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Audit - 1995/1996 Yo L . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 & Project KS 38V-1 & 4 Project KS 38E-2 & 8 & Home Ownership FINANCIAL STATEMENTS Twelve Months Ended June 30, 1996 . . L f to . . . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas TABLE OF CONTENTS EXHIBIT Independent Auditor's Report - Housing Authority FINANCIAL STATEMENTS Balance Sheet - Prescribed Basis - Low Rent at June 30, 1996 A-1 Balance Sheet - Prescribed Basis - Section 8 at June 30, 1996 A-2 Statement of Income and Expenses - Prescribed Basis Low Rent Twelve Months Ended June 30, 1996 B-1 Statement of Income and Expenses - Prescribed Basis Section 8 Twelve Months Ended June 30, 1996 B-2 Analysis of Surplus - Prescribed Basis - Low Rent Twelve Months Ended June 30, 1996 C-1 Analysis of Surplus - Prescribed Basis - Section 8 Twelve Months Ended June 30, 1996 C-2 Notes to the Financial Statements Independent Auditor's Report - Home Ownership FINANCIAL STATEMENTS Balance Sheet - Cash Basis at June 30, 1996 Statement of Receipts and Expenditures - Cash Basis at June 30, 1996 Analysis of Surplus - Cash Basis Twelve Months Ended June 30, 1996 Notes to the Financial Statements SUPPLEMENTARY INFORMATION Schedule of Federal Financial Assistance for the Twelve Months Ended June 30, 1996 C(l) Computation of Residual Receipts and Accruing Annual Contributions - Low Rent D-1 Computation of Residual Receipts and Accruing Annual Contributions - Section 8 D-2 PAGE 1-2 3 4 5 6 7 8 9-11 12-13 14 15 16 17-18 19 20 21 . . e . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas TABLE OF CONTENTS(Continued) Actual development Costs - Uncompleted Development 04 Actual development Costs - Uncompleted Development 05 Reconciliation of Development Funds Advanced with Development Costs Statement of Modernization Costs - Uncompleted Analysis of General Funds Available for Reduction of Annual Contributions - Low Rent Analysis of General Funds Available for Reduction of Annual Contributions - Section 8 Report on Compliance to Laws and Regulations Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Single Audit Opinion on Compliance with Specific Requirements Applicable to Major Federal Financial Assistance Programs Independent Auditor's Report on the Housing Authority of Salina, Kansas's Compliance with General Requirements Independent Auditor's Report on the Housing Authority of Salina, Kansas's Internal Control Structure as an Entity and Over Its Federal Financial Assistance Programs Schedule of Findings and Questioned Costs Adjusting Entries EXHIBIT F(l)-l F(1)-2 F(2) F(3) G-1 G-2 PAGE 22 23 24 25 26 27 28. 29-30 31 32-34 35-40 41-42 . . e 6 John M. Middleton Certified Public Accountant 3315 W. 91st Street Leawood, Kansas 66206 913-648-3687 Board of Directors Salina Housing Authority Salina, Kansas 67402 Department of Housing and Urban Development Public Housing Division Independent Auditor's Report I have audited the accompanying financial statements of the Housing Authority of the City of Salina, Kansas, component unit of the City of Salina, as of June 30, 1996 and for the year then ended. These financial statements ar~ the responsibility of the Housing Authority's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards, Government Auditing Standards issued by the Comptroller General of the United States, and OMS Circular A-128. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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. I believe that my audit provides a reasonable basis for my opinion. As described in Note A, these financial statements were prepared in conformity with the accounting practices prescribed or permitted by the Department of Housing and Urban Development, which is a comprehensive basis of accounting other than generally accepted accounting principles. In my opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities, and surplus of the Housing Authority of the Ci ty of Salina, Kansas, as of June 30 , 1996 and the resul ts of its operations and its changes in surplus for the twelve months then ended, on a basis of accounting described in Note A. In accordance with Government Audi ting Standards, I have also issued a report dated January 14, 1997 on my consideration of the Housing Authority of the City of Salina, Kansas's internal control structure and a report dated January 14, 1997 on its compliance with laws and regulations. (con tinued) - . e 'My audit was made for the purpose of forming an opinion on the financial statements of the Housing Authority of the City of Salina, Kansas taken as a whole. The supplemental financial information as listed in the Table of Contents, including the Schedule of Federal Financial Assistance, presented for purposes of additional analysis and is not a required part of the financial statements. This information has been subjected to auditing procedures applied in the audit of the financial statements and, in my opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. This report is intended solely for the information and use of the BO$rd of Directors, Management of the Housing Authority of the City of Salina, and the Department of Housing and Urban Development and should not be used for any' other purpose. /,,'1 .'... J'- :-1''''4' rI.,j7 ,/Ib' _... ./' '~,,i':::-""'''~~: ,.:':'>': ~ John M. Middleton Certified Public Accountant January 14, 1997 Leawood, Kansas 66206 . . e Exhibit A-1 HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas BALANCE SHEET - PRESCRIBED BASIS As of June 30, 1996 Annual Contribution Contract FW-1271 Project KS 38-1, 2, 4 & 5 ASSETS Cash Petty Cash Tenant Accounts Receivable Interprogram Receivable HUD Annual Contributions Receivable Prepaid Insurance Development Costs Development Costs - Contra Land, Structures and Equipment Modernization Development in Progress $ 79,321.91 50.00 3,049.00 15,576.86 67,888.11 5,891.96 2,547,739.57 2,547,739.57) 2,421,602.90 45,886.00 2,803,039.04 TOTAL ASSETS $ 5,442,305.78 ------------ ------------- LIABILITIES AND SURPLUS Tenants Security Deposits Other Accounts Payable Accounts Payable Home Ownership Contract Retentions PILOT Prepaid Rent Permanent Notes - HUD Permanent Notes - FFB $ 12,405.00 2,210.12 16,413.57 73,325.00 13,059.25 329.55 967,444.99 702,774.03 -------------- $ 1,787,961. 51 3,654,344.27 -------------- $ 5,442,305.78 --------- ----------- TOTAL LIABILITIES Surplus - Exhibit C-1 TOTAL LIABILITIES AND SURPLUS SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 3 - e . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas BALANCE SHEET - PRESCRIBED BASIS As of June 30, 1996 Annual Contribution Contract KC-7015 ASSETS KS 38V-1 & 4 Cash Interprogram Receivable Investments Land, Structures and Equipment $ 18,057.91 84.45 $ 1,499.88 TOTAL ASSETS $ 19,642.30 $ ------------ --------------- 156,879.33 ------------- ------------- LIABILITIES AND SURPLUS Interprogram Accounts Payable Accounts Payable - HUD $ 123.00 10,859.95 $ TOTAL LIABILITIES $ 10,982.95 $ Surplus - Exhibit C-2 8,659.35 TOTAL LIABILITIES AND SURPLUS $ 19,642.30 $ ------- ----------- 156,879.33 -------------- --------------- Exhibit A-2 KS 38E-2 & 8 102,301. 