SVd :::> - :::> 11d '. 0 :::> Stl3l!VI-I::) J

Transcription

1 SVd :::> - :::> 11d '. 0 :::> o~~ ~3~Zl3W J 1 Stl3l!VI-I::) J J J J J J J J ) _J

2 Habitat for Humanity of North Idaho, Inc. Financial Statements r r r r r-

3 Habitat for Humanity of North Idaho, Inc. Table of Contents r Report of Independent Auditor.... Page Financial Statements Statements of Financial Position Statements of Activities and Changes in Net Assets I Statements of Functional Expenses Statements of Cash Flows J Notes to Financial Statements I I Report on Internal Control ' - -

4 r,- CI-IATTERS, METZGER r>-~ 0 CO.. PLLC - CPAs 243 West Sunset Avenue Coeur d'alene, ID 8381 S P: (208) F: (208} E: cpa@chatterscpa.com Report of Independent Auditor Board of Directors Habitat for Humanity of North Idaho, Inc. Hayden, Idaho We have audited the accompanying financial statements of Habitat for Humanity of North Idaho, Inc. (a not-for-profit organization) (the Organization) which comprise of the statement of financial position as of and the related statements of activities and changes in net assets, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.... An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

5 r- Opinion,,- In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Habitat for Humanity of North Idaho, Inc. as of, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. ~, Jnd-r eutd ~-, /JLLC Chatters, Metzger and Company, PLLC Coeur d'alene, Idaho March 11, 2016, West Sunset Avenue * Coeur d'alene, ID Webs te:

6 Habitat for Humanity of North Idaho, Inc. Statement of Financial Position CURRENT ASSETS: ASSETS 2015 Cash $ Accounts Receivable Prepaid expenses Mortgages receivable, due within one year (Note 4) Inventories Construction in progress NONCURRE~T ASSETS: Total current assets 44,275 15,719 1,329 59,628 26,115 72, ,967 ICF Investments 51,983 Mortgages receivable, due after one year, net (Note 4) 771,102 Land held for development 196,675 Fixed assets, net (Note 6) 732,142 Total noncurrent assets Ll51,902 Total Assets $ 1,971,869 CURRENT LIABILITIES LIABILITIES AND NET ASSETS Accounts Payable Accrued payroll and related liabilities Deferred income Long-term debt, due within one year (Note 8) NONCURRENT LIABILITIES Due to ICF Long-term debt, due after one year (Note 8) Total current liabilities Total non current liabilities $ 32,928 25, ,105 1 _,_ ,740 39, , ,434 NET ASSETS (Note 11) Unrestricted, undesignated Temporarily restricted Permanently restricted 952,712 1,983 50,000 Total net assets 1,004,695 Total Liabilities and Net Assets $ 1,971,869 The accompanying notes are an integral part of the financial statements 3

7 Habitat for Humanity of North Idaho, Inc. Statement of Activities and Changes in Net Asset Year Ended REVENUES AND OTHER GAINS Temporarily Permanently Unrestricted Restricted Restricted Total Contribulions of cash $ 14,009 $ $ $ Contributions of property and services 618 Special events, net of direct costs 31,669 Grant Income 14,925 Restore sales 544,605 House Transfers to Homeowners 250,000 Sale of House, less loss on sale 71,298 Gain on Endowment Investment Miscellaneous income Total revenues and other gains 940, Net assets released from restrictions , ,669 14, , ,000 71, , ,312 0 EXPENSES Program Services Construction 262,068 Re Store 295,769 Total Program Services 557, Fund Raising 32,234 Management and General 196,081 Total Expenses 786, lncrease/(decrease) in Net Assets 153, Net Assets, Beginning of Year restated 798,836 1,699 50,000 Net Assets. End of Year $ 952,712 $ 1,983 $ 50,000 $ 262, , ,837 32, , , , ,535 1,004,695 The accompanying notes are an integral part of the financial statements 4

