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HomeMy WebLinkAboutCDC Financial StatementsCOMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Financial Statements and Supplementary Information Year ended June 30, 2010 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Financial Statements and Supplementary Infoiiiiation Year ended June 30, 2010 TABLE OF CONTENTS Page Independent Auditors' Report 1 Basic Financial Statements: Government -Wide Financial Statements: Statement of Net Assets 3 Statement of Activities 4 Fund Financial Statements: Governmental Funds: Balance Sheet 6 Reconciliation of Balance Sheet of Governmental Funds to the Government -Wide Statement of Net Assets 9 Statement of Revenues, Expenditures and Changes in Fund Balances 10 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Government -Wide Statement of Activities 12 Enterprise Funds: Statement of Net Assets 13 Statement of Revenues, Expenses and Changes in Net Assets 14 Statement of Cash Flows 15 Notes to the Basic Financial Statements 16 Required Supplementary Information: Notes to the Required Supplementary Information 45 Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual — Special Revenue Funds: Community Development Block Grant 46 Section 8 Housing Assistance 47 HUD Program Income 48 HOME Program 49 Low and Moderate Income Housing Program 50 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Financial Statements and Supplementary Information Year ended June 30, 2010 TABLE OF CONTENTS, (CONTINUED) Page Supplementary Schedules: Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual — Redevelopment Debt Service Fund 52 Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual — Redevelopment Capital Projects Fund 53 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 55 Schedule of Findings and Recommendations 57 II MHM MONO Mayer Hoffman McCann P.C. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com Board of Directors Community Development Commission of the City of National City National City, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the governmental activities, the business -type activities, and each major fund of the Community Development Commission of the City of National City (the "Commission"), a component unit of the City of National City, California as of and for the year ended June 30, 2010, which collectively comprise the Commission's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the management of the Community Development Commission of the City of National City. Our responsibility is to express an opinion on these component unit 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 component unit financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, and each major fund financial of the Community Development Commission of the City of National City at June 30, 2010, and the respective changes in financial position and cash flows of its proprietary fund types for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Commission has not presented management's discussion and analysis that the Government Accounting Standards Board has determined is necessary to supplement, although not required to be part of, the basic financial statements. The information identified in the accompanying table of contents as required supplementary information 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. Board of Directors Community Development Commission of the City of National City National City, California Page Two Our audit was conducted for the purposes of forming opinions on the financial statements that collectively comprise the Commission's basic financial statements. The individual budgetary comparison schedules for Debt Service and Capital Projects Funds are presented for the purpose of additional analysis and are not a required part of the basic financial statements. These supplementary schedules have been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated December 23, 2010 on our consideration of the Commission's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Irvine, California December 23, 2010 2 (This page intentionally left blank) COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Statement of Net Assets June 30, 2010 Assets Cash and investments (note 5) Cash and investments with fiscal agent (note 5) Receivables: Accounts Interest Taxes Loans (note 7) First time homebuyers loans (note 7) Due from other governments Prepaid expense Land held for resale Capital assets (note 6): Nondepreciable capital assets Depreciable capital assets, net of accumulated depreciation Total assets Liabilities Accounts payable and other liabilities Accrued salaries and benefits Accrued interest payable Deposits Due to City of National City Noncurrent liabilities (note 8): Due within one year Due in more than one year Total liabilities Net Assets Invested in capital assets, net of related debt Restricted for low and moderate housing Unrestricted net assets (deficit) Total net assets Governmental Activities $ 16,650,341 3,806,938 2,907,247 27,870 256,624 14,010,599 2,066,093 730,497 10,267,509 2,050,000 581,666 53,355,384 2,895,693 81,181 141,471 25,000 22,348 2,770,000 41,174,966 47,110,659 2,631,666 12,874,593 (9,261,534) $ 6,244,725 Business -type Activities 84,989 1,717,538 490 157,259 528,382 7,101,527 9,590,185 435,884 204,777 2,276,885 2,917,546 5,148,247 1,524,392 6,672,639 See accompanying notes to basic financial statements. Total 16,735,330 5,524,476 2,907,737 27,870 256,624 14,010,599 2,066,093 730,497 157,259 10,267,509 2,578,382 7,683,193 62,945,569 3,331,577 81,181 141,471 25,000 22,348 2,974,777 43,451,851 50,028,205 7,779,913 14,398,985 (9,261,534) 12,917,364 3 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Statement of Activities Year Ended June 30, 2010 Governmental activities: Low and moderate housing Community development Interest on long-term debt and related charges Program Revenues Operating Capital Total Charges for Contributions Contributions Program Expenses Services and Grants and Grants Revenues $ 670,912 16,114,359 2,116,754 11,313,591 11,313,591 Total governmental activities 18,902,025 11,313,591 - 11,313,591 Business -type activities: Low and moderate housing 2,673,093 2,063,715 - 2,063,715 Interest on long-term debt and related charges 180,982 Total business -type activities 2,854,075 2,063,715 - - 2,063,715 Total primary government $ 21,756,100 2,063,715 11,313,591 - 13,377,306 General revenues: Tax increment, net Investment income Other Transfers to City, net Total general revenues and transfers Change in net assets Net assets at beginning of year, as restated (note 13) Net assets at end of year See accompanying notes to the basic financial statements. 4 Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -type Activities Activities Total (670,912) (670,912) (4,800,768) (4,800,768) (2,116,754) (2,116,754) (7,588,434) (7,588,434) - (609,378) (609,378) (180,982) (180,982) - (790,360) (790,360) (7,588,434) (790,360) (8,378,794) 6,584,440 6,584,440 498,866 6,943 505,809 368,722 - 368,722 (472,798) (472,798) 6,979,230 6,943 6,986,173 (609,204) (783,417) (1,392,621) 6,853,929 7,456,056 14,309,985 $ 6,244,725 6,672,639 12,917,364 5 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Balance Sheet - Governmental Funds June 30, 2010 Assets Cash and investments (note 5) Cash with fiscal agent (note 5) Receivables: Accounts Interest Taxes Loans First time homebuyers loans Due from other funds (note 4) Due from other governments Land held for resale Total assets Special Revenue Funds Community Section 8 HUD Development Housing Program HOME Block Grant Assistance Income Program 1,142,448 415,510 2,160,158 1,094,028 290,563 45,616 2,705 3,635 - - 223,349 1,185,985 - - 1,611,117 106 124,561 - 582,390 - 145,311 - 875,000 $ 872,953 1,188,170 1,860,153 5,981,206 Liabilities and Fund Balances Liabilities: Accounts payable $ 339,343 71,636 57,021 115,768 Accrued payroll 2,416 21,615 - 1,999 Due to other funds (note 4) 124,561 15,884 Due to City of National City 22,348 - Deposits - - Deferred revenue 108,737 - 1,647,039 Total liabilities 597,405 109,135 57,021 1,764,806 Fund balances: Reserved for: Continuing appropriations - 16,896 25,157 - Contingencies - - - - Loans receivable - - 223,349 First time homebuyer loans receivable - - 1,150,063 Land held for resale - 875,000 Program 971,837 Debt service - - 1,094,028 Unreserved: Undesignated 275,548 90,302 460,598 2,191,337 Total fund balances 275,548 1,079,035 1,803,132 4,216,400 Total liabilities and fund balances $ 872,953 1,188,170 1,860,153 5,981,206 See accompanying notes to the basic financial statements. 6 Low and Moderate Income Housing Program 7,598,805 12,544 49,691 12,371,265 386,689 360,000 20,778,994 12,346 2,790 7,889,265 7,904,401 150,565 4,482,000 386,689 360,000 Debt Service Fund Redevelopment Fund 3,635,561 2,677,291 6,117 198,766 6,517,735 1,746,085 Capital Projects Fund Redevelopment Fund Totals Governmental Funds 1,697,859 16,650,341 35,619 3,806,938 2,571,068 2,907,247 2,869 27,870 8,167 256,624 230,000 14,010,599 68,287 2,066,093 15,884 140,551 2,796 730,497 9,032,509 10,267,509 13,665,058 50,864,269 553,494 2,895,693 52,361 81,181 106 140,551 22,348 25,000 25,000 62,500 9,707,541 1,746,085 693,461 12,872,314 4,771,650 1,265,867 500,000 230,000 68,287 9,032,509 1,458,485 500,000 4,935,349 1,605,039 10,267,509 971,837 5,865,678 7,495,339 1,874,934 12,388,058 12,874,593 4,771,650 20,778,994 6,517,735 12,971,597 37,991,955 13,665,058 50,864,269 7 (This page intentionally left blank) 8 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Reconciliation of the Balance Sheet of Governmental Funds to the Government -Wide Statement of Net Assets June 30, 2010 Fund balances of governmental funds $ 37,991,955 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets, net of depreciation, have not been included as financial resources in governmental fund activity. Capital assets Accumulated depreciation Long term debt and compensated absences have not been included in the governmental funds: 4,581,163 (1,949,497) Tax allocation bonds payable (37,455,000) HUD 108 Bond 2003 A (5,750,000) Advances from City (739,966) Certain revenues were not available to pay for current -period expenditures and, therefore, were deferred in the governmental funds. 