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Audit - 2002/2003 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS, FINANCIAL STATEMENTS AND REQUIRED SUPPLEMENTAL INFORMATION Year Ended June 30,2003 TABLE OF CONTENTS Required Supplemental Information: Paqe No. Management's Discussion and Analysis 1 Independent Auditor's Report 6 Financial Statements: Statement of Net Assets - Proprietary Funds 8 Statement of Revenues, Expenses and Changes in Fund Net Assets, - Proprietary Funds Statement of Cash Flows - Proprietary Funds 9 10 Notes to Financial Statements 12 Supplemental Data Required By HUD Financial Data Schedule 21 SINGLE AUDIT SECTION Schedule of Expenditures of Federal Awards Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 23 24 Report on Compliance With Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance With OMB Circular A-133 26 28 Summary Schedule of Prior Audit Findings Schedule of Findings and Questioned Costs 29 MANAGEMENT'S DISCUSSION AND ANALYSIS HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended June 30,2003 This section of the Housing Authority of the City of Salina Kansas' annual financial report presents our managements analysis of the Authority's financial performance during the fiscal year ended on June 30, 2003. This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify any significant changes in financial position. Please read and consider the information presented in conjunction with the financial statements as a whole. FINANCIAL HIGHLIGHTS The term "net assets" refers to the difference between assets and liabilities. The Authority's total net assets as of June 30, 2003 was $7,193,998.46. The net assets increased by $225,931.83, an increase of 3% over the prior year. The Authority had a net increase of $157,410.19 in the Public Housing Program, a net increase of $1,343.91 in the Section 8 Voucher Program and a net increase in $67,177.73 in the Nonmajor Funds. The most significant element of the gain in the Public Housing Program was the Capital Fund grant revenue of $290,693.58 which was used for capital improvements. The most significant element of the gain in the Nonmajor Funds was the transfers from the other funds. Operating revenues for the Authority was $1,347,969.46 for the year ended June 30, 2003. This was an increase of 6% over the prior year. The increase is attributable to a $105,814.53 increase in the Section 8 Voucher Program Funds Earned from program activities even though rental income in the Public Housing program decreased by $33,969.98. Operating expenses for the Authority were $1,818,052.47 for the year ended June 30, 2003. This was an increase of 9% over the prior year. This increase was due mostly for operating activities budgeted within the Capital Funds grants. HUD operating subsidy for the Authority was $273,943.00 for the year ended June 30, 2003. This was an increase of 26% over the prior year. The increase in operating subsidy funding is determined by HUD on an annual basis. The Authority also expended $74,546.93 of HUD c?pital grants for operations for the year ended June 30, 2003. OVERVIEW OF THE. FINANCIAL STATEMENTS This annual report includes this Management Discussion and Analysis report, the Basic Financial Statements and the Notes to the Financial Statements. This report also contains the Financial Data Schedule (FDS) as referenced in the section of Supplemental Information Required by HUD. The Authority's financial statements are presented as fund level financial statements because the Authority only has proprietary funds. Required Financial Statements The financial statements of the Housing Authority report information of the Authority using accounting methods similar to those used by private sector companies. These statements offer short- and long-term financial information about its activities. The Statement of Net Assets includes all the Authority's assets and liabilities and provides information about the 1 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended June 30, 2003 OVERVIEW OF THE FINANCIAL STATEMENTS (CONT'D) nature and amounts of investments in resources (assets) and obligations of the Authority creditors (liabilities). It also provides the basis for evaluating the capital structure of the Authority and assessing the liquidity and financial flexibility of the Authority. All of the current year's revenues and expenses are accounted for in the Statement of Revenues, Expenses, and Changes in Fund Net Assets. This statement measures the success of the Authority's operations over the past year and can be used to determine whether the Authority has successfully recovered all its costs through its user fees and other charges, profitability and credit worthiness. The final required financial statement is the Statement of Cash Flows. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in the cash balance during the reporting period. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the basic financial statements and provide more detailed data. SufJfJlementallnformation This report also contains the Financial Data Schedule (FDS) as referenced in the section of Supplemental Information Required By HUD. HUD has established Uniform Financial Reporting Standards that require Housing Authority's to submit financial information electronically to HUD using the FDS format. This financial information was electronically transmitted to the Real Estate Assessment Center (REAC) for the year ended June 30, 2003 and is required to be included in the audit reporting package. FINANCIAL ANALYSIS Net assets may serve, over time, as a useful indicator of a government's financial position. In the case of the Authority, assets exceeded liabilities by $7,193,998.46 at the close of the year ende.d June 30, 2003. This represents a increase of $223,476.83, an increase of 3% over the prior year, the majority of which is attributable to HUD capital and operating grants. The unrestricted net assets were $655,414.01 as of June 30, 2003. The largest portion of the Authority's net assets reflects its investment in capital assets (e.g. land, buildings and equipment) less accumulated depreciation. The Authority uses these capital assets to provide service and consequently these assets are not available to liquidate liabilities or other spending. H/A NEEDS TO DESCRIBED CAPITAL ACTIVITY FOR THE YEAR (FIXED ASSET ADDITIONS AND IMPROVEMENTS) 2 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended June 30, 2003 FINANCIAL ANALYSIS (CONT'D) ANY OTHER INFORMATION THE H/A WISHES TO DESCRIBE TO DISCUSS THE FINANICIAL STATEMENTS. INFORMATION MAY INCLUDE REASONS FOR DECREASE IN RENTAL INCOME, INCREASE IN SECTION 8 FUNDS EARNED, ETC. CONDENSED STATEMENTS OF NET ASSETS Dollar Percent FY 2003 FY 2002 Change Change Current and other assets $ 1,059,446.37 $ 1,017,900.39 $ 41,545.98 4.1% Capital assets 6,277,788.14 6,112,172.13 165,616.01 2.7% Total Assets 7,337,234.51 7,130,072.52 207,161.99 2.9% Current liabilities 70,714.79 106,311.71 (35,596.92) -33.5% Other noncurrent liabilities 72,521.26 53,239.18 19,282.08 36.2% Total Liabilities 143,236.05 159,550.89 (16,314.84) -10.2% Net Assets Invested in capital assets, net of related debt 6,277,788.14 6,112,172.13 165,616.01 2.7% Unrestricted 916,210.32 858,349.50 57,860.82 6.7% Total Net Assets $ 7,193,998.46 $ 6,970,521.63 $ 223,476.83 3.2% As stated in the table above, net assets increased by $223,476.83 to $7,193,998.46 in 2003, up from $6,970,521.63 in 2002. The increase in net assets was primarily due to the non- operating Capital Fund grant advances. The increase in total liabilities was due mostly to an increase in accounts payable to vendors and contractors and an increase in security deposit liabilities. The increase in the security deposit liability was due to a change in the Authority's policy. Unrestricted net assets were $916,210.32. This amount may be used to meet the Authority's ongoing obligations. The Authority has sufficient funds to meet requirements for cash outlays in the next fiscal year as well as the financial capacity to meet its long-term obligations. The Authority had no net assets classified as restricted that are subject to external restrictions on how they may be used. At the end of the current fiscal year, the Authority is able to report positive balances in all categories of net assets. The same situation held true for the prior fiscal year. 3 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended June 30, 2003 FINANCIAL ANALYSIS (CONT'D) CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Dollar Percent FY 2003 FY 2002 Change Change Revenues Program revenues Rental $ 238,804.30 $ 271,516.28 $ (32,711.98) -12.0% HUD program contributions 1,068,945.00 981,011.00 87,934.00 9.0% HUD operating grants 348,489.93 245,043.83 103,446.10 42.2% General revenues Interest 13,795.53 24,866.32 (11,070.79) -44.5% Capital fund grants 290,693.58 296,688.31 (5,994.73) -2.0% Other grants 38,060.47 30,654.55 7,405.92 24.2% . Other 71,468.91 82,618.54 (11,149.63) -13.5% Total Revenues 2,070,257.72 1,932,398.83 137,858.89 7.1% Expenses Depreciation 178,273.36 169,225.53 9,047.83 5.3% Operating 1,639,779.11 1,504,512.11 135,267.00 9.0% Nonoperating 26,273.42 32,493.03 (6,219.61) -19.1% T ota! Expenses 1,844,325.89 1,706,230.67 138,095.22 8.1% Changes in Net Assets 225,931.83 226,168.16 (236.33) Beginning net assets, as restated 6,968,066.63 6,744,353.47 223,713.16 Ending net assets $ 7,193,998.46 $ 6,970,521.63 $ 223,476.83 While the Statement of Net Assets shows the change in financial position of net assets, the Statements of Revenues, Expenses, and Changes in Net Assets provides answers as to the nature and source of these changes. As can be seen above, total revenues increased by $137,858.89, primarily due to the increase in HUD operating subsidy and the increase in Section 8 funds was due to the increase in the number of the units leased. Further, the Authority used $47,339.10 more of its HUD capital grant for operations and than it had in the prior year. 4 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended June 30,2003 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets - The Housing Authority of the City of Salina Kansas' investment in capital assets as of June 30, 2003 amounts to $6,27,788.14 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, equipment and construction in progress. The total increase in the Authority's investment in capital assets for the current fiscal year was 3% in terms of net book value. However, actual expenditures to purchase or construct capital assets were $318,687.92 for the year. The majority of this amount was used from HUD capital grants to improve the housing units. The Authority has various contract commitments with contractors for the implementation of the HUD capital grants as outlined by the HUD approved Capital Grant Budget. Depreciation charges for the year totaled $178,273.36. Additional information on the Authority's capital assets can be found in Note H of the notes to the financial statements of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES The Board of Commissioners and Management of the Housing Authority considered many factors when approving the fiscal year 2004 budget. The user charges are based on a tenants income as established by HUD guidelines and are not adjustable. Operating subsidy is based on rental income, other income and utility consumption and costs. The amount of funding is also established and approved by HUD. In projecting the amount of rental income, the Authority considered prior year rental income and occupancy rates. The occupancy rate as of June 30, 2003 was NEED% and is expected to remain constant. The operating expenses are expected to increase by the economy's inflation rate. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the Authority's finances for all those with an interest in its finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Executive Director, Housing Authority of the City of Salina, Kansas, P.O. Box 1202, Salina, Kansas 67402-1202. 