21 123.00 39,206.80 15,248.32 11,652.51 26,034.36 37,686.87 119,192.46 SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 4 - e . e Exhibit B-1 HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas STATEMENT OF INCOME AND EXPENSES - PRESCRIBED BASIS Twelve Months Ended June 30, 1996 Annual Contribution Contract FW-1271 Project KS 38-1, 2, 4 & 5 OPERATING INCOME Dwelling Rental Interest on General Fund Investments Other Income $ 147,111.18 2,390.84 9,664.96 TOTAL OPERATING INCOME - Exhibit D-1 $ 159,166.98 OPERATING EXPENSES Administration Tenant Services Utilities Ordinary Maintenance and Operations General Expense Non-Routine Maintenance $ 33,887.47 308.88 5,563.58 98,984.13 55,760.42 12,907.55 TOTAL OPERATING EXPENSE - Exhibit D-1 $ 207,412.03 NET (LOSS) BEFORE OTHER CHARGES $( 48,245.05) OTHER CREDITS & (CHARGES) Prior Period Adjustments Affecting Residual Receipts Interest on Notes and Bonds Payable $ 34,802.10 ( 47,714.54) TOTAL OTHER CREDITS & (CHARGES) $( 12,912.44) NET (LOSS) - Exhibit C-1 $( 61,157.49) ------------- ------------- SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 5 - It . e J Exhibit B-2 HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas STATEMENT OF INCOME AND EXPENSES - PRESCRIBED BASIS Twelve Months Ended June 30, 1996 Annual Contribution Contract KC-7015 OPERATING INCOME KS 38V-1 & 4 KS 38E-2 & 8 Interest: Operating Reserve General Fund Other Income $ 299.63 283.83 14.41 $ 3,884.34 743.59 TOTAL OPERATING INCOME $ 597.87 $ 4,627.93 --------- ------------ --------- ----------- OPERATING EXPENSES Audi t Expense Administrative Expenses HAP Payments $ 78.00 10,786.41 106,306.81 $ 845.00 79,317.11 672,503.93 TOTAL OPERATING EXPENSES $ 117,171.22 $ 752,666.04 NET (LOSS) - Exhibit C-2 $( 116,573.35) $( 748,038.11) ------------- ------------- ----------- ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 6 - . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Exhibit C-1 ANALYSIS OF SURPLUS - PRESCRIBED BASIS Twelve Months Ended June 30, 1996 Annual Contribution Contract FW-1271 Project KS 38-1, 2, 4 & 5 UNRESERVED SURPLUS Balance, Audit June 30, 1995 Net (Loss) for the Year Ended June 30, 1996 - Exhibit B-1 Provision For Operating Reserve - Exh. D-1 BALANCE AT JUNE 30, 1996 RESERVED SURPLUS OPERATING RESERVE Balance Per Audit at June 30, 1995 Provision for Operating Reserve BALANCE AT JUNE 30, 1996 CUMULATIVE CONTRIBUTIONS Balance Per Audit at June 30, 1995 Balance Adjustment Accruing Annual Contributions Year Ended June 30, 1996 - Exhibit D-1 HUD Operating Subsidy - Exhibit D-1 BALANCE AT JUNE 30, 1996 CUMULATIVE GRANTS Balance Per Audit at June 30, 1995 Current Year Grants BALANCE AT JUNE 30, 1996 CUMULATIVE DONATIONS Balance Per Audit at June 30, 1995 Current Year Donations BALANCE AT JUNE 30, 1996 CUMULATIVE VALUE OF CAPITAL ASSETS CONVEYED TO HOME BUYERS Balance Per Audit at June 30, 1995 Prior Year Adjustments Current Year Additions BALANCE AT JUNE 30, 1996 TOTAL SURPLUS - Exhibit A-1 $(2,166,946.72) 61,157.49) 25,181. 32) $(2,253,285.53) ------------- -------------- $ 76,952.84 25,181. 32 $ 102,134.16 ---------- ------------ $ 3,002,284.86 ( 1,750.20) 67,888.11 83,898.00 $ 3,152,320.77 ----------- -------------- $ 1,185,040.64 1,561,488.42 $ 2,746,529.06 ------------- -------------- $ 0.00 2,917.79 $ 2,917.79 ----------- ------------ $ ( ( 0.00 68,765.70) 27,506.28) $( 96,271.98) ----------- ----------- $ 3,654,344.27 ----------- ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 7 - e . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas ANALYSIS OF SURPLUS - PRESCRIBED BASIS Twelve Months Ended June 30, 1996 Annual Contribution Contract KC-7015 UNRESERVED SURPLUS Balance, Audit June 30, 1995 Net (Loss) for the Year Ended June 30, 1996 - Exhibit B-2 Provision For Operating Reserve - Exh. 0-2 Provision for Project Accounts - Exh. D-2 BALANCE AT JUNE 30, 1996 RESERVED SURPLUS OPERATING RESERVE Balance Per Audit at June 30, 1995 HUD Adjustment Provision for Operating Reserve BALANCE AT JUNE 30, 1996 RESERVED SURPLUS PROJECT ACCOUNT Balance Per Audit at June 30, 1995 Provision for Project Account BALANCE AT JUNE 30, 1996 CUMULATIVE CONTRIBUTIONS Balance Per Audit at June 30, 1995 Housing Assistance Payments Year Ended June 30, 1996 - Exhibit D-2 BALANCE AT JUNE 30, 1996 TOTAL SURPLUS - Exhibit A-2 KS 38V-1 & 4 $ ( 683,091.62) 116,573.35) 3,995.70) 36,903.95) $( 840,564.62) ----------- ------------- $ ( 3,410.33 246.56) 3,995.70 Exhibit C-2 KS 38E-2 & 8 $(7,948,271.59) 748,038.11) 23,488.63) 56,046.05) $(8,775,844.38) ========== $ ( 83,126.84 2,671 .23) 23,488.63 $ 7,159.47 $ 103,944.24 ------------- ------------- $ 242,243.33 36,903.95 =========== $ 1,216,337.21 56,046.05 $ 1,272,383.26 -------------- ------------- $ 6,747,182.70 771,526.64 $ 7,518,709.34 ------------ ----------- $ 119,192.46 $ 279,147.28 ----------- ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 8 - ------------ ------------- $ 442,348.17 120,569.05 $ 562,917.22 ----------- ---------- $ 8,659.35 ------------- -------------- . . . - HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas June 30, 1996 Notes to the Financial Statements NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of the significant accounting policies of the Housing Authority of the City of Salina (HA) is presented to assist in understanding the HA's financial statements. The financial statements and notes are representations of the HA's management, which is responsible for their integrity and objectivity. These accounting policies conform to practices prescribed or permitted by the Department of Housing and Urban Development (HUD) and have been consistently applied in the preparation of the financial statements. Principles Used to Determine Scope of Entity The HA's reporting entity includes the HA's governing board and all related organizations for which the HA exercises oversight responsibility. The HA has developed criteria to determine whether outside agencies should be included within its financial reporting entity. The criteria includes, but is not limited to, whether the HA exercises oversight responsibility (which includes financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters), scope of public service, and special financing relationships. The HA has determined that no other outside agency meets the above criteria and, therefore, no other agency has been included as a component unit in the HA's financial statements. In addition, under GASB Statement #14, the Housing Authority is a component unit of the City of Salina. Basis of Accounting The accounts of the HA are maintained, and the accompanying financial state- ments have been prepared, on the basis of accounting practices prescribed or permitted by HUD. These practices differ in some respects from generally accepted accounting principles. Revenue is generally recognized when received rather than when earned except for federal financial assistance and tenant rent. Expenses are generally recognized when payments are made rather than when a liability is incurred. Accounts Receivable The HA uses the direct write-off method for bad debts. No allowance for doubtful accounts is used in the valuation of the receivables. Land, Structures and Equipment Land, structures and equipment are stated at cost. No provision is made for the decrease in value of structure and equipment because of wear and tear or obsolescence and income is not charged for depreciation of such assets. - 9 - . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas June 30, 1996 Notes to the Financial Statements NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Budget and Budgetary Accounting The HA prepares an annual operating budget which is approved by HUD. Budgeted amounts are as originally adopted, or as revised by the Board of Commissioners. Individual revisions were not material to the original appropriations which were approved. Vacation and Sick Pay Vacation time, personal business days and sick leave are considered as ex- penditures in the year paid. NOTE B - DEPOSITS AND INVESTMENTS The depository is required to have FDIC insurance. As of June 30, 1996 the Housing Authority was fully insured. NOTE C - LONG TERM DEBT Permanent Notes - HUD Construction of the housing project was originally financed by the sale of project notes. During 1987, HUD received budgetary authority to pay the permanent notes and has suspended payments on the annual contribution contract required for permanent note payments. Therefore, interest on the permanent notes has not been accrued during the year ended June 30, 1996. At June 30, 1996 the amount payable was $967,444.99 and no interest was paid for the year then ended. Federal Finance Bank Notes Payable Federal Finance Bank Notes payable are from a 6.6% issue dated July 8, 1983 in an original amount of $925,427.04. Notes amounting to $222,653.01 have been retired leaving a balance due at June 30, 1996 of $702,774.03. Interest paid during the year ended June 30, 1996 amounted to $47,714.54. The total annual payment is $67,888.11. Amounts payable on the bonds are: Fiscal Year June 1997 June 1998 June 1999 June 2000 June 2001 Thereafter Principal $ 21,377.95 $ 22,915.97 24,428.42 26,040.70 27,649.44 580,361. 