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HomeMy WebLinkAboutMINUTES - 05161995 - 1.58 .HOUSING AUTHORITY OF THE COUNTY OF CONTRA, COSTA TO: BOARD OF COMMISSIONERS FROM: Richard J.Martinez,Executive Director DATE: May 16, 1995 SUBJECT: ACCEPTANCE OF AUDIT REPORT FOR FISCAL YEAR ENDING MARCH 31, 1994 SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION L RECOMMENDED ACTION: ACCEPT financial audit report for the period April 1, 1993 through March 31, 1994, performed by Ham 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 Ham and Rowe for performing this financial audit. III. REASONS FOR RECOMMENDATION/BACKGROUND Ham and Rowe has completed their audit of the financial records of the Housing Authority of the County of Contra Costa and all financial records of the Housing Authority are in order. Three findings were made pertaining to tenant files,Drug-Free Workplace Policy and the Performance Funding System. The auditor's recommendations and Housing Authority responses are contacted on pages 30 and 31 of the audit report. Additionally, a separate management letter contains two items to strengthen the internal controls and operation efficiency of the Housing Authority. The Housing Authority agrees with both the audit findings and the recommendations stated in the management letter. Full implementation of the audit recommendations have 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 Ham and Rowe, it would become necessary to upend additional funds to either redo the financial audit report or contract with another certified public accountancy firm. CONTINUED ON ATTACHMENT: YES SIGNATURE�,t,�, ,,1 RECOMMENDATION OF EXECUTIVE DIRECTOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S) : ACTION OF BOARD ONI lo Ct C91 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 I �r �P , �.��I5' . PHIL %ATCALOR, CLERK OF THE BOARD OF COMMISSIONERS AND COUNTY. ADMINISTRATOR By , DEPUTY HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA GENERAL PURPOSE FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 1994 (Including Auditors' Report Thereon) t HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 September 21, 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, 1994, 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 September 21, 1994. This letter does not effect our report dated September 21, 1994 on the financial 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 September 21, 1994 Page 2 1. A few instances were noted where revenues and expenditures were recorded directly to a fund balance account versus being posted to the appropriate revenue or expense account. Posting these revenues and expenses directly to the fund balance account causes the revenue and expense account balances to be understated. It appears these postings were the result of accounting for certain items in accordance with HUD guidelines versus Generally Accepted Accounting Principles. We recommend that all revenues and expenses be posted to the appropriate accounts in accordance with Generally Accepted Accounting Principles. Postings directly to the fund balance accounts should be limited to closing entries and a few other unusual type of entries. 2. During our examination of the periodic reports required for the CIAP and Comprehensive Grant Programs we noted that one submitted report for the CIAP Program did not contain all the required pages and one report for the Comprehensive Grant Program was submitted late. i HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA GENERAL PURPOSE FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 1994 (Including Auditors' Report Thereon) HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 TABLE OF CONTENTS Page Independent Auditors' Report 1 Financial Statements: Combined Balance Sheet - All Fund Types and Account Groups 2 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 Independent Auditors' Report on Schedule of Federal Financial Assistance 16 Schedule of Federal Financial Assistance 17 Independent Auditors' Report on Compliance Based on an Audit of General Purpose Financial Statements Performed in Accordance with Government Auditing Standards 19 • Independent Auditors' Report on Compliance with General Requirements Applicable to Federal Financial Assistance Programs 20 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major Federal Financial Assistance Programs 21 Independent Auditors' Report on the Internal Control Structure Based On An Audit of General Purpose Financial Statements Performed in Accordance with Government Auditing Standards 23 Independent Auditors' Report on the Internal Control Structure Used in Administering Federal Financial Assistance Programs 26 Status of Prior Audit Findings 29 Findings and Recommendations 30 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 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 and for the year ended March 31, 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 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 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 general purpose 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 Housing Authority of the County of Contra Costa, California, as of March 31, 1994, and the results of its operations for the year then ended in conformity with generally accepted accounting principles. September 21, 1994 O O N r•-+ t t- r-4 r- 00 \O W) r-q r-1 V) ON N N t- en r-q O 00 ON le t- r-4 r-q N M O O 00 t- 00 N O 00 