5 INDEPENDENT AUDITOR'S REPORT Niewedde -(9 Wiens CERTIFIED PUBLIC ACCOUNTANTS Qandal D. Niewedde, CPA Jeffrey J. Wiens. CPA INDEPENDENT AUDITOR'S REPORT To the Board of Commissioners Housing Authority of the City of Salina, Kansas We have audited the accompanying financial statements of the major funds and aggregate non major funds of the Housing Authority of the City of Salina, Kansas, as of and for the year ended June 30, 2003, which collectively comprise the Housing Authority of the City of Salina, Kansas' basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Housing Authority of the City of Salina, Kansas' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund and the aggregate non major fund of the Housing Authority of the City of Salina, Kansas, as of June 30, 2003, and the respective changes in financial position and cash flows, for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note A, the Housing Authority of the City of Salina, Kansas, has implemented a new financial reporting model, as required by the provisions of GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, as of June 30, 2003. The management's discussion and analysis is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditinq Standards, we have also issued our report dated October 28, 2003 on our consideration of the Housing Authority of the City of Salina, Kansas' internal control over financial reporting and our tests of its compliance with certain provisions of 6 P.o. ßox. 98 . York. Nebraska 68467 . Ph: 40'2-36'2-4410 . fax: 40'2-36'2-4410 . nwcpa@alltd.nel laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditinq Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the Housing Authority of the City of Salina, Kansas' basic financial statements. The Financial Data Schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments. and Non-Profit Orqanizations, and is also not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects in relation to the basic financial statements taken as a whole. October 28, 2003 7 FINANCIAL STATEMENTS HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS STATEMENT OF NET ASSETS - PROPRIETARY FUNDS June 30, 2003 ASSETS Public Section 8 Nonmajor Housing Voucher Fund Totals CURRENT ASSETS: Cash and cash equivalents $ 139,186.41 $ 39,083.74 $ 165,956.21 $ 344,226.36 Investments 361,064.97 131,760.90 492,825.87 Accounts receivable 836.50 836.50 Interfunds receivable 6,262.57 6,262.57 Due from other governments 39,958.12 59,246.68 99,204.80 Accrued interest receivable 980.18 146.80 1,126.98 Deferred charges 26,642.94 26.642.94 TOTAL CURRENT ASSETS 574,931.69 98,330.42 297,863.91 971,126.02 RESTRICTED ASSETS Cash and cash equivalents 56,665.39 56,665.39 TOTAL RESTRICTED ASSETS 56,665.39 56,665.39 NONCURRENT ASSETS Capital assets: Land and construction in progress 2,030,143.12 3,000.00 2,033,143.12 Building, improvements and equipment, net 4,186,639.84 3,601.39 54,403.79 4,244,645.02 Mortgages receivable 31,654.96 31,654.96 TOTAL NONCURRENT ASSETS 6,216,782.96 3.601.39 89.058.75 6,309,443.10 TOTAL ASSETS $ 6,848,380.04 $ 101,931.81 $ 386,922.66 $ 7,337,234.51 LIABILITIES CURRENT LIABILITIES: Accounts payable $ 24,409.77 $ 588.67 $ 1,899.25 $ 26,897.69 Accrued wages and benefits payable 5.941.90 1,447.87 7,389.77 Interfunds payable 750.38 5,512.19 6,262.57 Deferred revenue 6,151.68 6,151.68 Due to other governments 22,259.33 22,259.33 Compensated absences payable 1,543.31 157.83 52.61 1,753.75 TOTAL CURRENT LIABILITIES 60,305.99 2,944.75 7,464.05 70,714.79 LIABILITIES PAYABLE FROM RESTRICTED ASSETS: Tenant security deposits 56,737.39 56,737.39 TOTAL LIABILITIES PAYABLE FROM RESTRICTED ASSETS 56,737.39 56,737.39 NONCURRENT LIABILITIES Compensated absences payable 13,889.79 1,420.55 473.53 15,783.87 TOTAL NONCURRENT LIABILITIES 13,889.79 1,420.55 473.53 15,783.87 TOTAL LIABILITIES 130,933.17 4,365.30 7,937.58 143,236.05 NET ASSETS Invested in capital assets 6,216,782.96 3,601.39 57,403.79 6,277,788.14 Unrestricted 500,663.91 93.965.12 321,581.29 916,210.32 TOTAL NET ASSETS $ 6,717,446.87 $ 97,566.51 $ 378,985.08 $ 7,193,998.46 See accompanying notes. 8 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS - PROPRIETARY FUNDS Year Ended June 30, 2003 Public Section 8 Nonmajor Housing Voucher Funds Totals OPERATING REVENUES Rental income $ 237,546.30 $ $ 1,258.00 $ 238,804.30 HUD Section 8 contributions 1,068,945.00 1,068,945.00 Other income 22.339.63 17,880.53 40,220.16 TOTAL OPERATING REVENUES 259,885.93 1,086,825.53 1,258.00 1,347,969.46 OPERATING EXPENSES Administrative 284,580.12 119,348.72 27,646.58 431,575.42 Tenant services 2,759.41 2,759.41 Utilities 11,400.98 462.11 11,863.09 Ordinary maintenance and operations 202.855.61 2,083.30 526.14 205,465.05 General expense 72,519.32 2,463.82 74,983.14 Housing assistance payments 913,133.00 913,133.00 Depreciation 175,751.64 2,181.04 340.68 178.273.36 TOTAL OPERATING EXPENSES 749.867.08 1.036,746.06 31,439.33 1,818,052.47 OPERATING INCOME (LOSS) (489.981.15) 50,079.47 (30,181.33) (470,083.01) NONOPERATING REVENUES (EXPENSES) HUD operating subsidy 273,943.00 273.943.00 HUD capital grants-operations 74,546.93 74,546.93 HUD capital grants 290,693.58 290,693.58 HUD PHDEP grants 20,809.87 20,809.87 HUD PHDEP grants - capital grants 10,787.05 10,787.05 HUD PHDEP grant expenditures (20,809.87) (20.809.87) Nonfederai grant income 6,463.55 6,463.55 Nonfederal grant expenditures (5,463.55) (5,463.55) Interest income 9,272.03 1,193.98 3,329.52 13,795.53 Gain on fixed asset dispositions 31,248.75 31.248.75 TOTAL NONOPERATING REVENUES (EXPENSES) 660,242.59 1,193.98 34,578.27 696,014.84 INCOME BEFORE TRANSFERS 170,261.44 51,273.45 4,396.94 225,931.83 TRANSFERS Transfers in 62,780.79 62,780.79 Transfers out (12.851.25) (49,929.54) (62.780.79) TOTAL TRANSFERS (12,851.25) (49,929.54) 62.780.79 INCREASE (DECREASE) IN NET ASSETS 157,410.19 1,343.91 67,177.73 225,931.83 NET ASSETS: Net assets, beginning balance 6,562,491.68 96,222.60 311,807.35 6,970,521.63 Prior period adjustments (2,455.00) (2,455.00) Beginning balance, restated 6,560,036.68 96.222.60 311,807.35 6,968,066.63 TOTAL NET ASSETS - ENDING BALANCE $ 6.717,446.87 $ 97,566.51 $ 378.985.08 $ 7.193,998.46 See accompanying notes. 