55 Interest 46,510.16 44,972.14 43,459.69 41,847.41 40,238.67 302,183.88 Total $ 519,211.95 702,774.03 $ ---------------- ---------------- ---------------- ---------------- - 10 - . . - NOTE D - Pension Plan Substantially all employees of the PHA participate in the Kansas Employees Public Employees Retirement System ("System"), a multiple-employer public employee retirement system. The payroll for employees covered by the System for the year ended June 30, 1996, was $107,598.72. The total payroll $141,750.85. Substantially all employees of the PHA are eligible to participate in the System after one year of employment. Employees who retire at or after age 65 or age 62 with ten years service credit or at any age when years of service plus age equal 85 "points" are entitled to a retirement benefit, payable monthly for life, equal to 1 percent of their final average salary for each year of "prior" service and 1.75 percent for each year of "participating" service. Final average salary is the employee's average salary over the highest four years of credited service including add-ons such as accrued leave or vacation leave or a three year average without add-ons. For those hired July 1, 1993 or later, final average salary is a three year average wi th no add-ons. Benefits fully ves t on reaching ten years of service. Vested employees may retire at age 55 and receive reduced retirement benefits. The System also provides death and disability benefits. Benefits are established by state statute. Covered employees are required by State statute to contribute 4% of their salary to the plan. The employer is required by the same statute to contribute the remaining amounts necessary to pay benefits when due. The con tribu tion requiremen t for the year ended June 30, 1996 , was $ 6 , 469 . 75 , which consisted of $2,361.98 from the employer and $4,107.77 from employees. These contributions represented 2.2% and 3.8% of covered payroll respectively. The "pension benefit obligation" is a standardized disclosure method using the present value of pension benefits, adjusted for the effects of projected salary increases and step-rate benefits, estimated to be payable in the future as a result of employee service to date. The measure, which is the actuarial present value of credited projected benefits, is intended to help users assess the System's funding status on a going-concern basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among PERS and employers. The System does not make separate measurements of assets and pension benefit obligations for individual employers. The pension benefit obligation at June 30, 1995, for the System as a whole, determined through actuarial valuation performed as of that date, was $6.99 billion. The System's net assets available for benefits on that date were $5.51 billion, leaving an unfunded pension benefit obligation estimated at $1.48 billion Ten year historical trend information showing the System's progress in accumulating sufficient assets to pay benefits when due is presented in the Systems' June 30, 1995 CAFR. - 11 - . . e John M. Middleton Certified Public Accountant 3315 W. 91st Street Leawood, Kansas 66206 913-648-3687 Board of Directors Salina Housing Authority Salina, Kansas 67402 Department of Housing and Urban Development Public Housing Division Independent Auditor's Report I have audited the accompanying financial statements of the Housing Authority of the City of Salina, Kansas Home Ownership Program, component unit of the City of Salina, as of June 30, 1996 and for the year then ended. These financial statements are the responsibili ty of the Housing Authority's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards, Government Audi ting Standards issued by the Comptroller General of the United States, and OMS Circular A-128. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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. I believe that my audit provides a reasonable basis for my opinion. As described in Note A, these financial statements which is a comprehensive basis of accounting accounting principles. were prepared on the cash basis, other than generally accepted In my opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities, and surplus of the Housing Authority of the City of Salina, Kansas Home Ownership Program, as of June 30, 1996 and the results of its operations and its changes in surplus for the twelve months then ended, on a basis of accounting described in Note A. In accordance with Government Auditing Standards, I have also issued a report dated January 14, 1997 on my consideration of the Housing Authority of the City of Salina, Kansas's internal control structure and a report dated January 14, 1997 on its compliance with laws and regulations. (continued) . . e My audit was made for the purpose of forming an opinion on the financial statements of the Housing Authority of the City of Salina, Kansas taken as a whole. The supplemental financial information as listed in the Table of Contents, including the Schedule of Federal Financial Assistance, presented for purposes of additional analysis and is not a required part of the financial statements. This information has been subjected to auditing procedures applied in the audit of the financial statements and, in my opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. This report is intended Directors, Management of Department of Housing and purpose. solely for the information and use of the Board of the Housing Authority of the City of Salina, and the Urban Development and should not be used for any other ,......~ . '!..~..... ~t/I . . ~~ C"., "".~ ..' '.... .... John M. Middleton Certified Public Accountant January 14, 1997 Leawood, Kansas 66206 HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas . Home Ownership Program BALANCE SHEET - CASH BASIS For the Year Ended June 30, 1996 ASSETS Current Assets Cash Accounts Receivable - Interprogram Total Current Assets Mortgages Receivable TOTAL ASSETS LIABILITIES AND SURPLUS Current Liabilities Accounts Payable Interprogram Total Current Liabilities Total Liabilities . Surplus Unreserved Surplus Reserved Surplus Donated Property Total Surplus TOTAL LIABILITIES AND SURPLUS . $ 128,254.72 16,413.57 $ 144,668.29 51,890.05 $ 196,558.34 -------- -------- $ 3,347.02 $ $ 3,347.02 3,347.02 $ 76,939.34 20,000.00 96,271.98 $ 193,211.32 $ 196,558.34 SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 14 - . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Home Ownership Program STATEMENT OF RECEIPTS AND DISBURSEMENTS - CASH BASIS For the Year Ended June 30, 1996 Operating Receipts Sale of Homes Cost of Sales $ ( 61,500.00 35,037.72) Gain on Sale of Homes $ 26,462.28 Operating Disbursements $ 4,676.84 Net Operating Results $ 21,785.44 Other Receipts Interest $ 2,815.41 Net Receipts and Disbursements $ 24,600.85 -------------- ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 15 - . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Home Ownership Program ANALYSIS OF SURPLUS - CASH BASIS As of June 30, 1996 UNRESERVED SURPLUS Balance per Audit June 30, 1995 Prior Period Adjustments Current Earnings Provision for Reserved Surplus $( 17,480.11) 89,818.60 24,600.85 20,000.00) BALANCE AT JUNE 30, 1996 $ 76,939.34 RESERVED SURPLUS Balance per Audit June 30, 1995 Prior Year Provision Current Year Provision $ 0.00 12,000.00 8,000.00 BALANCE AT JUNE 30, 1996 $ 20,000.00 CUMULATIVE CONTRIBUTIONS Balance per Audit June 30, 1995 Prior Year Adjustments Current Year Additions $ ( 106,297.68 37,531.98) 27,506.28 BALANCE AT JUNE 30, 1996 $ 96,271. 