requirements Political Activity Davis - Bacon Act Civil Rights Cash Management Federal Financial Reports Relocation Assistance and Real Property Acquisition Allowable Costs/Cost Principles Drug-Free Workplace Administration Requirements Claims for Advances and Reimbursements Sipecific Requirements Types of Services Allowed or Unallowed Eligibility Reporting Special Tests and Provisions For all of the internal control structure categories listed above, we ob- tained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose 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 structure and its operation that we consider to be material weaknesses as defined above. • 33 However, we noted certain matters involving the management of the Housing Authority of the County of Contra Costa, California, in a separate letter dated March 28, 1994. This report is intended for the information of the Board of Commissioners, management, and the U. S. Department of Housing and Urban Development. However, this report is a matter of public record .and its distribution is not limited. March 28, 1994 • • 34 HARK& ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 . Pleasant Hill, CA 94523 (510) 686-5550 INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE USED IN ADMINISTERING FEDERAL FINANCIAL ASSISTANCE PROGRAMS • To The Board of Commissioners Housing Authority of the . County of Contra Costa Martinez, California We have audited the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, as of and for the year • ended March 31, 1993, and have issued our report thereon dated August 27, 1993. We have also audited the compliance of the Housing Authority of the County of Contra Costa, California, with requirements applicable to major federal financial assistance programs and have issued our report thereon dated March 28, 1994. • We conducted our audits in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller Generalof the United States; and Office of Management and Budget (OMB) Circular A- 128, Audits of State and Local Governments. Those standards and OMB Circu- lar A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of • material misstatement and about whether the Housing Authority of the County of Contra Costa, California, complied with laws and regulations, noncompliance with which would be material to a major federal financial assistance program. In planning and performing our audits for the year ended March 31, 1993, we considered the internal control structure of the Housing Authority of the • County of Contra Costa, California, in order to determine our auditing procedures for the purpose of expressing our opinions on the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, and on the compliance of the Housing Authority of the County of Contra Costa, California, with requirements applicable to major programs, and to report on the internal control structure in accordance with OMB Circular A-128. This report addresses our consideration of internal control structure policies and procedures relevant to compliance with requirements applicable to federal financial assistance programs. We have addressed internal control structure policies and procedures relevant to our audit of the general purpose financial statements in a separate report dated March 28, 1994. The management of the Housing Authority of the County of Contra Costa, California, is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objective of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against 35 loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles, and that federal financial assistance programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and,operation of policies and procedures may deteriorate. For the purpose of this report, we have classified the significant internal control structure policies and procedures used in administering 'federal financial assistance programs in the following categories: Cycles of the Entity's Activity Revenue/Receipts Purchases/Disbursements Payroll General Requirements Political Activity Davis - Bacon Act Civil Rights Cash Management Federal Financial Reports Relocation Assistance and Real Property Acquisition Allowable Costs/Cost Principles Drug-Free Workplace Administration Requirements Claims for Advances and Reimbursements Specific Requirements Types of Services Allowed or Unallowed Eligibility Reporting Special Tests and Provisions For all of the internal control structure categories listed above, we ob- tained an understanding of the design of relevant policies and procedures and determined whether they have been placed in operations, and we assessed control risk. During the year ended March 31, 1993, the Housing Authority of the County of Contra Costa, California, expended 95 percent of its total federal financial assistance under major federal financial assistance programs. 36 • We performed tests of controls, as required by OMB Circular A-128, to evalu- ate the effectiveness of the design and operation of internal control struc- ture policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements, general requirements, and requirements governing claims for advances and reimburse- ments and amounts claimed or used for matching that are applicable to each of the major federal financial assistance programs of the Housing Authority of the County of Contra Costa, California, which are identified in the accompanying Schedule of Federal Financial Assistance. Our procedures were less in scope than would be necessary to render an opinion on these internal control structure policies and procedures. Accordingly we do not express such an opinion. Our consideration of internal control structure policies and procedures used in administering federal financial assistance would not necessarily disclose all matters in the internal control structure that might constitute material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that non- compliance with laws and regulations that would be material to a federal financial assistance program may occur and not be detected within a timely period by employees in the normal 'course of preforming their assigned func- tions. We noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above. However, we noted certain matters involving the internal control structure and its operations that we have reported to the management of the Housing Authority of the County of Contra Costa, California, in a separate letter dated March 28, 1994. This report is intended for the information of the Board of Commissioners, management, and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. • March 28, 1994 • • 37 • • HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA STATUS OF PRIOR AUDIT FINDINGS MARCH 31, 1993 The previous audit report for the year ended March 31, 1992, contained the following audit finding. This finding was controlled by HUD. Finding 1 - Various mistakes and missinz information, or documentation. was noted during the examination of the tenants' files. During the current year's audit, other mistakes and missing information was noted. See current year's finding #1. • • • • 38 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA COMPLIANCE FINDINGS AND RECOMMENDATIONS MARCH 31, 1993 1. Tenant Files and Rent Rolls During our examination of the tenant files and rent rolls of the .Public Housing Program and the Lower Income Housing Assistance Pro- gram we found the following: a. Public Housing Program (CFDA #14.850) We examined 14 Conventional Low Rent Program's tenant files and found the following: 1. Two lease amendments referred to an incorrect original lease date. 2. For five of the files examined it did not appear that the unit inspections were performed on an annual basis. 3. Three of the re-examinations appeared to be performed late. 4. One re-examination was performed based upon an incorrect occupancy date. b. Lower Income Housing Assistance Program (CFDA #14.156) We examined 20 Lower Income Housing Assistance Program's tenant files and found the following: 1. The utility allowance calculation was incorrect for one re-examination. 2. For two of the files the re-examination appeared to be performed late. 3. The housing assistance payment for one tenant was being underpaid by $20 per month. Rent Rolls (CFDA #14.850) 1. For two of twenty-four tenants' security deposits exam- ined, the amount of security deposit per the security deposit register and the tenants' lease did not agree. We recommend the Authority review its Public Housing Program's and Lower Income Housing Assistance Program's tenant files to insure that the above mentioned information is correct and/or included in the tenants' files. The Authority should examine its certification and recertification preparation and review procedures to insure that all future certifications and recertifications are documented in accor- dance with HUD regulations. Authority's Response - Appropriate action will be taken to insure that staff complies with operating procedures on certifications and recertifications. 39