M t- r-: C; cd > O N M M r-i O 00 O 00 ON �+ C ON O\ r1 r1 O ON M r- r--1 [0 O r cri N 00 a� 69 bR E t 4. O 1-: 00 (121 69 O 0 V y 00 00 CO 00 OC - z oA u 6s ros 14 < W %C 1 1 1 1 1 1 1 i 1 Otn >, � b v O U A cN Oz � • W � M w f� Qa V o 0 Oen >+ N cz � A E,, W rs 60 Orxi� � v � vN•, �eq � o� � 00 x W r , � 0 00 0, r r..q Z Lt, 06 C4 e 06 y "l06 \fn V) � O N Q� Q� LL > r-� M N r- z . O W xz ca • o U A .0 a; r W co O U > 10 �-. Z U kr) O •Q bA U Q (L) w n cc W Wq 'iA z � Z 'O Q) .b cd O O CL O > 'm -0 Q ^O cti cc a� Q O ccz m V Cz UaHoaa zw ¢ _ W) �O M t- tl- O �o b -4 to T-i \.O r--i M r--+ CN \.O M l� �O ( \ N W N C� O M t- O M 00 r-i M 00 M t- i; 't M �C t- t- tl- et M C� C\ try 00 to O O-, Itt CN o O O N N r-i N r+ r-I r"{ 00 tr) O N C*l N M to C� " �-O M 00 M U �O \,D 00 tag b9 00 00 00 � � IR O O O O O O ay C A 00 00 00 C CL ° off Qa o u co 00 00 00 c� • Qo CGU � •'� zQ u04 c W U r�-i e4 CN Z W) to to � F WO G H Q Lwo O a "o- C14 N a� • wQa �, 0 0 o s H a x � H C to to N 00 O l� 00 Q\ ' ' � ' '�t ' M 00 O y C ct ON t- -t M O t� �c M V O r- >a > C y r-+ to r-+ N �O O to N .--� M � F U fs .9 O t- �C C�, N kf)^ N D\ O M to 00 N 00 cz 'tM \C t- t- t- le r-4M �O t/ C� to r-i Q z ? N to r--i N e-1 r-1 r--1 00 t/) N tr) �c N cq AW F o � c ^ cd W t% > U Z Cid +U-' .U. ed y O D" >, O O co M CO Q aw U ° a' `" c � o z ° = 0 OU O co Ww= = co w w O c � c ai c - u ¢ AAHo ¢ HAA .� � w 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, 1994 Governmental Fund Types Total Special Debt (Memorandum Revenues Revenue Service Only) Grants $ 44,629,290 $ 693,197 $ 45,322,487 Rents 2,217,504 - 2,217,504 Interest 42,494 314 42,808 Other 466,900 - 466,900 Total revenues 47,356,188 693,511 48,049,699 Expenditures Current: Administration 2,970,888 - 2,970,888 Tenant services 179,774 - 179,774 Utilities 872,822 - 872,822 Maintenance 2,241,014 - 2,241,014 Protective services 164,120 - 164,120 General 1,989,063 - 1,989,063 Rehabilitation loans 376,245 - 376,245 Housing assistance payments 33,387,034 - 33,387,034 Grants 71,711 - 71,711 Shelter costs 1,258,587 - 1,258,587 Debt service: Principal - 273,710 273,710 Interest - 130,047 130,047 Capital additions 8,602,781 - 8,602,781 Total expenditures 52,114,039 403,757 52,517,796 Excess of revenues over (under) expenditures (4,757,851) 289,754 (4,468,097) Other financiniz sources Debt issued 4,276,147 - 4,276,147 Excess of revenues and other sources over (under) expenditures (481,704) 289,754 (191,950) Fund balances, beginning of year - as previously stated 2,038,500 13,373 2,051,873 Prior period adjustments (Note 9) 95,607 - 95,607 Fund balances, beginning of year - as restated 2,134,107 13,373 2,147,480 Fund balances, end of year $ 1,6522403 $ 303,127 $ 1,9552530 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, 1994 Variance Favorable Revenues Budget Actual (Unfavorable) Grants $ 49,607,962 $ 44,629,290 $ (4,978,672) Rents 2,545,160 2,217,504 (327,656) Interest 63,862 42,494 (21,368) Other 161,858 466,900 305,042 Total revenues 52,378,842 47,356,188 (5,022,654) Expenditures Current: Administration 3,869,060 2,970,888 898,172 Tenant services 242,856 179,774 . 63,082 Utilities 845,980 872,822 (26,842) Maintenance 2,047,550 2,241,014 (193,464) Protective services 304,019 164,120 139,899 General 2,161,470 1,989,063 172,407 Rehabilitation loans 282,184 376,245 (94,061) Housing assistance payments 32,058,859 33,387,034 (1,328,175) Grants - 71,711 (71,711) Shelter costs 901,840 1,258,587 (356,747) Capital additions 9,709,998 8,602,781 1,107,217 Total expenditures 52,423,816 52,114,039 309,777 Excess of revenues over (under) expenditures (44,974) (4,757,851) (4,712,877) Other financing sources Debt issued - 4,276,147 4,276,147 Excess of revenues and other sources over (under) expenditures (44,974) (481,704) (436,730) Fund balances, beginning of year - as previously stated 2,038,500 2,038,500 - Prior period adjustments (Note 9) 95,607 95,607 - Fund balances, beginning of year - as restated 2,134,107 2,134,107 - Fund balances, end of year $ 2,089,133 $ 1,652,403 $ (439,730) 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, 1994. Note 1 - DEFINITION OF REPORTING ENTITY The Housing Authority of the County of Contra Costa (the Authority) was 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 has implemented the provisions of the Governmental Accounting Standards Board, codified in GASB section 2100, "Defining the Government Reporting". For financial reporting purposes the Authority's financial statements include all funds, account groups, and other organizations over which Authority officials exercise oversight responsibility. Oversight responsibility includes such duties as appointment of governing body members, budget review, approval of tax levies, responsibility for outstanding debt secured by the Authority's full faith and credit, or revenues, and the responsibility for funding deficits. During the year ended March 31, 1994, the Authority did not exercise oversight responsibility over any other organizations. Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial reporting policies of the Authority conform to general accepted accounting principles as applicable to governmental entities. The following is a summary of the more significant policies: (A) Basis of Presentation - Fund Accounting The accounts of the Authority are organized on the basis of funds and account groups, each of which is considered a separate 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 as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped by fund type in the combined general purpose financial statements as follows: GOVERNMENTAL FUND TYPES Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than debt service funds) that are legally restricted to expenditures for specified purposes. Debt Service Funds - Debt Service Funds account for the accumulation of resources for, and the payment of, general long-term debt obligation principal, interest and related costs. 6 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 2 (Continued) FIDUCIARY FUND TYPES Trust and Agency Funds = Trust and Agency Funds are used to account for assets held by the Authority in a trustee capacity or as an agent for individuals, private organizations, other governments, and/or other funds. Those include Expendable Trust and Agency Funds. Expendable Trust Funds are accounted for in essentially the same manner as governmental funds. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The Authority accounts for deferred compensation funds in a trust fund. ACCOUNT GROUPS General Fixed Assets Account Group - This group of accounts is established to account for recorded fixed assets of the Authority. General Lon-Term Debt Account Group - This group of accounts is established to account for all general long-term obligations of the Authority. (B) Basis of Accounting Governmental fund types are accounted for using the modified accrual basis 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 in 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 Statements Total columns on the combined statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns does not present financial position or results of operations 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. HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 2 (Continued) (D) Fixed Assets General fixed assets are valued at historical cost. Contributed general fixed assets are recorded at fair market value at the time received. Interest expense incurred during the development period is capitalized. The Authority records capital outlays in its respective funds as expenditures during the year and annually records the total capital outlay in the General Fixed Assets Account Group. No depreciation has been provided on the general fixed assets. (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 30. This differs from its other programs which have a fiscal year ending March 31. Our operating period for these programs was July 1, 1993 through June 30, 1994. The effect on the financial statements of these differing year ends is not material. Due, however, to these programs having differing fiscal year ends the due to/from other funds is not in exact agreement as reflected on the accompanying balance sheet. (J) Grant Restrictions The Authority has received loans and grants from the U.S. Department of Housing and Urban Development and the California 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. 8 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 3 - CASH AND INVESTMENTS All cash and investments held by the Authority are maintained in checking or savings accounts and certificates of deposits. The California Government Code requires California banks and savings and loan associations to secure the Authority's deposits not covered by federal deposit insurance by pledging mortgages or government securities as collateral. The market value of mortgages must equal at least 150% of the face value of deposits. The market value of government 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. Note 4 - CASH WITH TRUSTEE Funds totalling $303,204 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. Funds totalling $597,176 represent assets of the deferred compensation plan and are recorded as cash with trustee. See Note 10 for further discussion of the deferred compensation plan. Note 5 - 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 Revenue Funds to have a deficit cash balance of $2,025,792 and unreserved/undesignated fund deficit of $1,598,961 at March 31, 1994. Note 6 - DEFERRED LOANS At March 31, 1994 there were $884,255 of Community Development Block Grant, $971,752 of Rental Rehabilitation Grant, and $144,784 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 specific future date. The agency elects to record the loan and interest receivable on these notes as deferred revenue. Revenue is recognized as these loans are collected. At March 31, 1994 $167,652 of the loan amounts awarded had not been paid to the contractors and are reflected as accounts payable versus deferred revenue. 9 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 7 - FIXED ASSETS The following is a summary of the Authority's changes in fixed assets for the fiscal year ended March 31, 1994. Balance Balance 4/1/93 Additions Deletions 3/31/94 Conventional $ 55,626,913 $ 3,297,901 $ 57,261 $ 58,867,553 Section 8 1,176,024 95,883 4,855 1,267,052 Other 1,644,539 5,208,997 - 6,853,536 $ 58,447,476 $ 8,602,781 $ 62,116 $ 66,988,141 Note 8 - LONG-TERM DEBT Following is a summary of changes in long-term debt for the year ended March 31, 1994: Balance Adjustments 3/31/94 Balance 4/1/93 See Note 9 Additions Deletions 3/31/94 Federal Financing Bank Notes $ 249,344 $ - $ - $ 43,710 $ 205,634 Bonds 3,250,000 - - 230,000 3,020,000 Construction loan - 31,618 1,478,620 - 1,510,238 RHCP loan - 181,804 2,602,527 - 2,784,331 County of Contra Costa - - 