98 -------------- --------------- TOTAL SURPLUS $ 193,211.32 --------- ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS - 16 - . e . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Home Ownership Program Notes to the Financial Statements NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of the significant accounting policies of the Housing Authority of the City of Salina Home Ownership Program (HO) is presented to assist in understanding the HO' s financial statements. The financial statements and notes are representations of the Housing Authority's management, which is responsible for their integrity and objectivity. Principles Used to Determine Scope of Entity The HO is included the Housing Authority as a component unit of the financial statements of the Housing Authority of the City of Salina, Kansas. The HA has developed criteria to determine whether outside agencies should be included within its financial reporting entity. The criteria includes, but is not limited to, whether the HA exercises oversight responsibility (which includes financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters), scope of public service, and special financing relationships. Basis of Accounting The accounts of the HO are maintained, and the accompanying financial state- ments have been prepared, on the modified cash basis of accounting which is allowed under agreements made with the Department of Housing and Urban Development. This basis differs in some respects from generally accepted accounting principles. Revenue is generally recognized when received rather than when earned and expenses are generally recognized when payments are made rather than when a liability is incurred. Interprorgam receivables and payables have been recognized. NOTE B - DEPOSITS AND INVESTMENTS The depository is required to have FDIC insurance. As of June 30, 1996 the Housing Authority was fully insured. NOTE C - SALES OF DWELLING UNITS This program is authorized as a Section 5 (h) Home Ownership Program. The sale of portions of the HUD funded developments is authorized as long as the units sold are replaced. The Housing Authority has begun two developments which are replacements for the units sold under this program. HUD has agreed to continue to pay the required loan payments and Annual Contributions amounts related to the sold units. - 17 - e . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas June 30, 1996 Home Ownership Program Notes to the Financial Statements NOTE D - COSTS OF SALES Under an agreement with the Department of Housing and Urban Development the Housing Authority has agreed to make 10 units available for sale to its tenants who qualify. An allocation of the book value of the units has been made and the Book Value of a sold unit is transferred to the Home Ownership Program when the units is to be sold. This Book Value is used as the Cost of the unit sold. NOTE E - MORTGAGES RECEIVABLE Under the terms of the agreement with HOD, the buyers obtain conventional financing based on their ability to pay. The units sold are priced at Fair Market Value and the difference between the amount of the conventional mortgage obtained by the buyer and the Market Price plus any closing costs is carried by the Housing Authority as a second mortgage. If the buyer sells the house wi thin twenty years all, or a portion, of the second mortgage is payable to the Housing Authority. The seller is also credited with part of his rent prior to purchasing the unit as a down payment. This down payment is to be applied first to closing costs. The remainder, if any, reduces the sale price. The Public Housing account advances any closing costs in excess of the credit allowed the buyer. The HO reimburses the Public Housing account for these excess expenses out of the proceeds of the conventional mortgage and the closing costs are added to the second mortgage. The mortgages are fully repayable for seven years after the sale under the program and from year eight to year twenty years after the sale the mortgages are forgiven by a monthly amount sufficient to fully forgive the mortgages after twenty years. If the buyer stays in the house for twenty years, no payments are due on the mortgage. None of the mortgages have been in place for seven years and, therefore, none have been amortized. NOTE F - RESERVED SURPLUS Under the agreement with HOD the Housing Authority was to open a separate bank account with approximately $4,000 per unit sold as a reserve for defaults. The separate cash account has not been opened but since the amount is contractually reserved an appropriate reservation of surplus is indicated. NOTE G - ADJUSTMENTS TO SURPLUS ACCOUNTS The Housing Authority has not performed any accounting for the Home Ownership Program. The accountant for the Housing Authority made entries to keep track of the cash in the bank and expenses but no year end adjustments have been made since June 30, 1993. The adjusting entries made are to reflect the results of operations for the years ended June 30, 1994 and June 30, 1995 and reclassify the surplus balances to more clearly reflect the operations of the HO. - 18 - . . SUPPLEMENTARY INFORMATION e e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Exhibit C(l) SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE For the Twelve Months Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 Grantor Program CFDA # --------------------------------------------------------------------------- Major Programs HUD Public & Indian Housing 14.850 HUD Development Grant 14.854 HUD Lower Income HAP 14.156 Total for Major Programs Nonmajor Programs HUD Section 8 Voucher 14.177 HUD CIAP 14.852 Total for Nonmajor Programs . Total Federal Financial Assistance Receipts Expenditures $ 151,786.11 $ 126,604.79 1,558,473.42 1,652,833.94 771,526.64 748,038.11 $ 2,481,786.17 $ 2,527,476.84 $ 120,569.05 $ 117,171.22 3,015.00 15,886.00 -------------- ---------------- $ 123,584.05 $ 133,057.22 $ 2,605,370.22 $ 2,660,534.06 -------------- ---------------- -------------- ---------------- Note: The Long Term Debt described in Note C to the financial statements is guaranteed by HUD. The loans are fully secured by the assets of the Authority. A substantial portion of the receipts and expenditures for Public and Indian Housing relates to loan payments. e SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 19 - . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas COMPUTATION OF RESIDUAL RECEIPTS AND ACCRUING ANNUAL CONTRIBUTIONS Twelve Months Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 OPERATING RECEIPTS Operating Income - Exhibit B HUD Subsidy - Exhibit C Prior Period Adjustments Affecting Residual Receipts TOTAL OPERATING RECEIPTS OPERATING EXPENDITURES Operating Expenses - Exhibit B Capital Expenditures: Replacement of Nonexpendable Equipment Property Betterments and Additions TOTAL OPERATING EXPENDITURES Residual Receipts per Audit Audit Adjustments Backed Out Residual Receipts per Books Provision for Operating Reserve - Ex. C RESIDUAL RECEIPTS PER LHA ACCRUING ANNUAL CONTRIBUTIONS Fixed Annual Contributions For Year Ended June 30, 1996 ACCRUING ANNUAL CONTRIBUTION - Exhibit C $ 159,166.98 83,898.00 34,802.10 $ 277,867.08 $ 207,412.03 10,550.58 914.09 $ 218,876.70 $ 58,990.38 ( 33,809.06) $ 25,181. 32 ( 25,181. 32) $ 0.00 ------------- ------------- $ 67,888.11 $ 67,888.11 ---------- ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 20 - Exhibit D-1 It . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas COMPUTATION OF RESIDUAL RECEIPTS AND ACCRUING ANNUAL CONTRIBUTIONS Twelve Months Ended June 30, 1996 MAXIMUM CONTRIBUTION AVAILABLE KS 38V-1 & 4 Annual Contributions Contract KC-7015 Maximum Authorized Project Account Balance $ 157,473.00 242,243.33 Total Available $ 399,716.33 ------------- ------------ ANNUAL CONTRIBUTION REQUIRED Housing Assistance Payments Administrative Fees Earned Hard To House Fees Earned Audi t Cos ts $ 106,306.81 14,482.48 78.00 Total Funds Required Project Receipts Other than Annual Contributions $ 120,867.29 298.24) Total Contribution Required $ 120,569.05 ------------- ------------ PROJECT ACCOUNT CHANGE Provision for Project Account $ 36,903.95 ---------- ------------- OPERATING RESERVE CHANGE Operating Receipts: Interest on Operating Reserve Interest on General Fund Other Income Annual Contribution Earned $ 299.63 283.83 14.41 120,569.05 Total Operating Receipts $ 121,166.92 Operating Expenditures 117,171. 