9,707,541 Accrued interest payable for the current portion of interest due on bonds payable has not been reported in the governmental funds. (141,471) Net assets (deficit) of governmental activities $ 6,244,725 See accompanying notes to the basic financial statements. 9 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds For the Year Ended June 30, 2010 Special Revenue Funds Community Section 8 HUD Development Housing Program HOME Block Grant Assistance Income Program Revenues: Property taxes $ Subventions and grants 817,696 9,704,442 631,387 Interest income - - 18,565 79,788 Other income 75 396 - Total revenues 817,696 9,704,517 18,961 711,175 Expenditures: Current: Personnel services 79,332 861,884 - 39,905 Special services 3,069 15,902 4,778 Community development 218,991 8,540,361 86,924 240,445 Capital outlay 253,729 - - - Culture and leisure 76,676 Debt Service: Principal payments 225,000 Interest and fiscal charges 170,776 137,786 Total expenditures 1,027,573 9,418,147 224,710 285,128 Excess (deficiency) of revenues over (under) expenditures (209,877) 286,370 (205,749) 426,047 Other financing sources (uses): Transfers to the City - (200,131) - Transfers from the City 394,000 - - Transfers in (note 3) 128,489 608,152 - - Transfers out (note 3) - - (1,056,370) Proceeds of advance from City - Total other financing sources (uses) 522,489 608,152 (1,256,501) Net change in fund balance 312,612 894,522 (1,462,250) 426,047 Fund balance (deficit), beginning of year, as restated (note 11) (37,064) 184,513 3,265,382 3,790,353 Fund balance, end of year $ 275,548 1,079,035 1,803,132 4,216,400 See accompanying notes to the basic financial statements. 10 H Low and Moderate Income Housing Program 2,796,072 264,663 3,060,735 97,081 573,831 670,912 2,389,823 927,881 (1,434,245) Debt Service Fund Capital Projects Fund Redevelopment Redevelopment Fund Fund Total Governmental Funds 11,184,289 13,980,361 160,066 11,313,591 33,746 102,104 498,866 368,251 368,722 11,218,035 630,421 26,161,540 10,089 7,395,921 2,225,000 1,796,282 2,368,905 159,752 217,317 2,034,918 3,447,107 193,590 17,273,790 2,288,647 76,676 2,450,000 2,104, 844 11,427,292 4,780,892 27,834,654 (209,257) (4,150,471) (1,673,114) (666,667) (866,798) 394,000 826,093 - 2,490,615 - (2,490,615) 739,966 739,966 (506,364) 826,093 73,299 267,168 1,883,459 10,991,134 616,836 (4,077,172) (1,405,946) 4,154,814 17,048,769 39,397,901 12,874,593 4,771,650 12,971,597 37,991,955 11 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Government -Wide Statements of Activities For the Year Ended June 30, 2010 Changes in fund balances of governmental funds $ (1,405,946) Amounts reported for governmental activities in the statement of activities differs from the amounts reported in the statement of activities because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives as depreciation expense. Depreciation expense (81,667) Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 2,450,000 Proceeds from advances from the City of National City is reported as long term liabilities in governmental funds. The advance increases liabilities in the statement of net assets, but does not result in an increase in net assets in (739,966) The statement of activities includes accrued interest on long-term debt. This is the net change in interest payable expense for the current period. (11,910) Revenues in the government -wide statement of activities that did not provide current financial resources were not reported as revenues in the governmental funds. (819,715) Change in net assets of governmental activities $ (609,204) See accompanying notes to the basic financial statements. 12 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Statement of Net Assets - Enterprise Funds June 30, 2010 Kimball Morgan Towers Towers Assets Total Current assets: Cash and investments (notes 2 and 5) $ 75,886 9,103 84,989 Accounts receivable 490 - 490 Prepaid expense 76,979 80,280 157,259 Total current assets 153,355 89,383 242,738 Restricted cash and investments with fiscal agent (notes 2 and 5) 1,044,470 673,068 1,717,538 Noncurrent assets: Capital assets (note 6): Nondepreciable assets 315,814 212,568 528,382 Depreciable capital assets, net of accumulated depreciation 4,565,917 2,535,610 7,101,527 Total capital assets 4,881,731 2,748,178 7,629,909 Total assets 6,079,556 3,510,629 9,590,185 Liabilities Current liabilities: Accounts payable and accrued liabilities 172,028 174,981 347,009 Notes payable -due within one year (note 7) - 204,777 204,777 Total current liabilities 172,028 379,758 551,786 Noncurrent liabilities: Tenant security deposit liability 43,977 44,898 88,875 Note Payable -due in more than one year (note 7) - 2,276,885 2,276,885 Total noncurrent liabilities 43,977 2,321,783 2,365,760 Total liabilities 216,005 2,701,541 2,917,546 Net Assets Invested in capital assets, net of related debt 4,881,731 266,516 5,148,247 Restricted for: Housing 981,820 542,572 1,524,392 Total net assets $ 5,863,551 809,088 6,672,639 See accompanying notes to the basic financial statements. 13 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Statement of Revenues, Expenses and Changes in Net Assets - Enterprise Funds Year ended June 30, 2010 Kimball Morgan Towers Towers Total Operating revenues: Rental income $ 880,569 1,168,845 2,049,414 Other 7,259 7,042 14,301 Total operating revenues 887,828 1,175,887 2,063,715 Operating expenses: Maintenance and operation 1,207,062 1,037,683 2,244,745 Depreciation 187,350 240,998 428,348 Total operating expenses 1,394,412 1,278,681 2,673,093 Operating income (loss) (506,584) (102,794) (609,378) Nonoperating revenues (expenses): Interest income 3,847 3,096 6,943 Interest expense - (180,982) (180,982) Total nonoperating revenues (expense) 3,847 (177,886) (174,039) Change in net assets (502,737) (280,680) (783,417) Net assets at beginning of year 6,366,288 1,089,768 7,456,056 Net assets at end of year $ 5,863,551 809,088 6,672,639 See accompanying notes to the basic financial statements. 14 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Statement of Cash Flows - Enterprise Funds Year ended June 30, 2010 Kimball Morgan Towers Towers Total Cash flows from operating activities: Cash received from customers and government agencies $ 884,039 1,174,031 2,058,070 Cash payments to employees for services (176,029) (176,029) Cash payments to suppliers for goods and services (1,188,477) (771,250) (1,959,727) Cash received for other operating activities 7,259 7,042 14,301 Net cash provided by (used for) operating activities (297,179) 233,794 (63,385) Cash flows from investing activities: Purchase of property plant and equipment (30,417) - (30,417) Net cash provided by (used for) investing activities (30,417) - (30,417) Cash flows from financing activities: Principal payments on note payable - (191,924) (191,924) Interest income 3,847 3,796 7,643 Interest expense - (180,982) (180,982) Net cash provided by (used for) financing activities 3,847 (369,110) (365,263) Increase (decrease) in cash and investments (323,749) (135,316) (459,065) Cash and investments (including cash and investments with fiscal agent): Beginning of year 1,444,105 817,487 2,261,592 End of year 1,120,356 682,171 1,802,527 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities: Operating income (loss) (506,584) (102,794) (609,378) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities: Depreciation 187,350 240,998 428,348 (Increase) decrease in accounts receivable 2,577 5,186 7,763 (Increase) decrease in prepaid expenses (29,868) 845 (29,023) Increase (decrease) in accounts payable and accrued liabilities 49,346 89,559 138,905 Total adjustments 209,405 336,588 545,993 Net cash provided by (used for) operating activities $ (297,179) 233,794 (63,385) Noncash investing, capital and financing activities There were no significant noncash investing, capital or financing activities for the year ended June 30, 2010. See accompanying notes to basic financial statements. 15 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements Year ended June 30, 2010 (1) Summary of Significant Accounting Policies The basic financial statements of the Community Development Commission of the City of National City (the "Commission"), a component unit of the City of National City (the "City"), have been prepared in conformity with generally accepted accounting principles as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard -setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the significant accounting policies of the Commission. (a) Description of the Reporting Entity The Community Development Commission of the City of National City (the "Commission") was established in April 1967 pursuant to provisions of the California Health and Safety Code. The Commission is subject to the oversight responsibility of the City Council of the City of National City (the "City") and, accordingly, is a component unit of the City, although it is a separate legal entity. The Commission's primary purpose is to eliminate blighted areas within the City by encouraging development of residential, commercial, industrial, recreational and public facilities and to assist neighborhood redevelopment through residential property improvement loans and housing assistance payments to low and moderate income earners. The Commission accounts for its financial position and operations in accordance with generally accepted accounting principles in the United States applicable to governmental units. Basis of Accounting and Measurement Focus The basic financial statements of the Commission are composed of the following: (b) • Government -wide financial statements • Fund financial statements • Notes to the basic financial statements Government — Wide Financial Statements The Commission's government -wide financial statements include a Statement of Net Assets and a Statement of Activities. These statements present summaries of governmental activities for the Commission. 