195,000 - 195,000 City of Antioch - 50,000 - - 50,000 Other agencies - 72,047 - - 72,047 Compensated Absences (Note 11) 213,014 - 40,414 - 253,428 $ 32712,358 $ 3352469 $ 4,316,561 $ 273,710 $ 82090,678 Following is a schedule of debt payment requirements to maturity for long-term obligations other than compensated absences: Year Ending March 31 1995 $ 2,030,966 1996 416,859 1997 410,110 1998 414,960 1999 429,963 Thereafter 7,299,892 Less amount 11,002,750 representing interest 3,165,500 $ 7,837,250 10 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 8 (continued) The Federal Financing Bank Notes accrue interest at 6.6% per annum and require annual payments of $60,166. The Bonds accrue interest at 3-1/8% to 5% per annum. The Consolidated Omnibus Budget Act of 1986 (COBRA) authorized the Secretary of the Department of Housing and Urban Development 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 Contributions Contract (ACC) states that all debt service requirements related to 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, $7,657,085 of permanent notes, and interest on those notes, recorded on the Authority's books of accounts as of March 31, 1994 have not been reflected on the Authority's current financial statements.- Per the financial reports received form HUD, there is actually $27,954,024 of permanent notes payable, and interest on these notes, that have not been forgiven as of March 31, 1994. The difference between the amounts 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. On January 13,1993 the Authority entered into a note payable agreement with the California Department of Housing and Community Development. The authorized loan amount is $3,085,597 of which $2,784,331 had been drawn down as of March 31, 1994. The loan proceeds are to be used to construct an eighty-two unit housing project in Antioch, CA. The units are to be occupied by lower and very low income households. The loan is repayable sixty years from the date the first completed unit is occupied. The loan bears simple interest at 3% per annum. Note 9 - PRIOR PERIOD ADJUSTMENTS At March 31, 1993 the Authority reported $335,469 of loans from various agencies as current liabilities. These loans are associated with the Casa Del Rio RHCP development project. During the fiscal year ended March 31, 1994, the Authority determined that these loans would be more accurately reported as long-tern debt. These loans are recorded in the General Long- Term Debt Group of Accounts as of March 31, 1994. In prior years, the Authority has reported $239,862 of program income associated with the Authority's Community Development Block Grant and Residential Rehab revolving loan programs as income. HUD requires the Authority to use program income prior to requesting additional funds from HUD. The Authority therefore decided to report this income as unearned grants as of March 31, 1994. The two transactions noted above net to a prior period adjustment increasing beginning fund balance by $95,607. This is reported on the Combined Statement of Revenues, Expenditures, and Changes in Fund Balances. 11 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 10 - DEFERRED COMPENSATION The Authority offers its employees a deferred compensation plan created in accordance with Internal Revenue Code 457. The plan, available to all Authority employees, permits them to defer a portion of their current salary until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are, until paid or made available to the employee or the beneficiary, solely the property 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. It is the Authority's position that they have 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 to 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 plan 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, 1994, the assets of the plan, recorded at their fair market value, amounted to $597,176. This amount is held under the Authority's name for the named employees. This amount is reported as "Cash with trustee" on the Combined Balance Sheet. Note 11 - 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 separation 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 $253,428 as of March 31, 1994. 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 Authority. The cost of vacation and sick leave is recognized when payments are made to employees, in the special revenue fund. 12 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 12 - EMPLOYER RETIREMENT PLAN The Authority participates in a defined benefit retirement plan that is administered by the Contra Costa county Employees' Retirement Association. All full-time employees of the Authority participate 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 participants at March 31, 1994. The Authority contributes 8.25% of eligible employees' annual compensation. In addition, the Authority also paid approximately 50% of the employees' basic annual contributions pursuant to agreements during salary negotiations. Employer contributions are vested (1) after 10 years of service and employee attain age 50 or (2) 30 years of service regardless of age or (3) at mandatory age regardless of the amount of service. Employees contribute to the retirement system through biweekly payroll deductions. The xate 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 subject to contributions was $3,107,290 for the year ended March 31, 1994. Employer contributions were $390,750 