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1 P,#CF.~VEO LEGISL,;q'IVE AUDITOR 2013JUL - I AM If"5 1 N EW O R LEA N S A FFO R D A B L E H O M E O W N ER SH IP,IN C. FIN A N CIA L STA TEM EN TS A N D A U D ITO R 'S R EPO R T D E CEM BER 30,2002 Underprovisions ofstate law,this reportis a pubic docum ent.a copy ofthe reporthas bee n subm ited to the entity and otherappropriate pub!ie oficials.the reportisavailable forpublic inspection atthe Baton Rouge ofice ofthe LegislativeAuditorand,w here appropriate,atthe ofice ofthe parish clerkofcourt. ReleaseDate~ II"~[0~ CA SCIO,D A VIS & SCH M ID T,LLP Certified Public A ccountants

2 N EW O R LEAN S A FFO R D A BLE H O M EO W N ER SH IP,IN C. TA BLE O F C O N TEN TS PA G E IN D EPEN D EN T AUD ITOR 'S REP ORT STA TEM EN T OF FIN AN CIAL PO SITION STA TEM EN T OF A CTIV ITIE S STA TEM EN T OF CA SH FLO W S N O TES TO FIN AN CIAL STATEM EN TS 6-11 SUPPLEME N TA L IN FORM A TION COM B IN ED STA TEME N T OF A CTIV ITIE S SCH ED ULE OF EX PEN D ITUR ES OF FED ERA L AW ARD S REPORT ON COM PLIAN CE AN D ON IN TERN AL CON TROL OV ER FIN AN CIAL REPO RTIN G BA SED ON AN AUD IT O F FIN AN CIAL STA TEME N TS PERFO RM ED IN A CCORD AN CE W ITH G O VERN M EN T AUD ITIN G STAND ARD S RE PORT ON COMP LIAN CE W ITH RE QUIREME NTS APPLICABLE TO EA CH M A JOR PR O GRAM AN D IN TERN AL CON TR O L O VE R COM PLIAN CE IN A CCORD AN CE W ITH OM B CIR CUL AR A-13 3 SCHE DULE OF FINDIN GS AND QUESTIONED COSTS STA TU S OF PRIO R Y EAR AUD IT FIN D IN G S CORRECTIVE A CTION PLAN

3 F~ NClSJ.CAsao,CPA JAN E.DAVIS,CPA STZV~ A.SCt~nVT,CPA M ~ fse~$ A~ lc~ ~ o~ C~crrn~ PI~LIC ACCOf~rA~rrS SOCIETY OF LOUISIANA CEIRTIFrF~ PUBLIC ACCOUN'fANTS RE PO R T O F IN D EPEN D EN T C ERTIFIE D PUB LIC A C C O U N TA NTS To the B oard of D irectors N ew O rleansafordable H om eow nership, Inc W e have audited the accom panying statem ent of financialposition of N ew O rleans Afordable H om eow nership,inc. activitiesand cash flow s forthe yearthen ended.these financialstatem entsare the responsibility of the Corporation'sm anagem ent. O urresponsibility isto expressan opinion on these financialstatem ents based on ouraudit. (a non-profitcorporation)asof December31,2002,and therelated statementsof W e conducted ourauditin accordance w ith auditing standardsgeneraly accepted in the U nited States of A m erica and the standardsapplicable to financialauditscontained in G overnm enta uditing Standards, issued by the Com ptrollerg eneralof the U nited States.Those standardsrequire thatw e plan and perform the auditto obtain reasonable assurance aboutw hetherthe financialstatem ents are free of m aterial m isstatem ent. An audit includes exam ining,on a test basis,evidence supporting the am ounts and disclosuresin the financialstatem ents. An auditalso includesassessing the accounting principlesused and the significantestim atesm ade by m anagem ent,asw ellasevaluating the overalfinancialstatem ent presentation. W e believe thatourauditprovidesa reasonable basisforouropini on. In ouropini on,the financialstatem entsreferred to above presentfairly,in allm aterialrespects,the financialposition of N ew O rleansaf ordable H om eow nership,inc.asof D ecem ber31,2002,and the changes in its netassets and its cash flow s forthe yearthen ended in conform ity with accounting principlesgenerally accepted in the U nited Statesof A m erica. In accordance w ith G overnm entauditing Standards,w e have also issued ourreportdated M ay 13, 2003,on our consideration of N ew O rleans Af ordable H om eow nership,inc.'sinternalcontrolover financialreporting and ourtestsof itscom pliance w ith certain provisionsof law s,regulations,contracts and grants. That report is an integralpart of an auditperform ed in accordance w ith G overnm ent Auditing Standardsand should beread in conjunction with thisreport in considering theresultsof our audit LakeVila Drive~Suite200 ~M etairie,la *(504) ~FAX (504)