16 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (b) Basis of Accounting and Measurement Focus, (Continued) Government — Wide Financial Statements, (Continued) Government -wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Accordingly, all of the Commission's assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Assets. The Statement of Activities presents changes in 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. Certain types of transactions are reported as program revenues for the Commission in three categories: ➢ Charges for services ➢ Operating grants and contributions ➢ Capital grants and contributions Interfund transfers have been eliminated as prescribed by GASB Statement No. 34 in regards to interfund activities. Fund Financial Statements The underlying accounting system of the Commission is organized and operated on the basis of separate funds, each of which is considered to be 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. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund financial statements for the Commission's governmental and proprietary funds are presented after the government -wide financial statements. An accompanying schedule is presented for the governmental funds to reconcile and explain the differences in fund balance as presented in these statements to the net assets presented in the government -wide financial statements. The Commission has presented all major funds that met the applicable criteria. 17 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (b) Basis of Accounting and Measurement Focus, (Continued) Governmental Funds In the fund financial statements, governmental funds are presented using the modified accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The Commission uses a sixty day availability period. The primary revenue sources, which have been treated as susceptible to accrual by the Commission, are property tax, special assessments, intergovernmental revenues and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. Deferred revenues arise when potential revenues do not meet both the measurable and available criteria for recognition in the current period. Deferred revenues also arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met or when the government has a legal claim to the resources, the deferred revenue is removed and revenue is recognized. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of available spendable resources. Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of available spendable resources during a period. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as an other financing source rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. The Reconciliation of the Fund Financial Statements to the Government -Wide Financial Statements is provided to explain the differences created by the integrated approach of the GASB Statement No. 34. 18 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (b) Basis of Accounting and Measurement Focus, (Continued) Proprietary Funds The Commission's enterprise funds are proprietary funds. In the fund financial statements, proprietary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net assets. Operating revenues and expenses generally result from providing services, and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Th e principal operating revenues of Kimball Towers and Morgan Towers are charges to tenants for housing low and moderate income seniors, which is subsidized with Federal government funds under a Section 8 contract with the U.S. Department of Housing and Urban Development. Operating expenses for the proprietary funds include the cost of services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenues and expenses. Amounts paid to acquire capital assets are capitalized as assets in the proprietary fund financial statements, rather than reported as an expenditure. Proceeds of long-teiiii debt are recorded as a liability in the proprietary fund financial statements, rather than as an other financing source. Amounts paid to reduce long- term indebtedness of the proprietary funds are reported as a reduction of the related liability, rather than as an expenditure. Major Funds The Commission reports the following major governmental funds: Community Development Block Grant — To account for activities related to the annual grant from the Department of Housing and Urban Development to assist in developing viable urban community by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low and moderate income persons. 19 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (b) Basis of Accounting and Measurement Focus, (Continued) Major Funds, (Continued) Section 8 Housing Assistance — To provide rental assistance to low income families by subsidizing a portion of the rent directly to landlords on behalf of low income households. HUD Program Income — To provide for the funding of Community Development Block Grant program activities as approved by the City Council utilizing HUD program income. HOME Program — To account for activities related to the annual grant from the Department of Housing and Urban Development to administer programs designed to provide decent affordable housing, expand capacity of nonprofit housing providers, and to leverage private sector participation. Low and Moderate Income Housing Program — To account for the tax increment which is required to be set aside under Section 33334.2 of the California Health and Safety Code to increase, improve or preserve the community's supply of low and moderate income housing. Redevelopment Debt Service Fund — To account for the accumulation of resources for the payment of principal, interest, and related costs of the Commission's long- term debt. Redevelopment Capital Projects Fund — To account for the administrative expenditures of the Commission and redevelopment capital projects. In addition, the Commission also reports the following major proprietary funds: Kimball Towers — To account for the activities relating to the operations of Kimball Tower which use is restricted to housing low and moderate income seniors. Morgan Towers — To account for the activities relating to the operations of Morgan Tower which use is restricted to housing low and moderate income seniors. 20 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (c) Cash and Investments The Commission's investment policy authorizes deposits in any of the approved investments contained in the California Government Code Sections 53600 et seq. During the year ended June 30, 2010, the Commission complied with these policies. Investment income earned on unrestricted cash is allocated to the Commission's various funds as required by grant/loan agreements or at the Board's discretion. The Commission pools its available cash with the City for investment purposes. The City considers pooled cash and investment amounts, with original maturities of three months or less, to be cash equivalents. Cash and cash equivalents are combined with investments and displayed as cash and investments. In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, highly liquid market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. The Commission participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF) which has invested a portion of the pool funds in Structured Notes and Asset -backed Securities. LAIF' s investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these Structured Notes and Asset -backed Securities are subject to market risk as to change in interest rates. (d) Land Held for Resale Land held for resale is recorded at the lower of cost or, upon entering into a contract for sale, the estimated net realizable value. Fund balances are reserved in amounts equal to the carrying value of land and buildings held for resale, because such assets are not available to finance the Commission's current operations. (e) Use of Restricted/Net Assets When an expense is incurred for purposes for which both restricted net assets are available, the Commission's policy is to apply restricted net assets first. 21 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (f) Interfund Transactions Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). (g) Interest Payable In the government -wide financial statements, interest payable of long-teini debt is recognized as the liability is incurred for governmental fund types. In the fund financial statements, governmental fund types do not recognize the interest payable when the liability is incurred. Rather, interest expense is simply recorded when it is due or paid. (h) Long -Term Liabilities Government -Wide Financial Statements — Long-term debt and other long-term obligations are reported as liabilities in the primary government's governmental activity. Fund Financial Statements — The fund financial statements do not present long- teiiii debt but are shown in the Reconciliation of the Governmental Funds Balance Sheet to the Government -Wide Statement of Net Assets. (i) Net Assets In the government -wide financial statements, net assets are classified in the following categories: Invested in Capital Assets, net of Related Debt — This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that attributed to the acquisition, construction, or improvement of the assets. Restricted Net Assets — This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. Unrestricted Net Assets — This amount is all net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted net assets." 