and employee contributions were $148,461, representing 12.6% and 4.8% of payroll subject to contribution, respectively, for the fiscal year ended March 31, 1994. The ten year trend analysis and other disclosures required by generally accepted accounting principles are described in the general purpose financial statements of the County of Contra Costa, California as of June 30, 1994. Note 13 - HEALTH INSURANCE Health care benefits for active and retired employees are financed by the beneficiaries and by the Authority. The Authority's contribution during the fiscal year ending March 31, 1994 for active employees was $389,736 and for retired employees $130,997. The Authority's liability for health care benefits is limited to its annual contribution. As of March 31, 1994, there were 95 active and 46 retired employees being covered by the Authority's health insurance. Note 14 - FUND DEFICIT The Management Special Revenue Fund has a $712,999 fund deficit at March 31, 1994. This fund deficit appears to be due construction in progress for the Casa Del Rio RHCP project at March 31, 1994. As of that date, the Authority incurred $6,694,584 of construction costs and issued loans of $4,611,616. 13 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 15 - LEASE OBLIGATIONS The Authority is obligated under certain leases accounted for as operating leases. Operating leases do not give rise to property rights, therefore the results of the lease agreements are not reflected in the Authority's account groups. Total rental expense for the year ended March 31, 1994 for all operating leases amounted to $168,097. The following is a schedule of future minimum rental payments required under the Authority's noncancelable operating leases as of March 31, 1994: Year Ended March 31 1995 $ 171,797 1996 175,477 1997 149,557 1998 74,391 $ 571,222 Note 16 - 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, and errors 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 occurrence. The Authority's liability insurance has a $250,000 deductible per occurrence. The relationship between the Authority and CHARMA is such that CHARMA is not a component unit of the Authority for financial reporting purposes. CHARMA's governing board controls the operations of the JPA, including selection of management and approval of operating budgets independent of any influence 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 proportionately to their participation in CHARMA. Condensed audited financial information for the year ended May 31, 1993, is as follows: Total assets $ 3,493,881 Total liabilities (1,021,352) Total retained earnings $ 2,472,529 Total revenues $ 1,648,771 Total expenses (951,061) Net decrease in retained earnings $ 697,710 CHARMA had no long-term debt outstanding at May 31, 1993. The Authority's share of ye&T end assets, liabilities, or retained earnings has not been calculated. 14 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA NOTES TO THE GENERAL PURPOSE FINANCIAL STATEMENTS MARCH 31, 1994 (Continued) Note 17 - JOINT POWERS AGREEMENT - WORKERS' COMPENSATION 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' compensation insurance coverage for member housing authorities. At December 31, 1993, there were thirty-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 December 31, 1993, is as follows: Total assets $ 4,628,805 Total liabilities (4 616,118) Total retained earnings $ 12,687 Total revenues $ 3,446,413 Total expenses (3,318,387) Net increase in retained earnings $ 128,026 CHWCA had no long-term debt outstanding at December 31, 1993. The Authority's share of year end assets, liabilities, or retained earnings has not been calculated. Note 18 - CONTINGENT LIABILITIES A. Grants The Authority has received funds from various federal, state, and local grant programs. It is possible that at some future date it may be determined that the Authority was not in compliance with applicable grant requirements. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the Authority does not expect such disallowed amounts, if any, to materially affect the financial statements. B. Lawsuits The Authority is a defendant in a matter of litigation. It is the opinion of management that the ultimate resolution of this matter of litigation will not have a material effect on the Authority's financial position. 15 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 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, as of and for the year ended March 31, 1994, and have issued our report thereon dated September 21, 1994. These general purpose financial statements are the responsibility of the Housing Authority of the County of Contra Costa, California'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 Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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. September 21, 1994 16 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED MARCH 31, 1994 Federal Grantor CFDA Number Expenditures Department of Housing and Urban Development (HUD) Direct Programs: Public and Indian Housing 14.850 4,413,805 Public Housing - Comprehensive Improvement Assistance Program 14.852 2,755,864 Public Housing - Comprehensive Grant Program 14.852 480,006 Public Housing - Drug Elimination Program 14.854 264,932 Section 8 Housing Voucher Program 14.177 5,919,651 Lower Income Housing Assistance Program 14.156 30,416,623 Mc Kinney Act - Emergency Shelter Program 14.231 173,000 Passed through the State of California Housing and Community Development: Lower Income Housing Assistance Program 14.156 817,839 Mc Kinney Act - Emergency Shelter Program 14.231 25,952 Passed through the County of Contra Costa: Supportive Housing Program 14.178 1,029,311 Community Development Block Grant 14.218 222,953 Rental Housing Rehabilitation 14.230 237,300 Total HUD 46,757,236 Department of Health and Human Services (HH&S) Passed Through the County of Contra Costa: Health Care for the Homeless Program 93.151 27,796 Total HH&S 27,796 * Major federal financial assistance program. 