22 Residual Receipts per Audit Provision for Operating Reserve $ ( 3,995.70 3,995.70) Residual Receipts per Books $ 0.00 ------------- -------------- Exhibit D-2 KS 38E-2 & 8 $ 946,182.00 1,097,728.00 $ 2,043,910.00 ------------ -------------- $ 672,503.93 98,426.40 495.00 845.00 $ 772,270.33 743.59) $ 771,526.74 -------------- ------------- $ 56,046.05 ----------- ------------- $ 3,884.34 743.59 771,526.74 $ 776,154.67 752,666.04 $ ( 23,488.63 23,488.63) $ 0.00 -------------- -------------- SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 21 - Exhibit F(l)-l HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas . ACTUAL DEVELOPMENT COSTS - UNCOMPLETED Twelve Month Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 Development KS16P038004 Prior Audit Period Current Audit Period Total CLASSIFICATION Administration $ 14,649.03 $ 0.00 $ 14,649.03 Initial Operating Deficit 0.00 1,606.05) 1,606.05) Planning 26,887.33 0.00 26,887.33 Site Acquisition 45,035.60 0.00 45,035.60 Site Improvement 85,315.91 0.00 85,315.91 Dwelling Structures 490,510.00 0.00 490,510.00 Dwelling Equipment 8,073.32 0.00 8,073.32 . Non-Dwelling Equipment 2,172.31 0.00 2,172.31 ------------ ------------- -------------- TOTAL COST $ 672,643.50 $( 1,606.05) $ 671,037.45 ------------ -------------- ------------- ------------- -------------- -------------- e SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 22 - . . It CLASSIFICATION Administration Planning Site Acquisition Site Improvement Dwelling Structures Dwelling Equipment Non-Dwelling Equipment TOTAL COST HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas ACTUAL DEVELOPMENT COSTS - UNCOMPLETED Twelve Month Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 Development KS16P038005 Prior Audit Period Current Audit Period $ 37,898.89 $ 8,909.72 77,019.34 32,553.52 266,984.54 1,643.18 76,783.14 104,742.67 0.00 1,466,493.00 0.00 39,780.00 18,875.69 317.90 $ 477,561.60 $ 1,654,439.99 -------- ---------- -------------- -------------- SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 23 - Exhibit F(1)-2 Total $ 46,808.61 109,572.86 268,627.72 181,525.81 1,466,493.00 39,780.00 19,193.59 $ 2,132,001. 59 ----------- ------------- . . e Exhibit F(2) HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas RECONCILIATION OF DEVELOPMENT FUNDS ADVANCED WITH DEVELOPMENT COSTS June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 Development KS16P038004 The amount of Funds provided for Development and the Actual Development Costs are incurred as follows: DEVELOPMENT FUNDS ADVANCED Permanent Note $ 675,149.22 TOTAL FUNDS ADVANCED $ $ 671,037.45 675,149.22 Actual Development Costs Excess of Funds Provided - Exhibit G $ 4,111.77 --------- --------- Development KS16P038005 The amount of Funds provided for Development and the Actual Development Costs are incurred as follows: DEVELOPMENT FUNDS ADVANCED Permanent Note $ 1,993,709.53 TOTAL FUNDS ADVANCED $ 1,993,709.53 Actual Development Costs Expended $ 2,058,676.59 Deficit of Funds Provided - Exhibit G $( 64,967.06) SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 24 - . . . Funds Approved Funds Expended HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas STATEMENT MODERNIZATION COSTS - UNCOMPLETED As of June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 Project KS16-P03804z $ 30,000.00 30,000.00 EXCESS OF FUNDS APPROVED Funds Advanced Funds Expended $ 0.00 -------- -------- $ 29,005.51 30,000.00 DEFICIT OF FUNDS ADVANCED - Exhibit G Funds Approved Funds Expended $( 994.49) ---------- ------------ Project KS16-P038905-95 $ 50,000.00 15,886.00 EXCESS OF FUNDS APPROVED Funds Advanced Funds Expended $ 34,114.00 ------- ----------- $ 3,015.00 15,886.00 $( 12,871.00) DEFICIT OF FUNDS ADVANCED - Exhibit G -------- ---------- SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 25 - Exhibit F(3) . . . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas ANALYSIS OF GENERAL FUNDS AVAILABLE FOR REDUCTION OF ANNUAL CONTRIBUTIONS At June 30, 1996 Annual Contributions Contract FW-1271 Project KS 38-1, 2, 4 & 5 CASH AND OTHER ASSETS Cash Interprogram Accounts Receivable Tenant Accounts Receivable Prepaid Insurance Deficiency of Advances - Exh. F(2) & F(3) Audit Adjustment Added Back TOTAL LIABILITIES, RESERVES, AND AMOUNTS AVAILABLE FOR CONTRIBUTIONS REDUCTION Tenants Security Deposits Accounts Payable - Other Accounts Payable - Home Ownership Prepaid Rent PILOT Contract Retentions Operating Reserve TOTAL $ 79,371.91 15,576.86 3,049.00 5,891.96 74,720.78 41,266.14 $ 219,876.65 -------- --------- $ 12,405.00 2,210.12 16,413.57 329.55 13,059.25 73,325.00 102,134.16 $ 219,876.65 ------------ ------------ SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 26 - Exhibit G-1 . . e CASH AND OTHER ASSETS HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas ANALYSIS OF GENERAL FUNDS AVAILABLE FOR REDUCTION OF ANNUAL CONTRIBUTIONS At June 30, 1996 Annual Contributions Contract KC-7015 KS 38V-1 & 4 Cash Other Accounts Receivable Investments $ 18,057.97 84.45 TOTAL $ 18,142.42 ------- ------- LIABILITIES, RESERVES, AND AMOUNTS AVAILABLE FOR CONTRIBUTIONS REDUCTION Alp Interprogram Alp HUD Operating Reserve TOTAL $ 123.00 10,859.95 7,159.47 $ 18,142.42 ---------- --------- SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 27 - Exhibit G-2 KS 38E-2 & 8 $ 102,301.21 123.00 39,206.80 $ 141,631. 01 $ 11,652.51 26,034.26 103,944.24 $ 141,631. 01 ---------- ------------ . . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas REPORT ON COMPLIANCE TO LAWS AND REGULATIONS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Twelve Months Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I have audited the financial statements of the Housing Authority of the City of Salina, Kansas as of June 30, 1996, and for the year then ended, and have issued my report thereon dated January 14, 1997, which was modified to reflect a comprehensive basis of accounting other than generally accepted accounting principles, in that the financial statements were prepared on the basis of accounting practices prescribed or permitted by HUD. I conducted my audit in accordance with generally accepted auditing standards and Government Auditing Standards (1994 Revision), issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Compliance with laws, regulations, contracts and grants applicable to the Housing Authority of Salina, Kansas is the responsibility of the PHA' s management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement I performed tests of the PHA' s compliance with certain provisions of laws, regulations, contracts, and grants. However, my objective was not to provide an opinion on overall compliance with such provisions. Accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported herein under Government Auditing Standards. This report management, restriction is a matter is intended for the information of the Board of Directors, and the Department of Housing and Urban Development. This is not intended to limit the distribution of this report, which of public record. ,/'"", , '?It'' . /' J,~';~. " 'Y / A" ~'''i/ ,,' r~--'~-' John Middleton Certified Public Accountant January 14, 1997 4It - 28 - . . - HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SINGLE AUDIT OPINION ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS Twelve Months Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I have audited the financial statements of the Housing Authority of the City of Salina, Kansas, as of and for the year ended June 30, 1996 and have issued my report thereon dated January 14, 1997, which was modified to reflect a comprehensive basis of accounting other than