22 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) (j) Fund Balances — Reservations and Designations In the fund financial statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are legally restricted by outside parties for use of a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. (k) Property Tax Increment One of the Commission's primary sources of revenue is from property tax increments. The assessed valuation of all property within the Downtown Redevelopment Project area was deteiiuined on the date of adoption of the Redevelopment Plan. Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are allocated to the Commission; all taxes on the "frozen" assessed valuation of the property are allocated to the City and unrelated taxing agencies. (1) Use of Estimates The preparation of the basic financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities. In addition, estimates affect the reported amount of expenses. Actual results could differ from these estimates and assumptions. (2) Enterprise Fund Restricted Cash In accordance with Department of Housing and Urban Development (HUD) requirements, the Morgan Towers Enterprise Fund maintains the following restricted cash accounts: • Reserve for replacements of $428,091 represents a monthly deposit of $3,127, less current use for replacement, plus income earned thereon. The balance of this reserve will be used for the future replacement of property with HUD's approval. • Residual receipts reserve of $226,604 is an accumulation of surplus cash as calculated by HUD's Computation of Surplus Cash, Distributions and Residual Receipts, which can be expended only with HUD's approval. • Reserve for MIP and insurance impounds of $10,498 and $7,875, respectively, totaling $18,373, which represents amounts held for the future payment of property and mortgage insurance. 23 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (2) Enterprise Fund Restricted Cash, (Continued) Additionally, the Kimball Towers Enterprise Fund maintains the following HUD restricted cash accounts: Residual receipts reserve of $304,710 is an accumulation of surplus cash as calculated by HUD's Computation of Surplus Cash, Distributions and Residual Receipts, which can be expended only with HUD's approval. Other restricted cash and investments totaling $739,760 are included in the accompanying basic financial statements. (3) Transfers In/Transfers Out The following schedule summarizes the Commission's transfer activity: Transfers In Transfers Out Amount Community Development Block Grant Fund HUD Program Income Special Revenue Fund $ 128,489 (a) Low and Moderate Income Housing Fund HUD Program Income Special Revenue Fund 927,881 (b) Section 8 Housing Assistance Special Revenue Fund Low and Moderate Income Housing Fund 608,152 (c) Redevelopment Debt Service Fund Low and Moderate Income Housing Fund 826,093 (d) Total $2,490,615 (a) Transfer for expenditure recovery. (b) Transfer for expenditure recovery as approved by Council resolution for the Casa Familiar acquisition and rehabilitation project. (c) Transfers for operating subsidy. (d) The Low and Moderate Income Housing Fund transferred $826,093 to the Redevelopment Debt Service Fund to fund a portion of the 1999 and 2005 Tax Allocation Bonds (18% of series A) debt service payments that related to low and moderate development. 24 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (4) Due From and To Other Funds Interfund receivable and payable balances at June 30, 20010 are as follows: Due from Other Funds Due to Other Funds Amount Section 8 Housing Fund Redevelopment Capital Projects Fund $ 106 HUD Program Income Community Development Block Grant 124,561 (a) Redevelopment Capital Projects Fund Section 8 Housing Fund 15,884 (b) Total $140,551 (a) To liquidate deficit cash in Community Development Block Grant fund. (b) To temporarily advance the funding to the Section 8 housing program to cover anticipated HUD funding shortfall. (5) Cash and Investments Cash and investments as of June 30, 2010 are classified in the accompanying financial statements as follows: Statement of Net Assets: Cash and investments $16,735,330 Cash and investments with fiscal agent 5,524,476 Total cash and investments $22,259,806 Cash and investments as of June 30, 2010 consist of the following: Petty cash $ 150 Deposits with financial institutions 552,830 Investments 21,706,826 Total cash and investments $22,259,806 25 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (5) Cash and Investments, (Continued) Investments Authorized by the California Government Code and the Commission's Investment Policy The table below identifies the investment types that are authorized for the Commission by the California Government Code and the Commission's investment policy. The table also identifies certain provisions of the California Government Code (or the Commission's investment policy, if more restrictive) that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by fiscal agent that are governed by the provisions of debt agreements of the Commission, rather than the general provisions of the California Government Code or the Commission's investment policy. Investment Types Authorized by State Law Local Agency Bonds U.S. Treasury Obligations U.S. Agency Securities Banker's Acceptances Commercial Paper Negotiable Certificates of Deposit Repurchase Agreements Reverse Repurchase Agreements Medium -Term Notes Mutual Funds Money Market Mutual Funds Mortgage Pass -Through Securities County Pooled Investment Funds Local Agency Investment Fund (LAIF) WA Pools (other investment pools) Authorized By Investment Policy Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes *Maximum Maturity 5 years 5 years 5 years 180 days 270 days 5 years 1 year 92 days 5 years N/A N/A 5 years N/A N/A N/A * Maximum Percentage Of Portfolio None None None 40% 25% 30% None 20% of base value 30% 15% 20% 20% None None None *Maximum Investment in One Issuer None None None 30% 10% None None None None 10% 10% None None None None * Based on state law requirements or investment policy requirements, whichever is more restrictive. 26 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (5) Cash and Investments, (Continued) Inves intents Authorized by Debt Agreements Investmmment of debt proceeds held by fiscal agent are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the Commission's invesliiient policy. The table below identifies the invesliiient types that are generally authorized for investments held by fiscal agent. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk. Authorized Inveslnient Type Maximum Maximum Maximum Percentage Investment Maturity Allowed in One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities None None None Banker's Acceptances 360 days None None Commercial Paper 270 days None None Money Market Mutual Funds N/A None None Investmuent Contracts 30 years None None Certificates of Deposit None None None Repurchase Agreements None None None Mortgage Pass -Through Securities None None None State Bonds or Notes None None None Municipal Bonds or Notes None None None Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Commission manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 27 (5) COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) Cash and Investments, (Continued) Information about the sensitivity of the fair values of the Commission's investments (including investments held by fiscal agent) to market interest rate fluctuations is provided by the following table that shows the distribution of the Commission's investments by maturity: Investment Type U.S. Agency Securities Local Agency Investment Fund (LAIF) Money Market Funds Held by Fiscal Agent: Money Market Funds Total Total $ 1,195,075 14,987,275 1,717,538 3,806,938 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 or Less Months Months 14,987,275 1,717,538 3,806,938 $21,706,826 20,511,751 Disclosures Relating to Credit Risk 1,195,075 1,195,075 Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the Commission's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Investment Type U.S. Agency Securities Local Agency Investment Fund (LAIF) Money Market Funds Held by Fiscal Agent: Money Market Funds Total Minimum Legal Total Rating $ 1,195,075 AAA 14,987,275 N/A 1,717,538 N/A 3,806,938 A $21,706,826 Ratings as of Year End Not AAA Rated 1,195,075 14,987,275 - 1,717,538 3,806,938 5,002,013 16,704,813 28 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (5) Cash and Investments, (Continued) Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker -dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the Commission's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Commission deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. For investments identified herein as held by fiscal agent, the fiscal agent selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The Commission is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the Commission's investment in this pool is reported in the accompanying financial statements at amounts based upon the Commission's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. 