9 HOUSING AUTHORITY OF THE CITY OF SALINA. KANSAS STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS Year Ended June 30, 2003 Public Section 8 Nonmajor Housing Voucher Funds Totals CASH FLOWS FROM OPERATING ACTIVITIES: Rental receipts $ 232,386.86 $ $ 1,258.00 $ 233,644.86 HUD Section 8 receipts 1,029,033.00 1,029,033.00 Other receipts 22,439.63 2,575.85 25,015.48 Tenant security deposits 26,597.91 26,597.91 Cash payments for goods and services (325,897.83) (953,387.96) (14.296.74) (1,293,582.53) Cash payments to employees for services (254,308.88) (90,151.39) (12,267.56) (356,727.83) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (298,782.31) (11,930.50) (25,306.30) (336,019.11) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: HUD operating subsidy 273,943.00 273,943.00 HUD capital grants-operations 74,546.93 74,546.93 PHDEP grants 4,563.10 4,563.10 PHDEP grant expenditures (20,809.87) (20,809.87) Nonfederal grant receipts 6,463.55 6,463.55 Nonfederal grant expenditures (5,463.55) (5,463.55) Transfers in (out) (49,929.54) 49,929.54 Net change in interfund borrowing 15.102.65 (13.525.28) (1,577.37) NET CASH PROVIDED (USED) BY NON CAPITAL FINANCING ACTIVITIES 348,345.81 (63,454.82) 48,352.17 333,243.16 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchases and construction of capital assets (321,142.92) (25,201.45) (346,344.37) Proceeds from sale of fixed assets 31,248.75 31,248.75 HUD - capital grants 353,231.83 353,231.83 PHDEP grants 10,787.05 10.787.05 NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES 42,875.96 6,047.30 48,923.26 CASH FLOWS FROM INVESTING ACTIVITIES: Net (deposits) withdrawais to investments (152,213.04) 29,331.18 (22,108.10) (144,989.96) Interest received 8.331.01 1,231.99 3,193.17 12,756.17 NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (143,882.03) 30,563.17 (18.914.93) (132,233.79) NET INCREASE (DECREASE) IN CASH (51,442.57) (44,822.15) 10,178.24 (86,086.48) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 247,294.37 83,905.89 155,777.97 486,978.23 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 195,851.80 $ 39,083.74 $ 165,956.21 $ 400,891.75 See accompanying notes. 10 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS (CONTD) Year Ended June 30, 2003 Public Section 8 Nonmajor Housing Voucher Funds Totals RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) $ (489,981.15) $ 50,079.47 $ (30,181.33) $ (470,083.01) Adjustments to reconcile income from operations to net cash provided by operating activities: Depreciation 175,751.64 2,181.04 340.68 178,273.36 Change in assets and liabilities: (Increase) decrease in accounts receivable 3,014.79 3,014.79 (Increase) decrease in deferred charges 862.86 862.86 (Increase) decrease in due from other governments (55,216.68) (55,216.68) (Increase) decrease in mortgage receivables 2,463.82 2,463.82 Increase (decrease) in accounts payable (19,092.84) (9,280.00) 1,899.25 (26,473.59) Increase (decrease) in trust and deposit liabilities 26,597.91 26,597.91 Increase (decrease) in accrued wages and benefits payable 2,016.95 1,447.87 171.28 3,636.10 Increase (decrease) in accrued leave 6,679.95 (1,142.20) 5,537.75 Increase (decrease) in due to other governments (3,579.91) (3,579.91) Increase (decrease) in due to other governments (1,052.51) (1,052.51) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (298,782.31) $ (11,930.50) $ (25,306.30) $ (336,019.11) See accompanying notes. 11 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30,2003 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Orqanization The Authority was created under the laws of the State of Kansas. The purpose of the Authority is to administer the Public Housing programs authorized by the United States Housing Act of 1937, as amended. These programs are subsidized by the Federal Government through the U.S. Department of Housing and Urban Development (HUD). The financial statements of the Authority have been prepared in accordance with accounting principles generally accepted in the United States of America as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the standard-setting body for governmental accounting and financial reporting. As allowed in Section P80 of GASB's Codification of Governmental Accountinq and Financial Reportinq Standards. the Authority has elected not to apply to its proprietary activities Financial Accounting Standards Board Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, 1989. New Accountinq Pronouncements The Governmental Accounting Standards Board ("GASB") issued SGAS No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, as amended by SGAS No. 37, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments: Omnibus-an amendment of GASB Statements No. 21 and No. 34, and SGAS No. 38, Certain Financial Statement Note Disclosures. These SGAS's establish new financial reporting requirements for state and local governments throughout the United States. For the Authority, these new pronouncements primarily require presentation of net assets rather than retained earnings and also establish new formats for both the Authority's balance sheet and operating statement. The Authority adopted these SGAS's effective July 1, 2002. Financial Reportinq Entity In determining how to define the reporting entity, management has considered all potential component units. The decision to include a component unit in the reporting entity was made by applying the criteria set forth in Section 2100 and 2600 of the Government Accounting Standards Board Codification. These criteria state that the financial reporting entity consist of (a) the primary government, (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the primary government is not accountable, but for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. Based on these criteria, there are no additional agencies or entities which should be included in the financial statements of the Authority. 