generally accepted accounting principles, in that the financial statements were prepared on the basis of accounting practices prescribed or permitted by HUD. I have also audited the Housing Authority of the City of Salina, Kansas's, compliance with the requirements governing types of services allowed or unallowed, eligibili ty, matching, reporting, and special tests and provisions 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 June 30, 1996. The management of the Housing Authority of the City of Salina, Kansas is responsible for the Housing Authority of the City of Salina, Kansas's compliance with those requirements. My responsibility is to express an opinion on compliance with those requirements based on my audit. I conducted my 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 OMS Circular A- 128, "Audits of State and Local Governments" and the provisions of the Public and Indian Housing Compliance Supplement dated May 25, 1995. Those standards and OMS Circular A-128 require that I 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 whether the Housing Authority of the City of Salina, Kansas's compliance with those requirements. I believe that my audit provides a reasonable basis for my opinion. The results of my audit procedures disclosed immaterial instances of noncompliance with the requirements referred to above, which are described in the accompanying schedule of findings. I considered these instances of noncompliance in forming my opinion on compliance, which is expressed in the following paragraph. In my opinion, the Housing Authority of the City of Salina, Kansas, complied in all material respects with the requirements governing types of services allowed or unallowed, eligibility, matching, reporting, and special tests and provisions that are applicable to each of its major federal financial assistance programs for the year ended June 30, 1996. (Continued) - 29 - . . e This report is intended for the information of the management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. "4'(: (... John Middleton Certified Public Accountant January 14, 1997 - 30 - . . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SINGLE AUDIT REPORT ON THE HOUSING AUTHORITY OF SALINA, KANSAS'S COMPLIANCE WITH GENERAL REQUIREMENTS Twelve Months Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I have audited the financial statements of the Housing Authority of the City of Salina, Kansas, as of and for the year ended June 30, 1996, and have issued my report thereon dated January 14, 1997, which was modified to reflect a comprehensive basis of accounting other than generally accepted accounting principles, in that the financial statements were prepared on the basis of accounting practices prescribed or permitted by HUD. I have also applied procedures to test the Housing Authority of the City of Salina, Kansas's compliance with the following requirements applicable to each of its major federal financial assistance programs, which are identified in the schedule of federal financial assistance, for the year ended June 30, 1996: political activity, Davis-Bacon, civil rights, cash management, relocation assistance, federal financial reports, drug free workplace, and administrative requirements. My 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. My procedures were substantially less in scope than an audit, the objective of which is to express an opinion on the Housing Authority of the City of Salina, Kansas's compliance with the requirements listed in the preceding paragraph. Accordingly, I 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 the items not tested, nothing came to my attention that caused me to believe that the Housing Authority of the City of Salina, Kansas, had not complied, in all material respects, with those requirements. This report is intended for the information of the management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. ._."...p. . . "f .' .: l:f:":':-//~./_. John Middleton Certified Public Accountant January 14, 1997 e - 31 - HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas . INDEPENDENT AUDITOR'S REPORT ON THE HOUSING AUTHORITY OF SALINA, KANSAS'S INTERNAL CONTROL STRUCTURE AS AN ENTITY AND OVER ITS FEDERAL FINANCIAL ASSISTANCE PROGRAMS Twelve Months Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I have audited the financial statements of the Housing Authority of the City of Salina, Kansas, as of and for the year ended June 30, 1996, and have issued my report thereon dated January 14, 1997, which was modified to reflect a comprehensive basis of accounting other than generally accepted accounting principles, in that the financial statements were prepared on the basis of accounting practices prescribed or permitted by HUD. I conducted my audits in accordance with generally accepted auditing stand- ards; Government Audi ting Standards, issued by the Comptroller General of the United States; and the Office of Management and Budget(OMB) Circular A- 128, Audits of State and Local Governments. Those standards and OMB Circular A-128 require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. In planning and performing my audit for the year ended June 30, 1996, I considered the Housing Authority's internal control structure in order to determine my auditing procedures for the purpose of expressing my opinion on the Housing Authority's financial statements and not to provide assurance on the internal control structure. . The management of the Housing Authority of the City of Salina, Kansas 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 and procedures. The objectives of 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 financial statements, and that federal financial assistance programs are managed in accordance with applicable laws and regulations. Because of inherent limitations in any internal control system, errors, irregularities, or instances of non-compliance 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 degree of compliance with the procedures may deteriorate. For the purpose of this report, I have classified the significant internal control structure policies and procedures in the following categories: 1. Accounting Controls a. Cash and cash equivalents b. Receivables c. Land, structures and equipment d. Payables and accrued liabilities f. Surplus g. Revenue h. Expenditures i. Payroll . - 32 - e. Debt service j. Purchasing e 2. Administrative Controls a. Political activity b. Davis-Bacon Act c. Civil rights d. Cash management e. Federal financial reports f. Budgets g. Relocation assistance and Real Property Acquisition h. Drug Free Workplace 3. Special Requirements For all of the internal control structure categories listed above, I obtained an understanding of the design of relevant policies and procedures and determined whether they have been placed in operation, and I assessed the control risk. During the year ended June 30, 1996, the PHA expended 95.0% of federal financial assistance under the following major federal assistance program: Public and Indian Housing, Housing Development Income Housing Assistance Payments. its total financial and Lower I 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 I have considered relevant to preventing or detecting material non-compliance with specific requirements, general requirements, and requirements governing claims for advances and reimbursements and amounts claimed or used for matching that are applicable to the aforementioned major programs. My procedures were less in scope than would be necessary to render an opinion on these internal control structure policies and procedures. Accordingly, I do not express such an opinion. . I noted certain matters involving the internal control structure and its operation that I consider to be reportable conditions under standards estab- lished by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to my attention relating to significant deficiencies in the design or operation of the internal control structure that, in my judgment, could adversely affect the Housing Authority's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements or to administer federal financial assistance programs in accordance with applicable laws and regulations. I noted a weakness in internal control in that separation of duties is not maintained for receipts, deposits, expenses, and bookkeeping. One person has control and/or access to all of the above functions and a separation of duties is not possible. Other controls that are in place to compensate for this weakness are prenumbered receipts, two signatures on a check, with one being a member of the Board of Directors, and all expendi tures being reviewed by the Board of Directors. 