8 I I Habitat for Humanity of North Idaho, Inc. STATEMENTS OF FUNCTIONAL EXPENSES Year Ended Construction Program Services Re Store Fund Raising Management and General Total Payroll and related expense Salaries Payroll taxes and benefits s 22,094 S 105,576 $ ,511 9,079 S 4, ,643 S 15, ,392 46,912 Total payroll and related expenses _ Other expenses Interest expense Depreciation Cost of Restore concessions and goods Printing and newsletter Building materials and supplies Other costs Tithe to Habitat International Utilities Vehicle costs Office supplies Insurance Professional services Fundraising costs Telephone Repairs and maintenance Dues and subscriptions Postage and freight ,729 4, , , ,065 21, ,999 1, ,581 33, ,548 6,233 3,064 1,257 17,067 1, , ,095 4, ,766 7,206 2,109 2,000 3,000 1, ,551 1,495 1, , , Total Other expenses S ,682 19,111 5,383 2, ,853 2,398 15,038 13,047 2, ,689 4,741 11, ,020 1,109 1, ,958 48,918 23,068 8,885 26, , ,892 22,688 2, ,822 17,904 3, , Total Expenses S 262, S S 32, S 196, S 786,152 The accompanying notes are an integral part of the financial statements 5

9 Habitat for Humanity of North Idaho, Inc. ST A TEMENTS OF CASH FLOWS Year Ended OPERATING ACTIVITIES: Increase (decrease) in Net Income Prior Period adjustment to restate Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Gain (Loss) on sale of mortgages Changes in operating assets and liabilities: Decrease (increase) in Accounts receivable Prepaid expenses Mortgages receivable Inventories Construction in Progress Land held for development Accounts payable Accrued payroll and related liabilities Miscellaneous operating Deferred Income Pledges Payable Net cash provided (used) by operating activities INVESTING ACTIVITIES: Proceeds from sale of Mortgage ICF Investments, net Purchase of Property Purchase of Fixed Assets Net cash provided (used) by investing activities FINANCING ACTIVITIES: Principal payments on long-term debt Net cash provided (used) by financing activities 2015 $154,160 $ (45,357) 23,068 (39,907) (5,425) 506 (165,169) (4,627) 73,617 (61,407) 13,857 2,310 19,714 5,175 (32,719) (62,204) 110,907 (12,483) (40,849) 57,575 {17,120) i17.120) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH, beginning of year, restated CASH, end of year SUPPLEMENTAL DISCLOSURES Interest payments (21,749) 66,024 $ 44,275 $ 48,918 The accompanying notes are an integral part of the financial statements 6

10 Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 1. Organization r Habitat for Humanity of North Idaho, Inc. (Habitat) (the Organization) was incorporated in November, 1988 as an affiliate of Habitat for Humanity International, Inc. (Habitat International). Habitat International is a nondenominational Christian not-for-profit organization whose purpose is to create decent, affordable housing for those in need and to make decent shelter a matter of conscience and action. Although Habitat International assists with information resources, training, publications, prayer support and in other ways, Habitat is primarily and directly responsible for its own operations. Habitat builds houses utilizing volunteer labor and donated materials, in addition to paid services and materials. The houses are sold to qualified homebuyers at no profit with noninterest-bearing mortgages. Prospective homeowners must have a need for housing, the ability to pay the mortgage, and are required to participate in the construction of houses. Habitat also operates a store (Restore) that sells affordable house building materials and furnishings. Substantially all Restore inventory is donated. Revenues from the store are used as the Board deems necessary for general program expenses. Note 2. Summary of Significant Accounting Policies Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with the accounting principles generally accepted in the United States and the American Institute of Certified Public Accountants Audit and Accounting Guide for Not-for-Profit Organizations. ASC Topic 958, Not-For-Profit Entities, establishes standards for external financial statements of not-for-profit organizations. It requires classification of net assets and revenues, expenses, gains and losses into three categories, based on the existence or absence of donor-imposed restrictions. The categories are unrestricted, temporarily restricted, and permanently restricted. In addition, the Organization is required to present a statement of cash flows. ASC Topic 605, Revenue Recognition, requires that unconditional promises to give (i.e., pledges) be recorded as receivables and revenues and requires the Organization to distinguish between contributions received for each net asset category in accordance with donor-imposed restrictions. 7