12 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30,2003 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Basis of accountinq, measurement focus, and financial statement presentation The accounts of the Authority are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Proprietary funds are accounted for using the "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included in the Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Fund Net Assets presents increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The Authority distinguishes between operating and nonoperating revenues and expenses in its Statement of Revenues, Expenses and Changes in Fund Net Assets. For this purpose, the Authority's operating revenues result from providing low-income housing services such as tenant rent, HUD Section 8 funds earned and other tenant charges. Operating expenses include the cost attributed to administration, tenant services, utilities, maintenance and operations, housing assistance payments and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. Proprietary Fund Financial Statements include a Statement of Net Assets, a Statement of revenues, Expenses and Changes in Fund Net Assets, and a Statement of Cash Flows for each major proprietary fund and non-major funds aggregated. The new model as defined in Statement No. 34 established criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category or the governmental and enterprise combined) for determination of major Funds. If non-major funds exist, these funds are combined in a single column in the fund financial statements. The Authority's major funds are the Public Housing Program and Section 8 Voucher Program. The Authority's nonmajor funds consist solely of the Homeownership program. Budqetarv Process The Authority establishes a budget for the fiscal year and is adopted by the Board of Commissioners. 13 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) The Authority's deposits can only be invested in the following HUD approved investments: direct obligations of the federal government backed by the full faith and credit of the United States, obligations of federal government agencies, securities of government-sponsored agencies, demand and savings deposits, money-market deposit accounts, municipal depository fund, super now accounts, certificate of deposit, repurchase agreements, sweep accounts, separate trading of registered interest and principal securities (STRIPS), and mutual funds that consist of securities purchased from the HUD approved list. Accounts Receivable All receivables are current and therefore due within one year. Receivables are reported net of an allowance for uncollectible account and revenues net of uncollectibles. Allowances are reported when account are proven to be uncollectible. Prepaid Items Prepaid balances are for payments made by the Authority in the current year to provide services occurring in the subsequent fiscal year. Capital Assets and Depreciation Property and equipment are stated at actual or estimated historical cost, net of accumulated depreciation. Contributions of assets are recorded at fair market value at the date donated. The Authority generally capitalized assets with a cost of $500 or more as purchases and construction outlays occur. Depreciation has been calculated on each class of depreciable property using the straight- line method. Estimated useful lives are as follows: Buildings Building improvements Furniture and fixtures Equipment 20-40 years 1 0-40 years 5-10 years 3-10 years Use of Restricted/Unrestricted Net Assets When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Authority's policy is to apply restricted assets first. Internal Balances Interfund receivables and payables arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Compensated Absences The Authority's policy allows employees to accumulate unused vacation leave. Sick leave may be accrued but is not paid upon termination, except upon retirement. 14 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 Income Taxes The Authority is a governmental subdivision of the State of Kansas and is exempt from Federal and State income taxes. Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the Housing Authority of the City of Salina, Kansas and is presented in accordance with generally accepted accounting principles. The information in this schedule is presented in accordance with the requirements of Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. NOTE B - DEPOSITS AND INVESTMENTS Deposits At June 30, 2003, the Authority's carrying amount of deposits was $810,577.25 and the bank balances were $831,928.86. The Authority had cash on hand of $50.00 as of June 30, 2003. The Authority's bank balances at June 30,2003 are classified below in the following three categories of credit risk: (1) Insured or collateralized with securities held by the Authority or by its agent in the Authority's name. (2) Collateralized with securities held by the pledging financial institution's trust department or agent in the Authority's name. (3) Uncollateralized, including any bank balance that is collateralized with the securities held by the pledging financial institution or by its trust department or agent but not in the Authority's name. Category 1 2 $ 354,656.55 $ 477,272.31 $ 3 Bank Balance -- $ 831,928.86 Investments Investments are categorized into these three categories of credit risk: (1) Insured or registered, or securities held by the government or its agent in the government's name. (2) Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the government's name. 15 