29 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (6) Capital Assets The following is a summary of capital assets for the year ended June 30, 2010: Balance at Balance at July 1, 2009 Additions Deletions June 30, 2009 Government Activities: Capital assets: Buildings and improvements $2,450,000 - - 2,450,000 Machinery and equipment 81,163 - - 81,163 Total cost of depreciable capital assets 2,531,163 - - 2,531,163 Less accumulated depreciation: Buildings and improvements (1,786,667) (81,667) (1,868,334) Machinery and equipment (81,163) (81,163) Total accumulated depreciation (1,867,830) (81,667) - (1,949,497) Depreciable capital assets, net 663,333 (81,667) 581,666 Capital assets not depreciated: Land 2,050,000 - 2,050,000 Capital assets, net $2,713,333 8( 1,667) 2 631 666 Depreciation expense in governmental activities for capital assets for the year ended June 30, 2010 was $81,667 which was allocated to community development. 30 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (6) Capital Assets, (Continued) Business -Type Activities: Depreciable assets: Buildings and improvements Furniture and equipment Total cost of depreciable assets Less accumulated depreciation: Buildings and improvements Furniture and equipment Total accumulated depreciation Depreciable capital assets, net Capital assets not depreciated: Land Capital assets, net Balance at July 1, 2009 Balance at Additions Deletions June 30, 2010 $15,654,166 30,418 462,153 16,116,319 30,418 (8,524,664) (413,500) (92,198) (14,848) (8,616,862) (428,348) 7,499,457 (410,421) 528,382 $ 8,027,839 3 30) 15,684,584 462,153 16,146,737 (8,938,164) (107,046) (9,045,210) 7,101,527 528,382 7,629,909 Depreciation expense in business -type activities for capital assets for the year ended June 30, 2010 was $428,348 which was allocated to low and moderate housing. 31 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (7) Loans Receivable First time home buyer loans Outstanding at June 30, 2010 $ 2,066,093 Loans Copper Hills Apartments, LP 8,057,792 Plaza Manor 500,558 Single -Family Housing Rehabilitation Loan Program 223,349 Young Trust 230,000 Casa Familiar 1,576,900 Plaza City 3,422,000 Subtotal 14,010,599 Total $16,076,692 Copper Hills Apartments, LP — CDC Residual Receipts Note dated February 19, 1999 disclosed a loan of $2,400,000 with 3% interest per annum for 55 years, funded by HOME and Low & Moderate Income Housing Funds. A second and junior to the CDC Residual Receipts Note was made on June 1, 1999 referred to as CDC Rehabilitation Note with 3% interest per annum for 55 years and funded by Low & Moderate Income Housing Fund. These loans were made to acquire, develop, rehabilitate and operate the multi- family apartments located at "Q" Avenue in National City, Ca. This project will contain 134 apartment dwelling units following rehabilitation and renovation. Plaza Manor — CDC of the City of National City entered into a loan agreement with Plaza Manor Preservation, LP on December 18, 2001 in the amount of $500,000 with 3% compound interest per annum and shall end on April 15, 2032. The borrower has acquired a property located in the City of National City with aid of the said loan and with the intention to operate a 372 unit project as a very low and low income housing project. Funding sources for this loan were HOME (48%) and Low & Moderate Income Housing Funds (52%). Single -Family Housing Rehabilitation Loan Program — Prior to 2005, the CDC of the City of National City provided loans to eligible low-income homeowners to make repairs and basic home improvements that maintain the quality of their housing and created a positive effect in the surrounding neighborhood. Loans were offered at below -market interest rates utilizing federal HOME Investment Partnerships Program funds. 32 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) Loans Receivable, (Continued) Young Trust — A Promissory Note secured by Deed of Trust was made on December 17, 2003 between CDC of the City of National City and Robert Dale Young and Deborah Mae Young in the amount of $230,000 with interest of 5% per year. This loan is in reference to the California Community Redevelopment Law, where CDC appeals to redevelop a portion of the National City Redevelopment project, which is bounded by the location at Harrison Avenue, National City. Casa Familiar — CDC of the City of National City entered in an Acquisition, Rehabilitation and Permanent Loan Agreement with Casa Familiar, Inc. on October 1, 2009 amounting to $516,900 with 2% per annum from the date of the disbursement. Interest shall accrue, however, no payments shall be due under the CDC Note until July 1, 2011, and annually on July 1 of each year during the term of the CDC note, and Borrower shall make payments to the CDC in the manner provided in the CDC note until 55 years. This loan was intended to acquire, rehabilitate and permanently finance the property located at 304 East Fifth Street, National City, CA and is comprised entirely of HUD HOME funds all of which shall be used for HOME eligible purposes. Plaza City — CDC of the City of National City entered into a Loan Agreement with Plaza City Apartments, LP on November 1, 2005 in the amount of $2,700,000 with 3% interest per annum for 55 years. It was amended per Resolution No. 2006-202 dated September 19, 2006 which increased the loan amount by $722,000 for a total of $3,422,000. This loan will be used by the borrower to pay the balance of the purchase price and additional costs relating to the acquisition, demolition and development of certain real property located at 1535 Plaza Blvd., National City, CA. 33 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (8) Long -Term Liabilities The following is a summary of changes in long-term liabilities for the year ended June 30, 2010: Balance Amounts Amount Due Balance July June 30, Due Within Beyond One 1, 2009 Additions Deletions 2010 One Year Year Governmental Activities: Bonds payable: 1999 Tax Allocation Bonds $4,210,000 (120,000) 4,090,000 125,000 3,965,000 2004 Series Tax Allocation Bonds 4,885,000 (265,000) 4,620,000 275,000 4,345,000 2005 Series A Tax Allocation Bonds 20,745,000 - (1,840,000) 18,905,000 2,125,000 16,780,000 2005 Series B Tax Allocation Bonds 9,840,000 - - 9,840,000 - 9,840,000 HUD 108 Bond 2003 A 5,975,000 (225,000) 5,750,000 245,000 5,505,000 Total bonds payable 45,655,000 - (2,450,000) 43,205,000 2,770,000 40,435,000 Advance from City - 739,966 739,966 739,966 Total governmental activities 45,655,000 739,966 (2,450,000) 43,944,966 2,770,000 41,174,966 Business -Type Activities: Notes Payable 2,673,585 - (191,923) 2,481,662 204,777 2,276,885 Total business -type activities 2,673,585 (191,923) 2,481,662 204,777 2,276,885 Total $48,328,585 (2,641,923) 45,426,628 2,974,777 43,451,851 1999 Tax Allocation Bonds In June 1999, the Commission issued $5,050,000 in Tax Allocation Bonds for the Q Avenue Redevelopment project. The bonds consist of $1,085,000 in serial bonds which mature from 2000 to 2010 in amounts ranging from $45,000 to $125,000, and $1,425,000 in term bonds which mature in 2019, and $2,540,000 in term bonds which mature in 2029. Interest is payable semi-annually on February 1 and August 1, at interest rates ranging from 3.30% to 4.50% 34 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (8) Long -Term Liabilities, (Continued) The annual debt service requirements for the 1999 Tax Allocation Bonds outstanding at June 30, 2010 are as follows: Fiscal Year Principal Interest Total 2011 $ 125,000 204,237 329,237 2012 130,000 198,175 328,175 2013 135,000 191,550 326,550 2014 145,000 184,550 329,550 2015 150,000 177,176 327,176 2016 155,000 169,550 324,550 2017 165,000 161,549 326,549 2018 175,000 153,050 328,050 2019 180,000 144,175 324,175 2020 190,000 134,925 324,925 2021 200,000 125,050 325,050 2022 210,000 114,543 324,543 2023 220,000 103,525 323,525 2024 235,000 91,866 326,866 2025 245,000 79,566 324,566 2026 260,000 66,625 326,625 2027 270,000 53,044 323,044 2028 285,000 38,822 323,822 2029 300,000 23,831 323,831 2030 315,000 8,072 323,072 Total $4,090,000 2,423,881 6,513,881 35 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (8) Long -Term Liabilities, (Continued) 2004 Tax Allocation Bonds In June 2004, the Commission issued $5,860,000 in Tax Allocation Bonds to finance a portion of the cost to construct a fire station, library, and community art center. The bonds consist of $3,045,000 in serial bonds which mature from 2005-2015 in amounts ranging from $220,000 to $330,000, and $1,085,000 in term bonds which matures in fiscal year 2029. Interest is paid semi-annually on February 1 and August 1, at interest rates ranging from 1.50% to 5.50%. The annual debt service requirements for the 2004 Tax Allocation Bonds outstanding at June 30, 2010 are as follows: Fiscal Year Principal Interest Total 2011 $ 275,000 214,685 489,685 2012 285,000 204,880 489,880 2013 295,000 194,145 489,145 2014 305,000 182,440 487,440 2015 315,000 169,883 484,883 2016 330,000 156,413 486,413 2017 - 149,440 149,440 2018 149,440 149,440 2019 149,440 149,440 2020 149,440 149,440 2021 149,440 149,440 2022 149,440 149,440 2023 149,440 149,440 2024 149,440 149,440 2025 149,440 149,440 2026 149,440 149,440 2027 345,000 140,775 485,775 2028 360,000 123,150 483,150 2029 380,000 104,650 484,650 2030 400,000 84,150 484,150 2031 420,000 61,600 481,600 2032 445,000 37,813 482,813 2033 465,000 12,788 477,788 Total $4,620,000 3,181,772 7,801,772 36 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) Long -Term Liabilities, (Continued) 2005 Series A Tax Allocation Bonds In January 2005, the Commission issued $27,940,000 in Tax Allocation Bonds, Series A for the purpose of refunding the Commission's 2001 Series A Tax Allocation Bonds. Interest on the bonds is payable semiannually on August 1 and February 1, commencing August 1, 2005, at rates ranging from 2.9% to 4.85% per annum. The annual debt service requirements for the 2005 Series A Tax Allocation Bonds outstanding at June 30, 2010 are as follows: Fiscal Year 2011 2012 2013 2014 2015 2016 Total Principal $ 2,125,000 3,060,000 3,200,000 3,345,000 3,505,000 3,670,000 $18,905,000 Interest 879,725 788,350 650,650 503,450 346,235 177,995 3,346,405 Total 3,004,725 3,848,350 3,850,650 3,848,450 3,851,235 3,847,995 22,251,405 2005 Series B Tax Allocation Bonds In January 2005, the Commission issued $9,840,000 in Tax Allocation Bonds, Series B for the purpose of refunding the Commission's 2001 Series B Tax Allocation Bonds. Interest on the bonds is payable semiannually on August 1 and February 1, commencing August 1, 2005, at rates ranging from 3.8% to 5.25% per annum. 