17 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED MARCH 31, 1994 (Continued) Federal Grantor CFDA Number Expenditures Federal Emergency Management Agency (FEMA) Passed Through the United Way: Disaster Assistance 83.516 28,456 Total FEMA 28,456 Total federal expenditures $ 46,813,488 * Major federal financial assistance program. The accompanying notes are an integral part of this statement. 18 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 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, 1994, and have issued our report thereon dated September 21, 1994. We conducted our audit in accordance with generally accepted auditing standards and GovernmentAudi ting 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 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's 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 paragraph. 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. We noted certain immaterial instances of noncompliance that are included 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 is not limited. September 21, 1994 19 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH GENERAL REQUIREMENTS 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, 1994, and have issued our report thereon dated September 21, 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, 1994. 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 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 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 second 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 is not limited. September 21, 1994 20 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 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, 1994, and have issued our report thereon dated September 21, 1994. We have also audited the Housing Authority of the County of Contra Costa, California's compliance with the requirements governing types of services allowed or unallowed; eligibility; reporting; special tests and provisions for 14.156 - Lower Income Housing Assistance Program, 14.177 - Section 8 Housing Voucher Program and 14.852 - Public Housing-Comprehensive Improvement Assistance 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, 1994. 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's compliance with those 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 (OMB) Circular A-128, Audits of State and Local Governments. 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's 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 noncompliance 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. 21 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 14.156 - Lower Income Housing Assistance Program, 14.177 - Section 8 Housing Voucher Program and 14.852 - Public Housing-Comprehensive Improvement Assistance 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, 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. September 21, 1994 22 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 INDEPENDENT AUDITORS' REPORT ON THE 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, 1994, and have issued our report thereon dated September 21, 1994. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. In planning and performing our audit of the general purpose financial statements of the Housing Authority of the County of Contra Costa, California, for the year ended March 31, 1994, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the 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 judgements 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, 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, 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. 23 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 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 Administrative 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 obtained 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 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 and 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 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 September 21, 1994. 24 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. September 21, 1994 25 HARN & ROWE Certified Public Accountants 2255 Morello Avenue Suite 209 Pleasant Hill, CA 94523 (510) 686-5550 • Fax (510) 686-5814 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, 1994, and have issued our report thereon dated September 21, 1994. 