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 NOTE B - DEPOSITS AND INVESTMENTS (CONT'D) (3) Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the government's name. At year end, the Authority's investment balances were as follows: Carrying Amount (Fair Value) 83,090.37 83.090.37 2 3 Uncategorized - $ 83,090.37 $ - $ 83,090.37 $ Municipal Investment Pool $ Total Investments $ - $ - $ - $ -- $ A reconciliation of cash and investments as shown on the Statement of Net Assets is as follows: Statement of Net Assets Cash and cash equivalents $ 344,226.36 Investments 492,825.87 Restricted cash 56,665.39 $ 893,717.62 Bank deposits $ 810,577.25 Investments 83,090.37 Cash on hand 50.00 $ 893,717.62 NOTE C--ACCOUNTS RECEIVABLE A summary of accounts receivable as presented in the Statement of Net Assets at June 30, 2003 is as follows: Tenants Repayment agreements Other $ Public Housing 1,699.37 1,536.50 185.00 3,420.87 (2,584.37) 836.50 Allowance for uncollectable accounts $ 16 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 NOTE D - INTERFUND RECEIVABLE/PAYABLE The following is a summary of interfund receivable/payables at June 30, 2002: Receivable Payable Public Housing $ 6,262.57 $ Section 8 Voucher 750.38 Nonmajor Funds 5,512.19 $ 6,262.57 $ 6,262.57 The balances are a result of normal operating transactions and are expected to be paid within one year. NOTE E - DUE FROM OTHER GOVERNMENTS A summary of due from other governments as presented in the Statement of Net Assets at June 30, 2003 is as follows: Public Section 8 Housing Voucher HUD - Capital Funds $ 28,145.68 $ - - $ HUD - PHDEP grant 11,812.44 HUD - Housing Choice Voucher 43,942.00 Housing Authority of Leavenworth 15,304.68 $ 39,958.12 $ 59,246.68 $ Total 28,145.68 11,812.44 43,942.00 15,304.68 99,204.80 NOTE F-DEFERRED CHARGES A summary of deferred charges as presented in the Statement of Net Assets at of June 30, 2003 is as follows: Prepaid insurance Materials inventory $ Public Housing 18,349.49 8,293.45 26,642.94 Total $ NOTE G - RESTRICTED ASSETS Cash and cash equivalents of $56,665.39 at June 30, 2003 is restricted for Tenant Security Deposits in the Public Housing Program. 17 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 NOTE H - CAPITAL ASSETS Capital assets consist of the following: Balance Balance July 1, 2002 Increases Decreases June 30, 2003 Non-depreciable assets: land $ 1,456,890.23 $ $ $ 1,456,890.23 Construction in progress 331,099.00 261,845.66 (16,691.77) 576,252.89 1,787,989.23 261,845.66 (16,691.77) 2,033,143.12 Depreciable assets land improvements Buildings Equipment - Dwelling Equipment - Administration 334,259.65 334,259.65 5,079,410.68 54,744.47 (44,700.00) 5,089,455.15 4,779.87 4,019.76 8,799.63 185,256.84 52,822.50 238,079.34 5,603,707.04 111,586.73 (44,700.00) 5,670,593.77 7,391,696.27 373,432.39 (61,391.77) 7,703,736.89 136,273.86 18,320.45 154,594.31 1,071,282.67 129,922.48 (31,848.75) 1,169,356.40 378.08 1,175.27 1,553.35 71,589.53 28,855.16 100,444.69 1,279,524.14 178,273.36 (31,848.75) 1,425,948.75 4,324,182.90 (66,686.63) (12,851.25) 4,244,645.02 6,112,172.13 $ 195,159.03 $ (29,543.02) $ 6,277,788.14 Capital Assets Accumulated depreciation land improvements Buildings Equipment - Dwelling Equipment - Administration Depreciable assets, net Capital assets, net $ NOTE 1- ACCOUNTS PAYABLE A summary of accounts payable as presented in the Statement of Net Assets at June 30, 2003 is as follows: Vendors and contractors $ Public Housing 24,409.77 $ Section 8 Nonmajor Voucher Funds 588.67 $ 1,899.25 $ Totals 26,897.69 NOTE J - DEFERRED REVENUE A summary of deferred revenue as presented in the Statement of Net Assets at June 30, 2003 is as follows: Prepaid rents Other grants $ $ Public Housing 694.18 5,457.50 6,151.68 18 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 NOTE K - DUE TO OTHER GOVERNMENTS A summary of due to other governments as presented in the Statement of Net Assets at June 30, 2003 is as follows: Public Housing Payments in lieu of taxes $ 22,259.33 NOTE L - TRANSFERS For the year then ended June 30, 2003, interfund transfers consisted of the following: Transfer from Public Section 8 Housing Voucher Total Transfer to: Nonmajor Funds $ 12,851.25 $ 49,929:54 $ 62,780.79 [1] [2] [1] Transfer from Public Housing was the result of transferring the basis in a home which was sold. [2] The transfer from the Section 8 Voucher program was for the purpose to transfer funds for future use in the Homeownership program. NOTE M- PENSION PLAN Plan description. The non-school municipality participates in the Kansas Public Employees Retirement System (KPERS), a cost-sharing multiple-employer defined benefit pension plan as provided by K.S.A. 74-4901, et seq. KPERS provides retirement benefits, life insurance, disability income benefits, and death benefits. Kansas law establishes and amends benefit provisions. KPERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing KPERS (400 W 8th Avenue, Suite 200, Topeka, KS 66603-3925) or by calling 1-800-228- 0366. Funding Policy. K.S.A. 74-4919 establishes the KPERS member-employee contribution rate at 4% covered salary. The employer collects and remits member-employee contributions according to the provisions of section 414(h) of the Internal Revenue Code. State law provides that the employer contribution rate be determined annually based on the results of an annual actuarial valuation. KPERS is funded on an actuarial reserve basis. State law sets a limitation on annual increases in the contributions rates for KPERS employers. The non-school municipality employer contributions to KPERS for the period of July 1, 2002 through December 31, 2002 was 2.92%, and from January 1, 2003 through June 30,2 003 was 3.07%, equal to the statutory required contributions for each period. The total covered 19 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS NOTES TO FINANCIAL STATEMENTS June 30, 2003 NOTE M- PENSION PLAN (CONT'D) payroll for the fiscal year ended March 31, 2003 was $185,939.00. The employer and employee contributions were $6,303.91 and $7,437.56, respectively. NOTE N - COMMITMENTS The Authority has various contract commitments with contractors for the implementation of HUD Capital Grants as outlined by the HUD approved Capital Grant Budget. NOTE 0 - RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets, errors and omissions; injuries to employees; and natural disasters for which the Authority purchases commercial insurance. During the year ended June 30, 2003, the Authority did not reduce insurance coverage from levels in place during the prior year. No settlements have exceeded coverage levels in place during the past three fiscal years. 