37 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (8) Long -Term Liabilities, (Continued) The annual debt service requirements for the 2005 Series B Tax Allocation Bonds outstanding at June 30, 2010 are as follows: Fiscal Year Principal Interest Total 2011 $ 444,693 444,693 2012 444,693 444,693 2013 - 444,693 444,693 2014 - 444,693 444,693 2015 - 444,693 444,693 2016 444,693 444,693 2017 760,000 444,693 1,204,693 2018 790,000 415,813 1,205,813 2019 825,000 385,003 1,210,003 2020 855,000 352,003 1,207,003 2021 890,000 317,803 1,207,803 2022 570,000 277,753 847,753 2023 595,000 253,528 848,528 2024 780,000 227,943 1,007,943 2025 815,000 194,013 1,009,013 2026 855,000 153,263 1,008,263 2027 555,000 110,513 665,513 2028 435,000 81,375 516,375 2029 250,000 5 8,53 8 308,538 2030 200,000 45,413 245,413 2031 210,000 34,913 244,913 2032 220,000 23,888 243,888 2033 235,000 12,338 247,338 Total $9,840,000 6,056,951 15,896,951 38 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) Long -Term Liabilities, (Continued) 2003 A HUD 108 Bond The City issued $6,900,000 of HUD 108 Bonds, Series A on August 7, 2003 to provide funds for the construction of a fire station. The bonds mature annually through 2024 in the amount ranging from $170,000 to $635,000 beginning in 2005. The interest of the bonds is payable semi-annually on each February 1 and August 1, commencing February 1, 2004. The annual debt service payments for the bonds outstanding are as follows: Fiscal Year Principal Interest Total 2011 $ 245,000 297,269 542,269 2012 260,000 286,413 546,413 2013 280,000 274,117 554,117 2014 305,000 260,227 565,227 2015 325,000 244,850 569,850 2016 350,000 227,967 577,967 2017 380,000 209,233 589,233 2018 410,000 188,528 598,528 2019 440,000 165,847 605,847 2020 475,000 141,044 616,044 2021 510,000 113,975 623,975 2022 545,000 84,640 629,640 2023 590,000 52,770 642,770 2024 635,000 18,066 653,066 Total $5,750,000 2,564,946 8,314,946 Advance from City In 2010 the City of National City advanced to the Community Development Commission $739,966 at an interest rate of 3.96% to be paid back over 10 years. Accrued interest and principal payments are due on an annual basis. The amount outstanding as of June 30, 2010 is $739,966. Note Payable The mortgage payable is secured by a deed of trust, bears interest at 6.5% and is payable to GMAC in the amount of $3,718,928. The note is being repaid in monthly installments of $30,005, including interest, through August 2019. The note is insured by HUD and is secured by substantially all property and equipment of the Morgan Towers Enterprise Fund. 39 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (8) Long -Term Liabilities, (Continued) The annual principal payments of the note payable outstanding at June 30, (9) Fiscal Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Principal $ 204,777 218,492 233,124 248,736 265,395 283,170 302,136 322,368 343,957 59,507 Total $2,481,662 Defeasance of Debt As of June 30, 2010, the outstanding balance Interest 155,283 141,568 126,936 111,324 94,665 76,890 57,924 37,692 16,103 503 818,888 2010 are as follows: Total 360,060 360,060 360,060 360,060 360,060 360,060 360,060 360,060 360,060 60,010 3,300,550 of defeased issues are as follows: 2001 Series A Tax Allocation Bonds (Series A & B) $34,105,000 1998 Tax Allocation Bonds 11,930,000 Commitments and Contingencies Grant funds received by the Commission are subject to review by the grantor agencies. Such audits could lead to requests for reimbursements to the grantor agencies for expenditures disallowed under terms of the grant. The management of the Commission believes that such disallowances, if any, will not be significant. (10) National City Joint Powers Financing Authority The National Joint Powers Financing Authority ("JPFA") was created pursuant to a joint exercise of powers agreement entered into by and between the Commission and the City of National City on April 16, 1991. The purpose of such agreement was to provide for the financing and construction of the new police facility and Community Center. The JPFA is administered by a commission consisting of the members of the City Council and all voting power of JPFA resides in the Commission. 40 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (11) Expenditures in Excess of Appropriations Expenditures for the year ended June 30, 2010 exceeded the appropriations of the following funds: Budget Actual Variance Special Revenue Funds: Section 8 Housing Assistance $9,268,420 9,418,147 (149,727) (12) Pledged Revenues The Commission has a number of debt issuances outstanding that are collateralized by the pledging of certain revenues. The amount and term of the remainder of these commitments are indicated in the debt service to maturity tables presented in the accompanying notes. The purposes for which the proceeds of the related debt issuances were utilized are disclosed in the debt descriptions in the accompanying notes. For the current year, debt service payments as a percentage of the pledged gross revenue (or net of certain expenses where so required by the debt agreement) are indicated in the table below. These percentages also approximate the relationship of debt service to pledged revenue for the remainder of the term of the commitment: Description of Pledged Revenue Tax increment revenues Annual Amount of Pledged Revenue (net of expenses, where required) $11,184,289 Annual Debt Service Payments (of all debt secured by this revenue) Debt Service as a Percentage of Pledged Revenue 4,021,282 36% 41 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Notes to Basic Financial Statements (Continued) (13) Prior Period Adjustment The accompanying financial statements include adjustments that resulted in the restatements of beginning fund balances/net assets. The following summarizes the effect of the prior period adjustments to beginning fund balance as of July 1, 2009: Fund balance -beginning of year, as previously reported To recognize revenues earned in prior year previously deferred To adjust land held for resale for transactions improperly recorded or unrecorded in prior years Fund balance -beginning of year, as restated HOME Capital Projects Program Fund — Special Redevelopment Revenue Fund Fund $16,213,769 4,217,703 835,000 (427,350) $17,048,769 3,790353 The following summarizes the effect of the prior period adjustments to beginning net assets as of July 1, 2009: Net Assets -beginning of year, as previously reported To record notes receivable previously unrecorded in prior years Net Assets -beginning of year, as restated Government -Wide Statement of Net Assets $ (3,121,413) 9,975,342 $ 6,853,929 42 REQUIRED SUPPLEMENTARY INFORMATION 43 (This page intentionally left blank) 44 COMMUNITY DEVELOPMENT COMMISSION OF THE, CITY OF NATIONAL CITY Notes to the Required Supplementary Information Year ended June 30, 2010 (1) Budgetary Information The Commission adopts an annual budget prepared on the modified accrual basis of accounting for all governmental fund types. The Executive Director is required to prepare and submit to the Commission Board of Directors the annual budget of the Commission and administer it after adoption. Any revisions that alter the total appropriations must be approved by the Board of Directors. All annual appropriations lapse at fiscal year-end except for unexpended purchase orders or contracts and unexpended appropriations for capital projects. Total expenditures may not legally exceed total appropriations at the fund level. (2) Required Disclosures Expenditures for the year ended June 30, 2010 exceeded the appropriations of the following major special revenue fund: Budget Actual Variance Special Revenue Funds: Section 8 Housing Assistance $9,268,420 9,418,147 (149,727) 45 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Community Development Block Grant - Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Revenues: Subventions and grants Total revenues Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,107,495 1,107,495 817,696 (289,799) 1,107,495 1,107,495 817,696 (289,799) Expenditures: Current: Personnel services 62,260 62,260 79,332 (17,072) Special services 11,355 11,355 3,069 8,286 Community development 247,914 247,914 218,991 28,923 Culture and leisure 83,130 83,130 76,676 6,454 Capital outlay 863,439 863,439 253,729 609,710 Debt Service: Principal 225,000 (225,000) Interest and fiscal charges 1,776 1,776 170,776 (169,000) Total expenditures 1,269,874 1,269,874 1,027,573 242,301 Excess (deficiency) of revenues over expenditures (162,379) (162,379) (209,877) (47,498) Other financing sources (uses): Transfers from the City 394,000 394,000 Transfers in 128,489 128,489 Transfers out (241,334) (241,334) 241,334 Total other financing sources (uses) (241,334) (241,334) 522,489 763,823 Net change in fund balance (403,713) (403,713) 312,612 716,325 Fund balance (deficit), beginning of year (37,064) (37,064) (37,064) Fund balance (deficit), end of year $ (440,777) (440,777) 275,548 716,325 46 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Section 8 Housing Assistance - Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Subventions and grants $ 7,459,000 8,659,000 9,704,442 1,045,442 Other income - 75 75 Total revenues 7,459,000 8,659,000 9,704,517 1,045,517 Expenditures: Current: Personnel services 837,244 837,244 861,884 (24,640) Special services 31,739 31,739 15,902 15,837 Community development 7,827,237 8,399,437 8,540,361 (140,924) Total expenditures 8,696,220 9,268,420 9,418,147 (149,727) Excess (deficiency) of revenues over (under) expenditures (1,237,220) (609,420) 286,370 895,790 Other financing sources (uses): Transfers in 1,215,884 1,215,884 608,152 (607,732) Total other financing sources (uses) 1,215,884 1,215,884 608,152 (607,732) Net change in fund balance (21,336) 606,464 894,522 288,058 Fund balance, beginning of year 184,513 184,513 184,513 Fund balance, end of year $ 163,177 790,977 1,079,035 288,058 47 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY HUD Program Income - Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Interest income $ - 18,565 18,565 Other income 396 396 Total revenues 18,961 18,961 Expenditures: Current: Community development 1,008,553 1,008,553 86,924 921,629 Culture and leisure Debt service: Principal 1,254,500 1,254,500 Interest and fiscal charges 1,036,650 1,036,650 Total expenditures 3,299,703 3,299,703 137,786 1,254,500 898,864 224,710 3,074,993 Excess (deficiency) of revenues over expenditures (3,299,703) (3,299,703) (205,749) 3,093,954 Other financing sources (uses): Transfer to City of National City (200,131) (200,131) Transfers out (1,056,370) (1,056,370) Total other financing sources (uses) - (1,256,501) (1,256,501) Net change in fund balance (3,299,703) (3,299,703) (1,462,250) 1,837,453 Fund balance, beginning of year 3,265,382 3,265,382 3,265,382 Fund balance (deficit), end of year $ (34,321) (34,321) 1,803,132 1,837,453 48 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY HOME Program - Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Budgeted Amounts Original Final Actual Variance with Final Budget Positive (Negative) Revenues: Subventions and grants $ 1,201,730 1,201,730 631,387 (570,343) Interest income - 79,788 79,788 Total revenues 1,201,730 1,201,730 711,175 (490,555) Expenditures: Current: Personnel services 72,784 72,784 39,905 32,879 Special services 10,781 10,781 4,778 6,003 Community development 1,016,317 1,016,317 240,445 775,872 Total expenditures 1,099,882 1,099,882 285,128 814,754 Net change in fund balance 101,848 101,848 426,047 324,199 Fund balance, beginning of year, as restated 3,790,353 3,790,353 3,790,353 - Fund balance, end of year $ 3,892,201 3,892,201 4,216,400 324,199 49 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Low and Moderate Income Housing Program - Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Budgeted Amounts Original Final Actual Variance with Final Budget Positive (Negative) Revenues: Property tax allocated $ 2,808,046 2,808,046 2,796,072 (11,974) Interest income 200,000 200,000 264,663 64,663 Total revenues 3,008,046 3,008,046 3,060,735 52,689 Expenditures: Current: Personnel services 191,489 191,489 97,081 94,408 Community development 686,643 686,643 573,831 112,812 Total expenditures Excess (deficiency) of revenues over expenditures 878,132 878,132 670,912 207,220 2,129,914 2,129,914 2,389,823 259,909 Other financing sources (uses): Transfers in - 927,881 927,881.00 Transfers out (2,042,002) (2,042,002) (1,434,245) 607,757 Total other financing sources (uses) (2,042,002) (2,042,002) (506,364) 1,535,638 Net change in fund balance 87,912 87,912 1,883,459 1,795,547 Fund balance, beginning of year 10,991,134 10,991,134 10,991,134 - Fund balance, end of year $ 11,079,046 11,079,046 12,874,593 1,795,547 50 SUPPLEMENTARY SCHEDULES 51 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Redevelopment Fund - Debt Service Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Budgeted Amounts Original Final Actual Variance with Final Budget Positive (Negative) Revenues: Property tax allocated $ 11,232,183 11,232,183 11,184,289 (47,894) Interest income - 33,746 33,746 Total revenues 11,232,183 11,232,183 11,218,035 (14,148) Expenditures: Current: Special services 10,000 10,000 10,089 (89) Community development 7,470,315 7,470,315 7,395,921 74,394 Debt service: Principal payments 2,225,000 2,225,000 2,225,000 Interest and fiscal charges 1,832,122 1,832,122 1,796,282 35,840 Total expenditures 11,537,437 11,537,437 11,427,292 110,145 Excess (deficiency) of revenues over expenditures (305,254) (305,254) (209,257) 95,997 Other financing sources (uses): Transfers in 826,093 826,093 826,093 Total other financing sources (uses) 826,093 826,093 826,093 Net change in fund balance 520,839 520,839 616,836 95,997 Fund balance, beginning of year 4,154,814 4,154,814 4,154,814 Fund balance, end of year $ 4,675,653 4,675,653 4,771,650 95,997 52 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Redevelopment Fund - Capital Projects Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual For the Year Ended June 30, 2010 Revenues: Subventions and grants Interest income Other income Total revenues Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 160,066 160,066 102,104 102,104 154,996 154,996 368,251 213,255 154,996 154,996 630,421 475,425 Expenditures: Current: Personnel services 2,855,520 2,855,520 2,368,905 486,615 Special services 587,639 587,639 159,752 427,887 Community development 27,544 27,544 217,317 (189,773) Capital outlay 3,742,423 3,742,423 2,034,918 1,707,505 Total expenditures 7,213,126 7,213,126 4,780,892 2,432,234 Excess (deficiency) of revenues over (under) expenditures (7,058,130) (7,058,130) (4,150,471) 2,907,659 Other financing sources: Transfer to City of National City (666,667) (666,667) (666,667) Proceeds of advance from City - 739,966 739,966 Total other financing sources (666,667) (666,667) 73,299 739,966 Net change in fund balance (7,724,797) (7,724,797) (4,077,172) 3,647,625 Fund balance, beginning of year, as restated 17,048,769 17,048,769 17,048,769 Fund balance, end of year $ 9,323,972 9,323,972 12,971,597 3,647,625 53 (This page intentionally left blank) 54 MHM Mayer Hoffman McCann RC. An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com Board of Directors Community Development Commission of the City of National City National City, California REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the financial statements of the Community Development Commission of the City of National City ("Commission"), a component unit of the City of National City as of and for the year ended June 30, 2010, and have issued our report thereon dated December 23, 2010. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Commission's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control over financial reporting. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses and therefore there can be no assurance that all such deficiencies have been identified. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We did not identify any deficiencies in internal control that we consider to be material weaknesses. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider items that have been described in the accompanying Schedule of Findings and Recommendations to be significant deficiencies in internal control. The City's written responses to the matters communicated herein have not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. We note certain matters we reported to the management of the City of National City in a separate letter dated December 23, 2010. 55 Board of Directors Community Development Commission of the City of National City National City, California Compliance and Other Matters As part of obtaining reasonable assurance about whether the Commission's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions included those provisions of laws and regulations identified in the Guidelines for Compliance Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accounts. 