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 financial statements being audited or that noncompliance with laws and regulations that would be material to a federal financial assistance program may occur and not be detected wi thin a timely period by employees in the normal course of performing their assigned functions. . - 33 - e . . . My consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be report- able conditions and, accordingly, would not necessarily disclose all report- able conditions that are also considered to be material weaknesses as defined above. However, I believe, that none of the reportable conditions described above is a material weakness. I also noted other matters involving the internal control structure and its operation that I have reported to the management of the Housing Authority of Salina, Kansas, in a separate letter dated January 14, 1997. This report management, restriction is a matter is intended for the information of the Board of Directors, and the Department of Housing and Urban Development. This is not intended to limit the distribution of this report, which of public record. "~:ri:r'~ f.1.'- .-f/~~ John Middleton Certified Public Accountant January 14, 1997 '- - 34 - e . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SCHEDULE OF FINDINGS AND QUESTIONED COSTS Twelve Months Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I. Findings and Questioned Costs Program CFDA 14.850 1. FINDING - INSUFFICIENT BONDING INSURANCE Condition - The Housing Authority maintained bonding insurance of $50,000 during the year. Based on the HUD requirements the insurance was too low. Criteria - HUD provides a formula for determining the amount of bonding insurance required. The formula when applied to the Salina Housing Authority requires a minimum of $75,000 of insurance. Effect - Some funds and assets are at risk. Cause - Management had not updated their calculations to cover recent additional cash receipts. Recommendation - Adjust the bonding insurance to the appropriate amount. Reply - We will do so. 2. FINDING - INCOMPLETE BOARD MINUTES Condition - In at least one instance the Board held a meeting at which votes were taken without taking minutes of the meeting and recording the votes. This most noticeable in the hiring of the new Executive Director which does not appear in the minutes. Criteria - The Kansas Open Meetings Act requires that all actions of public bodies be taken in public votes unless specifically exempted by the Act. The action noted does not fall under the exemptions. Effect - The minutes are not complete. Cause - The Board was not aware of this requirement. Recommendation - Review the requirements of the Kansas Open meetings Act and reaffirm in open session all actions taken without minutes. Reply - We will do so. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 35 - . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SCHEDULE OF FINDINGS AND QUESTIONED COSTS Twelve Months Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I. Findings and Questioned Costs (Continued) Program CFDA 14.850 3. FINDING - IMPROPER HANDLING OF SIGNATURE STAMP Condition - The Housing Authority requires two signatures on checks as part of its internal control procedures. One of the signatures is to be a Board members'. This ensures that there is a separation of duties between those responsible for preparing the checks and those responsible for signing the checks. Because of the number of checks to be signed a signature stamp has been made for one of the Board members. This stamp is kept in the office and is freely available to staff members responsible for preparing the checks. Criteria Good internal control procedures require that there be a separation of duties in financial transactions where possible. In small office situations it is often necessary to have the Board provide some of the separation by signing checks prepared by staff. Effect - The presence of the signature stamp in the office effectively eliminates the requirement for two signatures on a check. Cause - Management was trying to make the check signing process less time consuming. Recommendation - If a signature stamp is used it should remain in the possession of the person whose signature it represents and it should be used only by that person. Reply - We will do so. Program CFDA 14.852 1. FINDING - FAILURE TO MAINTAIN DOCUMENTATION FOR CIAP AND DEVELOPMENT EXPENSES Condition - In several instances the Housing Authority did not maintain documentation for CIAP and Development expenditures. Checks were supported by small notes and slips of paper with information written on it by staff. Criteria - HUD Regulations require that all expenditures for CIAP and Development be supported by invoices from vendors or appropriately completed and approved reimbursement vouchers. Good internal control practices require that those responsible for signi.ng payment vouchers review the supporting documents to ensure that the invoice is correct and value has been received. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 36 - . . - HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SCHEDULE OF FINDINGS AND QUESTIONED COSTS Twelve Months Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I. Findings and Questioned Costs (Continued) Program CFDA 14.852 Effect - Some expenditures are inadequately supported although it appears that no disbursements were improper. Cause - In attention to established procedures for payment. Recommendation - All disbursements be supported by adequate documentation from vendors. Reply - We will do so. 2. FINDING - INSUFFICIENT ACCOUNTING FOR CIAP AND DEVELOPMENT Condition - The Housing Authority has not paid sufficient attention to the accounting for CIAP and Development expenses. I noted that Contract Retentions of over $50,000 were carried on the books for a Development which had been fully expended. Contract Retentions of over $70,000 for a Development in progress has not been booked. Contracts awarded of over $136,0000 were still on the books at June 30, 1996 although they had been completed and paid prior to June 30, 1995. Postings have been made to CIAP accounts where the CIAP was closed out in prior years. Criteria HUD Regulations require that an accurate and complete accounting for CIAP and Development expenses be maintained. Effect Various portions of the annual reports filed with HUD are inaccurate and incomplete. Cause - Failure to communicate between the Housing Authority and its Fee Accountant and failure to maintain adequate internal records to ensure that the accounting for these programs is correctly prepared. Recommendation - Review with your Fee Accountant the status of each of these accounts. Establish a tracking procedure for these activities sufficient to ensure that the general ledger is reflecting the activities of the Housing Authority. Reply - We will consider this. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 37 - . . . - HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SCHEDULE OF FINDINGS AND QUESTIONED COSTS Twelve Months Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I. Findings and Questioned Costs (Continued) Home Ownership Program 1. FINDING - FAILURE TO PROVIDE ANNUAL ACCOUNTING Condition - From the inception of the Home Ownership Program in 1992 the Housing Authority has instructed their Fee Accountants that the accounting for the Home Ownership Program would be completed by the Housing Authority. The Fee Accountant records receipts of cash and disbursements without making any year end accounting entries. The Housing Authority has not made any additional entries and the audits for the years ended June 30, 1994 and June 30, 1995 took the amounts presented by the Fee Accountant as the final accounting. Because of this no accounting for the program has been made since June 30, 1993. Criteria - The Section 5 (h) Implementing Agreement between HUD and the Housing Authority requires the Housing Authority to make an annual accounting for the activities of the Home Ownership Program, have it audited, and present the report to HUD. Effect - The Housing Authority has failed to comply with the Section 5(h) Implementing Agreement for two years. Cause - Management was unaware of the audi tor for the years ended June 30, perform the required accounting. accounting requirements and the 1994 and June 30, 1995 did not Recommendation - The Board establish procedures for a complete accounting for the activities of the Home Ownership Program. Specify an audit of the Home Ownership Program when requesting proposals for audits. The accounting for the Home Ownership program should be completed by someone other than staff for internal control purposes. Reply - We will consider this. 2. FINDING - FAILURE TO ESTABLISH RESERVE ACCOUNT Condition - The Housing Authority has not set up a separate bank account for a reserve for defaults on home sales. Criteria - Under the terms of the Section 5(h) Implementing Agreement and the Home Ownership Plan included in the Agreement by reference the Housing Authority agreed to establish a separate bank account as a reserve for expenses related to defaul.t on i.ts home sales. The account was to be set at $4,000 for each home sold. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 38 - . . - HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SCHEDULE OF FINDINGS AND QUESTIONED COSTS Twelve Months Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 I. Findings and Questioned Costs (Continued) Home Ownership Program Effect - Because there have been no defaults and the remaining funds have not been used as yet there is no negative effect. Cause Management has not devoted sufficient attention to the requirements of the Home Ownership Program beyond the sales of units. Recommendation defaults. Establish a separate bank account as a reserve for Reply - We will do so. 3. FINDING - PAYMENT OF HOUSING AUTHORITY OPERATING EXPENSES FROM HOME OWNERSHIP FUNDS Condition - In the year ended June 30, 1994 and in the current year the Housing Authority paid for normal maintenance of Low Rent units by use of funds from the Home Ownership Program. In the current year it appears that the payment for these expenses from the Housing Authority operating budget would have generated a budget overrun. Cri teria - Under the Section 5 (h) Implementing Agreement the proceeds from the sales are to be used to provide additional Low Income Housing and the Plan indicates that some additional units will be built. There is no provision for using the funds to cover budget overruns in the Housing Authority. Effect - The Public Housing Program owes addi tional funds to the Home Ownership program. Cause - The Housing Authority was to develop a plan for the use of the sales proceeds and has not done so. This creates a pool of money for which there is no budget or plan of action and it becomes easy to think of the money as available for use in other areas. Recommendation - Repay the funds used by Public Housing and develop a long term plan for the use of the proceeds from Home Ownership sales which will provide budget and control over these funds. Reply - We will consider this. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 39 - . . . e HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas SCHEDULE OF FINDINGS AND QUESTIONED COSTS Twelve Months Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 II. STATUS OF PRIOR YEAR FINDINGS 1. Failure to provide security for deposits in excess of $100,000. Corrected. III. REFERENCE TO MATERIAL FINDINGS PRESENTED IN REPORTS OF OTHER AUDITORS OR INSPECTORS GENERAL None noted. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 40 - . . . e . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Journal Entries Twelve Month Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 Public Housing 1. Prior Period Adjustments Affecting Residual Receipts Petty Cash $ 6010 1118 41. 68 $ 41. 68 Adjust to actual balance in petty cash. The balance in Petty Cash has been $50.00 since at least 1993. This entry was shown in the audit for June 30, 1993 but never made. 2. Tenant Accounts Receivable 1122 $ 329.55 Prepaid Rent 2240 $ 329.55 Adjust Receivable for Prepaid Rents. 3. Prior Period Adjustments Affecting Residual Receipts 6010 $ 3,347.02 Tenant Accounts Receivable 1122 $ 3,347.02 Adjust Tenant Accounts Receivable to amounts actually receivable from tenants. The Housing Authority has posted damages and other non-rent and probably non-collectible amounts to this account. 4. Cumulative HUD Contributions Deposits with HUD 2840 1177 $ 1,750.20 $ 1,750.20 Adjust deposit account to actual. This entry was part of the audit in June of 1993. At that time the Executive Director contacted HUD in Kansas City and Washington and determined that HUD was not holding any funds for the Housing Authority and that this amount should be written off. 5. Book Value of Assets Conveyed to Home Buyers Land, Structures & Equipment 2890 $ 96,271.98 1400.4 $ 96,271.98 Adjust the Book Value of assets on hand to show the transfer of homes to the Home Ownership Program. (Note: HUD Handbook 7510.1 indicates that this should be a debit to 1400.4 and a credit to 2890 with no adjustment needed to the underlying subsidiary records. Neither the addition to assets for the removal of units nor the lack of an adjustment to subsidiary records seems to make sense.) 6. Development 05 Contract Retentions - 05 1460 2112 $ 73,325.00 $ 73,325.00 Adjust Contract Retentions for amounts due to contractors on June 30, 1996. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 41 - . . . e . HOUSING AUTHORITY OF THE CITY OF SALINA Salina, Kansas Journal Entries Twelve Month Period Ended June 30, 1996 Annual Contributions Contract FW-1271 & KC-7015 Project KS 38-1, 2, 4 & 5 7. Contract Retentions - 04 2112 Prior Period Adjustments Affecting Residual Receipts 6010 $ 50,225.00 $ 50,225.00 Adjust Contract Retentions for amounts paid in October and November 1994. This Development was essentially completed prior to June 30, 1995. Large inter-project adjustments were made in January 1995 which affected Residual Receipts but did not adjust for Contract Retentions. 8. Contract Awards - Contra - 04 Uncompleted Contracts - 04 1810 1800 $136,869.00 $136,869.00 Adjust Contract Awards for contracts completed in prior years. 9. Prior Period Adjustments Affecting Residual Receipts 6010 Accounts Payable Home Ownership 2119 $ 16,413.57 $ 16,413.57 Record payable for maintenance expenses paid by Home Ownership program for expenses of Public Housing maintenance. 10. Accounts Receivable Home Ownership Prior Period Adjustments Residual Receipts 3,347.02 $ 3,347.02 1129 Affecting 6010 $ Record amounts due to Public Housing from Home Ownership Program for closing costs advanced by Public Housing. Home Ownership Program I have reconstructed the accounting for this program from the beginning. The accounts for this program maintained by the Fee Accountant are essentially memorandum accounts which record interfund activities. A separate set of books needs to be established in which the activities recorded by the Fee Accountant are posted along with the sales activities of the Home Ownership Program and other matters as needed to prepare a complete and accurate set of financial statements. SEE ATTACHED INDEPENDENT AUDITOR'S REPORT - 42 -