20 SUPPLEMENTAL INFORMATION - REQUIRED BY HUD HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS FINANCIAL DATA SCHEDULE June 30, 2003 Public Housing Capital Funds PHDEP Voucher Business Line Item # Account Description 14.850 14.872 14.854 14.871 Activities TOTAL ASSETS: CURRENT ASSETS: Cash: 111 Cash" unrestricted 139,114 39,084 165,956 344,154 114 Cash - tenant security deposits 56,737 56.737 100 Total cash 195,852 39,084 165,956 400,892 Accounts and notes receivables: 122 Accounts receivable - HUD other projects 28,146 11,812 43,942 83,900 124 Accounts receivable - other government 15,305 15,305 125 Accounts receivable - miscellaneous 185 185 126 Accounts receivable- tenants - dwelling rents 3,236 3,236 126.1 Allowance for doubtful accounts - dwelling rents (2,584) (2,584) 129 Accrued interest receivable 980 147 1,127 120 Total receivables, net of allowances for doubtful accounts 1,817 28,146 11.812 59,247 147 101,168 Current investments 131 Investments - unrestricted 361,065 131.761 492,826 142 Prepaid expenses and other assets 18,349 18,349 143 Inventories 8,293 8,293 144 Interprogram - due from 46,221 46,221 150 TOTAL CURRENT ASSETS 631,597 28,146 11,812 98,330 297,864 1,067.750 NONCURRENT ASSETS: Fixed assets: 161 Land 1,788.150 3,000 1.791.150 162 Buildings 5.034,711 54,744 5.089.455 163 Furniture, equipment & machinery - dwellings 4,780 4,020 8,800 184 Furniture, equipment & machinery - administration 101,358 106.525 10.787 19.410 238,079 166 Accurrulated depreciation (1,383,738) (23,904) (2.157) (15.809) (341) (1,425.949) 167 Construction in progress 576,253 576,253 160 Total fixed assets, net of accumulated depreciation 5,545.260 662,893 8.630 3.601 57.404 6,277,788 171 Notes and mortgages receivabie - non-current 31,655 31.655 180 TOTAL NONCURRENT ASSETS 5,545,260 662.893 8,630 3,601 89,059 6,309.443 190 TOTAL ASSETS 6,176,857 691,039 20,442 101.932 386.923 7,377,193 LIABILITIES AND EQUITY: LIABILITIES: CURRENT LIABILITIES 312 Accounts payable < 90 days 24,410 589 1,899 26,898 321 Accrued wage/payroll taxes payable 5,942 1,448 7.390 322 Accrued compensated absences 1,543 158 53 1.754 333 Accounts payable. other government 22,259 22.259 341 Tenant security deposits 56,737 56.737 342 Deferred revenues 6,152 6,152 347 Inter-program" due to 28.146 11,812 750 5,512 46.221 310 TOTAL CURRENT LIABILITIES 117,043 28.146 11,812 2.945 7.464 167.410 NONCURRENT LIABILITIES: 354 Accrued compensated absences - noncurrent 13.890 1.421 474 15,784 350 TOTAL NONCURRENT LIABILITIES 13.890 1,421 474 15,784 300 TOTAL LIABILITIES 130,933 28,146 11.812 4,365 7,938 183.194 EQUITY: 508.1 Invested in Capital Assets. Net of Related Debt 5,545,260 662,893 8,630 3.601 57,404 6,277,788 512.1 Unrestricted Net Assets 500,664 93.965 321,581 916,210 513 TOTAL EQUITY 6,045,924 662,893 8,630 97,567 378.985 7,193,998 600 TOTAL LIABILITIES AND EQUITY 6,176.857 691,039 20.442 101,932 386,923 7.377,193 21 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS FINANCIAL DATA SCHEDULE Year Ended June 30, 2003 Public Housing Capital Funds Business Line Item # Account Description 14.850 14.872 PHDEP 14.854 Voucher 14.871 Activities TOTAL REVENUE: 703 Net tenant rental revenue 237.546 1.258 238,804 705 Total tenant revenue 237,546 1,258 238.804 706 HUD PHA grants 273.943 75.547 20,810 1,068.945 1,439,245 706.1 Capital grants 289,694 10,787 300,481 708 Other government grants 6,464 6,464 711 Investment Income - unrestricted 9,272 1.194 3,330 13,796 715 Other revenue 22.340 17,881 40,220 716 Gain or loss on the sale of fixed assets 31,249 31,249 700 TOTAL REVENUE 549,565 365,241 31,597 1.088.020 35,836 2,070,258 EXPENSES: Administrative 911 Administrative salaries 129.983 68.164 9,270 207,417 912 Auditing fees 1,500 1,500 3.000 914 Compensated absences 6,680 (1,142) 171 5,709 915 Employee benefit contributions- administrative 40.315 22,938 2,471 65,724 916 Other operating- administrative 106,102 27.889 15,734 149.725 Tenant services 924 Tenant services. other 8.223 20.810 29,033 Utilities 931 Water 1.627 67 1,694 932 Electricity 5.764 117 5,882 933 Gas 4,010 278 4,287 Ordinary maintenance & operation 941 Ordinary maintenance and operations - labor 85.557 489 86,045 942 Ordinary maintenance and operations - materials & other 52.436 52,436 943 Ordinary maintenance and operations - contract costs 33,137 1,586 34,722 945 Employee benefit contributions- ordinary maintenance 31,726 498 37 32.261 General expenses 961 Insurance premiums 43,238 43,238 962 Other General Expenses 2,464 2,464 963 Payments in lieu of taxes 22,259 22.259 964 Bad debt - tenant rents 7,022 7,022 969 TOTAL OPERATING EXPENSES 579,579 20,810 121,432 31,099 752,920 970 EXCESS OPERATING REVENUE OVER OPERATING EXPENSES (30,014) 365,241 10,787 966,587 4,738 1.317.339 973 Housing assistance payments 913,133 913,133 974 Depreciation expense 160,416 13,179 2.157 2,181 341 178,273 900 TOTAL EXPENSES 739,995 13,179 22.967 1,036,746 31,439 1,844,326 OTHER FINANCING SOURCES (USES) 1001 Operating transfers in 74,547 62,781 137.328 1002 Operating transfers out (12,851) (74,547) (49,930) (137,328) 1010 TOTAL OTHER FINANCING SOURCES (USES) 61,696 (74,547) (49,930) 62,781 1000 EXCESS (DEFICIENCY) OF TOTAL REVENUE OVER (UNDER) TOTAL EXPENSES (128,734) 277,515 8,630 