11 ,-,.,.._ Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements, Continued Note 2. Summary of Significant Accounting Policies, Continued Contributions The organization reports gifts of cash and other assets at fair market value as of the date of the unconditional promise to give. They are reported as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restriction. Donor-restricted contributions whose restrictions are met in the same reporting period are reported as unrestricted support. Donations of Services and Materials Donated services are not recognized as contributions unless the services create or enhance the value of a non-financial asset, require specialized skills which are provided by individuals possessing those skills, and would typically need to be purchased. Habitat recognized $ 566 in donated services for the years ending. However, a substantial number of volunteers donate significant amounts of their time to Habitat, but the value of these services is not reflected in the financial statements, as it does not meet the criteria for recognition. Donated materials (excluding Restore inventory items) consist primarily of construction materials. Habitat recognized $0 in donated materials for the year ended. Home Transfers to Homeowners Revenues are recognized when houses are completed and a signed mortgage is received by Habitat. House transfers (sales) to homeowners are recorded at the gross mortgage amount plus down payments received. Functional Expenses Costs associated with providing the various programs and other activities have been summarized in the Statements of Activities and Changes in Net Assets and have been detailed on a functional basis in the Statements of Functional Expenses. Any program expense or support cost not directly chargeable to a specific program are allocated to the programs based on management policies and estimates. Cash and Cash Equivalents The Organization considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.,._ 8

12 Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 2. Summary of Significant Accounting Policies, Continued Accounts Receivable Accounts receivable are stated at the amount that management of the Organization expects to collect from outstanding balances. If considered necessary, management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management's judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Changes in the allowance have not been material to the financial statements. Mortgages Receivable,-. Mortgages receivable consist of non-interest-bearing mortgages which are collateralized by real estate (houses transferred) and payable in monthly installments over the life of the mortgage. Mortgages have an original maturity of 15 to 40 years and arise in connection with Habitat's house building initiatives. Mortgages are discounted based on prevailing market rates for low income housing at the inception of mortgages, as provided by Habitat I nternationaf, and range from 7.39% to 8.34%. Discounts are amortized using the interest method over the term of the mortgages. Mortgages receivable are considered delinquent when they are 90 days fate. Management feels no allowance for doubtful accounts is required because Habitat is a secured creditor and the fair market value of the collateral houses generally is in excess of the related mortgage note balances. The Organization periodically sells mortgages to outside agencies. Inventories,-- Inventory consists of building materials donated to the Restore program and which are intended for resale. Donations received are measured at the fair value at the date of donation and recorded as donation income in the year received. As merchandise is sold, the Organization recategorizes the donation income as sales revenue. Donated merchandise inventory on hand at year-end is recorded at fair value, as determined by reference to the Organization's sales price. The change in the fair value of the inventory from year to year is included in contributions of property and services in the Statements of Activities and Changes in Net Assets. Construction In Progress Costs incurred in conjunction with house construction are capitalized as construction in progress. Capitalized construction costs are expensed when ownership transfers to the homeowners. Any post-settlement costs are expensed as incurred. During the year ended two houses were completed, and ownership was transferred to the homeowners. 9