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 September 21, 1994. We conducted our audits 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 (OMB) Circular A-128,Audits of State and Local Governments. Those standards 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 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, 1994, 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 September 21, 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 judgements 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, 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 26 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 Administrative 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 obtained 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, 1994, the Housing Authority of the County of Contra Costa, California, expended 93010 of its total federal financial assistance under major federal financial assistance programs. We performed tests of controls, as required by OMB Circular A-128, to evaluate the effectiveness of the design and operation of internal control structure 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 reimbursements that are applicable to each of the Housing Authority of the County of Contra Costa, California's major federal financial assistance programs, which are identified in the accompanying schedule of Federal Financial Assistance. Our procedures were less in ✓ 27 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 the 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 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 noncompliance 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 performing their assigned functions. We noted no matters involving the internal control structure and its operations that we considered 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 September 21, 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. September 21, 1994 28 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA STATUS OF PRIOR AUDIT FINDINGS MARCH 31, 1994 The previous audit report for the year ended March 31, 1993 contained the following audit finding: 1. Tenant Files and Rent Rolls (CFDA #14.156 and #14.850) During our prior audit we noted errors in various tenant files. During our current audit we again noted errors in tenant files. See current finding #1. 29 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA FINDINGS AND RECOMMENDATIONS MARCH 31, 1994 1. Tenant Files - Lower Income Housing Assistance and Section 8 Housing Voucher Programs (CFDA #14.156 & #14.177) And Public Housing Program (CFDA #14.850) We reviewed the files of nine Lower Income Housing Assistance Program, three Section 8 Housing Voucher Program and sixteen Public Housing Program tenants. We noted the following exceptions: CFDA #14.850 1. One tenant file examined did not contain a lease agreement. 2. The amount of security deposit payable per one tenant's lease did not agree to the amount of security deposit per the accounting records. 3. For six of the files examined there was no documentation indicating that an annual unit inspection had been performed. 4. The annual re-certification for one tenant was performed late. CFDA #14.156 And #14.177 5. The rent reasonableness documentation, kept in the tenant files, is not dated, making it difficult to determine when the rent was determined to be reasonable. For three files examined there was no documentation in the file to indicate that the rent reasonableness determination had been performed. We recommend that the Authority review its tenant files to ensure all of the required documentation is present, accurate and prepared in a timely manner. Authority's Response - The Housing Authority concurs with the findings and appropriate corrective action has been taken. 30 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA FINDING AND RECOMMENDATIONS MARCH 31, 1994 (Continued) 2. Drug-Free Workplace Policy (All Programs) During our review of the Authority's compliance with the requirements of the Drug-Free Workplace Act we were unable to locate any documentation verifying that employees hired after March 31, 1989 had been made aware of the Authority's drug-free workplace policy. We recommend that the Authority incorporate its drug-free workplace policy as part of its personnel policies and ensure that all employees are made aware of and understand the policy. Authority's Response - The Housing Authority concurs with the recommendation and appropriate corrective action will be taken to insure that newly hired employees are aware of the Housing Authority's compliance with the Drug Free Workplace Act. Existing employees will also be made aware of the agency's compliance with the Act. 3. Performance Funding System (CFDA #14.850) During our review of the forms prepared for the calculation of operating subsidy we noted an error in the calculated amount of subsidy. This mistake resulted in the operating subsidy being overstated by $75,488 for the fiscal year ended March 31, 1994. Upon learning of the mistake the Authority reviewed its operating subsidy calculations for the past several years to ensure that all incorrect calculations were determined. Subsequent to March 31, 1994 the Authority submitted revised operating budgets to HUD for the fiscal year ended March 31, 1995. These revised budgets reflected the correction of operating subsidies for prior years. As the Authority has already received all of its earned operating subsidy for the fiscal year ended March 31, 1995, it is expected that HUD will recover the excess operating subsidies by reducing the amount it remits the Authority for the fiscal year ended March 31, 1996. As this appears to be an isolated mistake no further recommendation is considered necessary. Authority's Response- The Housing Authority concurs with the auditor's recommendation and appropriate corrective action has been taken. 31