1,344 67.178 225,932 MEMO account Information 1103 Beginning equity 6.177,114 385,378 96.223 311,807 6,970,522 "04 Prior period adjustments (2,455) (2.455) 1113 Max"'T1um annual contributions colTYT1ltment (per AGC) 1,072,209 1.072,209 1114 prorata maximum annual contributions applicable to a period of less than twelve months 1"5 Gontingency reserve. AGG program reserve 85.136 85.136 1116 Total annual contributions available 1,157.345 1,157.345 1120 Unit months available 1,901 3,732 3 5.636 1121 Number of unit months leased 1.879 3,597 3 5.479 22 SINGLE AUDIT SECTION HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2003 Federal Grantor Contract Number Federal CFDA Number Federal Expenditures U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Public and Indian Housing: Operating subsidy Section 8 Housing Choice Voucher Section 8 KC-1029 14.850 $ 273,943.00 KC-1029 14.872 365,240.51 KC-1029 14.854 31,596.92 KC 7015V 14.871 1,068,945.00 Total Federal Awards Expended $ 1,739,725.43 Capital Fund Grant Public Housing Public Housing Drug Elimination Program Public Housing Significant Accounting Policies - The Schedule of Expenditures of Federal Awards was prepared in accordance with the basis of accounting described in Note A to the financial statements. 23 N iewedde -(9 Wiens CERTIFIED PUBLIC ACCOUNTANTS Qandal D. Niewedde, CPA Jeffrey J. Wiens, CPA REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Commissioners Housing Authority of the City of Salina, Kansas We have audited the financial statements of the Housing Authority of the City of Salina, Kansas as of and for the year ended June 30, 2003, and have issued our report thereon dated October 28, 2003. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the Housing Authority of the City of Salina, Kansas' financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reportinq In planning and performing our audit, we considered the Housing Authority of the City of Salina, Kansas' internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to management of the Housing Authority of the City of Salina, Kansas in a separate letter dated October 28, 2003. 24 p.o. Box 98 . York. Nebraska 68467 . Ph: 40'2-36'2-4410 . fax; 40'2-36'2-4410 . nwcpa@allleLnel ,- This report is intended solely for the information and use of the Board of Commissioners, management, others within the organization and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. AJ~ 6 w". ØlM October 28, 2003 25 Niewedde -(9 Wiens CERTIFIED PUBLIC ACCOUNTANTS Qandal D. Niewedde, CPA Jeffrey J. Wiens. CPA REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Board of Commissioners Housing Authority of the City of Salina, Kansas Compliance We have audited the compliance of the Housing Authority of the City of Salina, Kansas with the types of compliance requirements described in the U. S. Office of Manaqement and Budqet (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year.ended June 30, 2003. The Housing Authority of the City of Salina, Kansas' major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Housing Authority of the City of Salina, Kansas' management. Our responsibility is to express an opinion on the Housing Authority of the City of Salina, Kansas' compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditinq Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States. Local Governments, and Non-Profit Orqanizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Housing Authority of the City of Salina, Kansas' compliance with those requirements and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Housing Authority of the City of Salina, Kansas' compliance with those requirements. In our opinion, the Housing Authority of the City of Salina, Kansas complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2003. However, the results of our auditing procedures disclosed an instance of noncompliance with those requirements that is required to be reported in accordance with OMB Circular A-133 and which is described in the accompanying schedule of findings and questioned costs as Finding 2003-1. 26 Po. ßox 98 . York. Nebraska 68467 . Ph: 40'2-362-4410 . fax: 402-362-4410 . nwcpa@alllel.nel Internal Control Over Compliance The management of the Housing Authority of the City of Salina, Kansas is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Housing Authority of the City of Salina, Kansas' internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the Board of Commissioners, management, others within the organization and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. ¡J~ R ¿J~. ø~ October 28, 2003 27 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS June 30, 2003 The audit report for the year ended June 30, 2002 contained no findings and no questioned costs. 28 HOUSING AUTHORITY OF THE CITY OF SALINA, KANSAS SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2003 Section I - Summary of Auditors Results: . We issued an unqualified opinion on the financial statements of the Housing Authority of the City of Salina, Kansas for the fiscal year ended June 30, 2003. Financial Statements: . The results of our audit procedures disclosed no noncompliance which is material to the financial statements for the fiscal year ended June 30, 2003. Federal Awards: . We issued an unqualified opinion on compliance for major programs for the fiscal year ended June 30, 2003. . The results of our audit procedures disclosed no audit findings that are required to be reported under code section .510(a) of the OMB A-133 Circular. . The programs identified and audited as major are as follows: Housing Choice Voucher Program and Capital Funds . The dollar threshold used to distinguish between Type A and Type B programs was $300,000. . For the fiscal year ended June 30, 2003, the Housing Authority of the City of Salina, Kansas qualified as a low-risk auditee. Section /I - Financial Statement Findinqs: NONE Section 111- Federal Award Findinqs and Questioned Costs: NONE 29