13 Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements t' Note 2. Summary of Significant Accounting Policies, Continued Land Held for Development Land held for development is stated at cost and includes land under development, developed lots, and capitalized property taxes and other costs incurred for development. Fixed Assets Property and equipment are stated at costs when purchased or fair value at the date of donation, Expenses for repairs and maintenance that represent betterments or substantially prolong the useful lives of assets are also capitalized. Only assets with a value of $500 or greater are capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the Statements of Activities. Depreciation of equipment and vehicles is computed using the straight-line method over estimated useful lives of three to ten years. Depreciation of buildings is computed using the straight-line method over 39 years. Long-Lived Assets The Organization, using its best estimates based on reasonable and supportable assumptions and projections, reviews assets for impairment whenever events or changes in circumstances have indicated that the carrying amount of an asset might not be recoverable. Impaired assets are reported as the lower of cost or fair value. At, no assets had been considered impaired and written down. Deferred Income Habitat has implemented an equity-sharing program with new homeowners who have equity in the house upon transfer. The equity is recorded as a second mortgage, and the income is deferred. Upon timely payment of mortgage payments over the first 10 years of the mortgage, Habitat will forgive a portion of the mortgage. After 1 O years, all equity in the house will accrue to its homeowner. If the homeowner sells the house prior to the 1 O year period, the remaining balance of the second mortgage will be recognized as income. Advertising Costs Advertising costs are expensed as incurred. 10

14 Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 2. Summary of Significant Accounting Policies, Continued Financial Statements At the carrying value of financial instruments, such as accounts receivable, accounts payable and accrued liabilities, approximates fair values based on the short-term maturities of these instruments. Additionally, the carrying value of mortgages receivable and long-term debt materially approximates fair value because the underlying interest rate reflects market rates at. Fair Value Measures ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those assets and liabilities measured at fair value, that distinguishes between assumptions based on market data (observable inputs) and the Organization's own assumptions (unobservable inputs). The hierarchy consist of: Level 1 - quoted market prices in active markets for identical instruments; Level 2 - inputs other than Level 1 inputs that are observable; and Level 3 - unobservable inputs developed using estimates and assumptions determined by the Organization. At, the Organization had no assets or liabilities that are measured at fair value on a recurring basis. Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to the fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The Organization had no assets measured at fair value on a nonrecurring basis during the years ended. Income Taxes Habitat is exempt from federal income taxes under Section 501 (c)(3) of the Internal Revenue Code and therefore has made no provision for income taxes in the accompanying financial statements. The Organization is subject to Exempt Organization Business tax. Since they had no net income for the unrelated business, no provision for income taxes has been made. A credit for small employer health insurance premiums will be refunded to the Organization. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and affect the amounts reported in the financial statements. 11

15 Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 3. Cash and Cash Equivalents Cash and cash equivalents consist of deposits held in checking, savings and money market accounts with local banks. Deposits at the banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The carrying amount of financial institution deposits on the Organization's books at June 30, 2015 was$ 39,789 and financial institution balances totaled$ 44,075. The differences between the carrying amount of deposits on the Organization's books and bank balances consist of outstanding checks and deposits not processed by the bank as of June 3, All amounts deposited at the banks were fully insured as of. Note 4. Mortgages Receivable r Mortgages receivable consist of the following at : _ First mortg~ges receivable Second mortgages receivable _(def~red inc_om~) Less: unamortized discount Mortgages receivable, net Gross mortg_ag~_receivable are due as folloy.,s: _ Les~J han one year One to five y~rs 2015 LJJ g_1,a_~~ i 1_61,_1Q5 j (451,761) $ 830,730 $ 59,628 $ 1i1.102 I The discount rates ranged from 7.39% to 8.34% for During the year ended, the Organization forgave$ 52,054 of second mortgages, as the corresponding equity house sold accrued to their homeowners. 12