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 result of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, we noted other matters involving compliance with respect to the items tested, the Commission complied, in all material respects, with the provisions referred to in the preceding paragraph, except for three instances that are described as follows: There is one parcel of land held for resale purchased with low and moderate income housing funds that was held beyond five years. Health & Safety Code §33334.16 requires Agencies to initiate activities to develop properties purchased with low and moderate income housing funds within five years from the date of acquisition. If development activities have not begun within this period, the legislative body may adopt a resolution extending the period for one time, not to exceed five years. The parcel was purchased in 2003 and had not been sold as of June 30, 2010. We were also not provided any evidence that a resolution was adopted extending the time period. On or before December 31, 1994, and each five years thereafter, Health and Safety Code §33490 requires each agency that has adopted a redevelopment plan prior to December 31, 1993, to adopt, after a public hearing, an implementation plan that shall contain the specific goals and objectives of the agency for the project area, the specific programs, including potential projects, and estimated expenditures proposed to be made during the next five years, and an explanation of how the goals and objectives, programs, and expenditures will eliminate blight within the project area and implement the requirements of Section 33333.10, if applicable, and Sections 33334.2, 33334.4, 33334.6, and 33413. The Agency was not in compliance with this requirement. Health & Safety Code §33080.1 requires Agencies to annually report on their Low and Moderate Income Housing Fund and housing activities. During our review of this annual report it was noted that certain amounts being reported for fiscal year ended June 30, 2009 materially did not agree to the Commissions' audited financial statements. This report is intended solely for the information and use of management of the National City Community Development Commission, Board of Directors, and the State Controllerand is not intended to and should not be used by anyone other than these specified parties. Irvine, California December 23, 2010 56 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Schedule of Findings and Recommendations Year ended June 30, 2010 (2010-01) Reporting of Notes Receivable During the audit, Finance Department staff identified 6 different loans, which in the aggregate totaled approximately $9.5 million dollars, which were issued by the Community Development Commission (CDC) in previous years dating back to 1995 fiscal years. These agreements were entered into for appropriate Commission activities; however, these transactions were not reported in the accounting system as receivables of the CDC. These unreported transactions resulted in restatement of fund balance and net assets in the City and CDC's financial statements. The proper recording of receivables allow the City and CDC to monitor these funds and projects to insure that funds will be repaid in accordance with the terms of the agreement. Recommendation We recommend that Community Development Commission and City Finance Department staff develop policies and procedures for communicating, documenting, and recording of significant loan transactions to insure that activities of the Commission are properly reflected in the accounting records. These policies and procedures should also include enhanced monitoring controls over the loans issued to ensure repayment is appropriately recorded and that the monies are being used in accordance with the agreements terms and conditions. Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation and Finance staff will develop policies and procedures on recording Notes Receivables. It should be noted that the six different loans totaling $9.5 million were entered into as early as 1995 and pre -dates existing management. c2010-02) I nternal Service Fund Charges During our audit, we noted that the method for determining and allocating internal service fund charges to other departments and funds of the City had not been appropriately updated. During the 2010 fiscal year, the revenues received by the City's internal service funds were unchanged from 2009. Proper charges from internal service plans should be determined during the budgeting process and should reflect the actual cost incurred to provide the services rendered by the internal service fund. This process should be updated, reviewed, and approved on an annual basis. 57 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Schedule of Findings and Recommendations (Continued) (2010-02) I nternal Service Fund Charges, (Continued) Recommendation We recommend that the City perform a reconciliation of estimated expenses versus actual expenses, and to make the appropriate journal entries so that internal services funds are fully reimbursed for actual costs incurred or to insure user departments are not over charged should actual expenses be less than budget. Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation. Management is in the process of contracting services to perfoiiu a full review of the internal fund charge formula. With the merger of the Community Development Commission's operations with the City of National City as well as the other City organizational changes, the internal charge methodology requires a more detailed review to ensure all departments are being charged appropriately. Once the methodology has been approved, the finance staff will reconcile estimated expenses vs actual expenses and adjust the charges accordingly. The internal services charges will be updated on an annual basis. (2010-03) I nterfund Transactions The proper use of short term interfund transactions (due to/from other funds) are used to eliminate deficits of cash in particular funds or to report short terms loans between funds that are due and payable within 12 months. Long-teiiu loans between funds of the City are generally due within more than one year (advances to/from other funds), and they may accrue interest to the lending fund and should be approved by City Council. During the June 30, 2010 audit, we noted that the interfund accounts are not being used by the City in the aforementioned situations. This has resulted in numerous funds of the City having both receivables and payables to other funds, and in many cases, the funds that are receiving these loans have adequate cash balances to support their operations. Recommendation We recommend the interfund accounts that are a result long temiu borrowing need to be formally approved by Council and document these interfund loans as long-teiiu advances between the borrowing funds and funds from which an advance was made. We also recommend that the City implement and document monitoring controls to insure that interfund borrowing does not affect restricted funds and to implement procedures to insure that the interfund accounts are not used to record routine or monthly transactions. 58 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Schedule of Findings and Recommendations (Continued) (2010-03) I nterfund Transactions, (Continued) Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation. The financial accounting system has been programmed to record entries as short term interfund transactions (due to/due from). The Finance Director will work closely with the city's accounting software programmers to correct the system generated entry and use the short term interfund transactions only as needed. (2010-04) Adjustments Detected D uring the Audit Process The Auditing Standards requires that the auditor include in the report of significant deficiencies any material adjustments detected by the audit process. For the year in June 30, 2010, material adjustments detected by the audit process were as follows. • Accrual payroll adjusted by $187,202 to reflect additional liabilities associated with payroll incurred as of June 30, 2010. • Increased capital assets, cash with fiscal agent and recorded long-teiiii capital lease in the amount of $507,000, $1,248,323, and $1,755,160, respectively, relating to a transaction entered into by the City, but not recorded in the City's general ledger. • Recorded interest receivable as of June 30, 2010 in certain restricted funds to properly reflect those funds income and pooled cash balances at year end. • Reduced interfund loans reported in restricted funds due to the fact that the borrowing funds had adequate pooled cash balances and to reduce the interfund loans in restricted funds of the City. Recommendation Paragraph 15 of the Statement on Auditing Standards No. 115 specifies that material adjustments identified through the audit process are an indication of weaknesses in an entity's internal control structure. Efforts should be made to enhance the City's year end closing procedures to include areas that resulted in audit adjustments in 2010. Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation. The finance staff will update the year end closing procedures to ensure that all material adjustments are detected and recorded. 59 COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF NATIONAL CITY Schedule of Findings and Recommendations (Continued) (2010-05) Consolidation of Funds in the Accounting System Currently, the City has over one hundred funds in their accounting system. Although some funds are required to be reported separately, the majority of the City funds may be combined into the same fund if they are similar in nature (i.e. certain grants). Different revenue and expenditure accounts may be used to segregate those funds that are combined into one in order to continue to account for them separately. Furthermore, during the fiscal year ended June 30, 2011, they City will have to implement Governmental Accounting Standards Board Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions, which will further require the City to potentially consolidate certain funds for financial reporting purposes; having such a significant number of funds to analyze will require considerable efforts from City and Finance Department staff. Recommendation We recommend that the City evaluate each fund of the City and determine if there is an appropriate need to have a separate fund for the identified activities. Funds that are determined to not meet those criteria should be closed and reported with the General Fund. Through this process, the City used consider the impacts of GASB 54 to ensure that the accounting records will be appropriate for these new reporting standards. Management's Responses Regarding Corrective Action Taken or Planned We concur with the recommendation. Finance staff have begun review of the funds in the accounting system and will recommend consolidation of funds to the City Manager. In addition, the city will consider contracting services for the implementation of GASB 54 to ensure compliance with the new reporting standard. 60