16 ~ Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 5. Due to Idaho Community Foundation On August 16, 2013 the Organization signed an agreement as agent to pledge $50,000 into a permanent endowment with Idaho Community Foundation ((CF) for investment purposes. The terms of the agreement state that the $50,000 must be received by!cf by August 16, 2018 as an Agency Fund to provide a long-term support (endowment) with this principal amount of $50,000 or more that the Organization wishes to be endowed to be protected over the long-term and grow over time. Assets are invested and a small portion (currently 4.5%) is available for annual distribution as ICF Investment to the agency's board of directors to use in any way they deem appropriate once the initial pledge of$ 50,000 is received by ICF. Management fees of approximately 0.75% annually are charged for ICF administrative and investment fees. At June 30, 2015 the Organization's ICF investments increased $ 283 and were charged management fees of$ 65 for a net increase of$ 218. The Organization's commitment Due to ICF remains at $ 39,500 as of..-- Note 6. Fixed Assets Fixed assets consist of the following at : - Beginning.-Additions Deletions/ ~ Ending Balance Retirements Balance I 06/30/ /30/ ~ ~ Building $ 867,243 (201,124) $ 666,119 I Land 201, ,125 I_ --- Building Improvements ~ Office Equipment -I t 39,200 39,200 26,914 1,648 28,562 Vehicles 38,632 38, ,965 I 22,965 I!! Store equipment J ~ - $996,603 Less accumulated depreciation (241,393) (23,068) (?64,461) Totals $ 714,36.1 j _ 218,905 $ (201,124) $ 73J,142 Depreciation expenses for the years ended was $ 23,

17 r- Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 7. Line of Credit r The Organization has an operating line of credit with Washington Trust Bank that has a maximum loan amount of $50,000. Interest is charged on amounts outstanding under the line of credit at a variable rate equal to the Bank's index rate plus 1% (7.25% at ). No amounts were outstanding under the line of credit as of. The line is subject to renewal on April 2, Note 8. Long-Term Debt Long-term debt consists of the following at : Note Payable of$ 660,209 due to Columbia Bank, Collateralized by land and a building, payable in monthly installments of$ 5,461 including interest at 7.25%. due March 2036., Subsequently on September 17, 2015 the Organization refinanced with Umpqua Bank to reduce the monthly installments and interest rate. Beginning Notes Payable Princii:,al Payment_ ~ndi~g NoJ~s P ly..!bl~ Current PrinciRal Payment Long-Term Notes $677,329 (17,120) 6 _~~_99, (18,275) $ Principal payments on long-term debt are due as follows: Year ending June 30, Principal Interest l I -- $ 18, , , ,700 I I ,402 Thereafter 554,069 Totals I $ I Total ' $ 41,260 I 45,890 I 44,417 42,835 41, ,396 $ 52Z 931 $ 17,000 18,275 19,645 I 21,118 22, ,590 $ :l 188 :

18 Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements Note 9. Employee Benefit Plans The Organization offers health insurance coverage to full time employees who work 40 hours per week. The Organization contributes to the premium for eligible employees at 75%, for those who choose the Organization's medical insurance. Coverage for other family members are deducted from each employee's payroll. The Organization permits employees an allotted amount of vacation and sick leave along with paid holidays for the fiscal year. Full-time employees who work 40 or more hours a week receive vacation, sick, and holiday compensation. The Organization contributes 100% for worker's compensation which provides medical and hospital care and partial compensation for lost time due to an accident or occupation disease during the course of employment. Note 10. Related Party Transactions Habitat annually remits a portion of its undesignated contributions (excluding in-kind contributions) to Habitat International. These funds are used to construct houses in economically depressed areas around the world. For the year ended Habitat contributed $21,194. Such amounts are included in program services, fundraising and management and general expenses in the statements of activities and changes in net assets. At, $6,544 was due to Habitat International, respectively. Note 11. Prior Period Adjustment During the year ended, the Organization determined that it had not properly recorded the Permanent Endowment with ICF. This determination and correction resulted in a prior period adjustment as of June 30, 2014 and for the year then ended, as follows: Net Assets, Beginning of vear Adjustments $ 805,178 ICF Pledge Contribution Expense 10,500 ICF Pledge 39,500 ICF Pledge Discount (6,781) Endowment Investment Income less Mgmt Fee 1,765 Misc 373 Total Adjustment Net Assets, Beginning of Year Restated i 850,535 15

19 ,- Habitat for Humanity of North Idaho, Inc. Notes to Financial Statements,- Note 12. Net Assets Unrestricted Net Assets Unrestricted net assets include assets not subject to donor-imposed restrictions, either temporary or permanent, and consist of net assets received that are general in nature as to use and operating purposes, Gifts of long-lived assets without donor-imposed stipulations about how long the assets must be used are classified as unrestricted net assets, The Board has set aside funds for future land purchases. As of $4,296 has been designated for land purchases. Temporarily Restricted Net Assets Temporarily restricted net assets include assets that are designated for specific purposes, or subject to donor-imposed time or use restrictions that have not been met at the reporting date. Contributions of cash and other assets with donor-imposed temporary restrictions, where the restrictions have been satisfied in the same reporting period as received, are reported as increases in unrestricted net assets. During the current year, all restrictions were satisfied. The Organization had temporarily restricted net assets at for the following purposes: ICF Funds $ 1,983 Permanently Restricted Net Assets Permanently restricted net assets include assets subject to donor-imposed restrictions whereby the principal assets or amounts must be maintained in perpetuity. The ICF Endowment of $50,000 is represented as an Agency Endowment with Idaho Community Investments as of and will be permanently restricted. Note 13. Subsequent Events The date through which subsequent events were evaluated is the financial statement issuance date. The Organization is not aware of any subsequent events which would require recognition or disclosure in the financial statements

20 r- C M CI-IATTERS, METZGER f>'~ 0 CO.. PLLC - CPAs 243 W. SUNSET AVENUE COEUR DALENE P : (208) F: (208! Report on Consideration of Internal Control To the Board of Directors and Management Habitat for Humanity of North Idaho, Inc. Hayden, Idaho In planning and performing our audit of the financial statements of Habitat for Humanity of North Idaho, Inc. (the Organization) as of and for the year ended in accordance with auditing standards generally accepted in the United States of America, we considered Habitat for Humanity of North Idaho, lnc.'s internal control over financial reporting (internal control) as a basis for designating audit procedures that are appropriate in the circumstances 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 Organization's internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control. 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 material weakness or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control that we consider to be material weaknesses. 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 a combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the Organization's financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the following deficiency in Habitat for Humanity of North Idaho, lnc.'s internal control to be a material weakness: 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 the following deficiencies in Habitat for Humanity of North Idaho, lnc.'s internal controls to be significant deficiencies: 17

21 The Organization made adjustments to the financial accounting records after initial submission of the files for audit resulting in a operating cash flow adjustment. The Organization did not properly acknowledge the ICF as a Permanent Endowment nor record the investment income less investment fees and management fees, resulting in a current and prior year adjustment. Bank and credit card reconciliations were not properly maintained and timely prepared Employee files should be available as this is a Federal and State regulation issue. Normal monthly and especially year-end adjustments should be properly posted prior to submission of financial accounting records for audit purposes. Allocation formulas and substantiation for the basis should be documented, reviewed on an annual basis and classified for the various Functions of the Organization Recap of the annual Tithing for HFH International should be performed prior to submission of financial accounting records to be in Good Standing status with HFH International. Bidding and accrual of additional expenses for CIP homebuilding to be bore by the client should be performed prior to final closing documents of home. The significant deficiencies are mitigated to some extent by the fact that subsequent to year end, the Organization hired a bookkeeper with knowledge and ability to correct some of the misstatements detailed above. This communication is intended solely for the information and use of management and the Board of Directors, and others within the Organization, and is not intended to be, and should not be, used by anyone other than these specified parties. ~I Jnd:;-r and ~-1 /JLLC Chatters, Metzger and Company, PLLC Coeur d'alene, Idaho March 11,