4 O urauditw asperform ed forthe purpose of form ing an opinion on the basic financialstatem entsof N ew O rleansa fordable H om eow nership,inc.taken asa w hole. The supplem entalscheduleslisted in the table of contentsare presented forthe purpose of additionalanalysisand are nota required partof the basic financialstatem ents.the accom panying schedule of expendituresof federalaw ardsispresented forpurposesof additionalanalysisasrequired by the U.S.O ffice of M anagem entand BudgetCircular A -133,"Auditsof States,LocalG overnm ents,and N on-profito rganizations," and isnota required part of thebasic financialstatements.such information hasbeen subjected to theauditing proceduresapplied in the auditof the basic financialstatem entsand,in ouropinion,isfairly stated,in alm aterialrespects, in relation to the basic financialstatem entstaken asa w hole. P 2~,4. M etairie,louisiana M ay 13,2003

5 N EW O R L EA N S A FFO R D A B LE H O M EO W N E R SH IP,IN C. STA TEM EN T O F FIN A N CIA L PO SITIO N D ecem ber 31,2002 A SSET S Cash $ 31,234 R eceivables Grants(NotesA4 and B) Other $ 122, ,5~85 136,468 Notesreceivable(NotesC and D) Lessallow ance fordoubtfulaccounts RealEstateHeld forresale(n otesa7and E) 1,152,959 ( 390,328) 762, ,451 Property and equipment-atcost(n otea8) Building Land Lessaccum ulated depreciation 76, ,000 Totalassets LIAB ILITIE S A ccountspayable and accrued liabilities $ 182,562 D ue to City of N ew O rleans Totalliabilities 687,674 N ET A SSETS U nrestricted Tem porarily restricted Totalnetassets 290, ,110 Totalliabilitiesand netassets $ 1,399,784 The accom panying notesare an integralpartof thisfinancialstatem ent 3

6 N EW O R L EA N S A FFO R D A B LE H O M EO W N ER SH IP,IN C. STA TEM EN T O F A C TIV ITIE S Y ear Ended D ecem ber 31,2002 U nrestricted ]~eveyiu es G overnm entg rants $ R ealestate sales 154,965 O ther 33,533 N etassets released from restrictions 4,212,579 TotalR evenues 4.401,077 Tem porarily Restricted $ 4,236,137 (4,212,579) $ 4,236, ,965 33,533 4,424,635 Expenses Salaries Fringe benefits Travel O perating supplies Insurance Professionalservices O perating services Training E quipm entexpense Property acquisitions C onstruction costs Painting costs R oofing costs SoftSecond Costs O thercosts TotalExpenses 218,772 33,750 3,415 9,931 28, ,664 13,135 7,I63 37,687 94, , , ,822 1,912,979 t ,772 33,750 3,415 9,931 28, ,664 13,135 7,163 37,687 94, , , ,822 1,912,979 14,217 4,422,626 Increase (decrease)in netassets ( 21,549) 23,558 N etassets,beginning of year , N etassets,end of year $ 290,727 $ The accom panying notes are an integralpart of thisfinancialstatem ent 4

7 N EW O R LEA N S A FFO R D A BL E H O M E O W N ER SH IP,IN C. STA TEM EN T O F C A SIJ FLO W S Y ear E nded D ecem ber 31,2002 Cash Flow sfrom O perating A ctivities: Increase in N eta ssets Adjustmentsto reconcileincreasein netassetsto netcash provided by operating activities: Increase in N otes R eceivable,netof allow ance D ecrease in G rantsr eceivable (Increase)in OtherReceivables D ecrease in A ccountspayable & Accrued Liabilities N etcash Provided by Operations ( 75,303) 684,556 ( 3,699) (539,239) 2,009 66,315 68,324 Cash Flow sfrom Investing A ctivities: Purchasesof R eale state H eld forr esale Sale of R ealestate H eld forresale D isposition of property and equipm ent 154,965 ( 88,372) 20,867 N etcash Provided by Investing A ctivities 87,460 Cash Flow sfrom Financing A ctivities: PrincipalPaym entson Line of Credit N etcash U sed in Financing A ctivities N etincrease In Cash and Cash Equivalents ( 98,863) (98,863) 56,921 Cash (overdraft)and Cash EquivalentsatBeginning ofyear Cash and Cash EquivalentsatEnd of Y ear (25,687) $ 31,234 Cash flow inform ation: Interestpaid on financing activitiesin 2002 totaled $7,232 The accom panying notesare an integralpartof thisfinancialstatem ent. 5

8 N E W O R LE A N S A FFO RD A B L E H O M EO W N ER SH IP,IN C. N O TES TO FIN A N C IA L STA TEM EN TS D ecem ber 31,2002 N O TE A -SU M M A R Y O F SIG N IFICAN T A C C O UN TIN G PO LIC IE S A sum m ary of the significant accounting policies consistently applied in the preparation of the accom panying financialstatem entsfollow s: 1. Nature of Activities N ew O rleansafordable H om eow nership,inc.,isa non-profitcorporation organized underthe law s of the State of Louisiana. The corporation is organized to provide hom e ow nership opportunities to low and m oderate persons w ho otherw ise could notaford to buy a hom e; increase the num berof safe,decentand sanitary housing unitsin the City of N ew O rleans;create m eani ngfulactivities for youths at risk;and in general,im prove the quality of life,housing conditionsand w ork opportunitiesforresidentsof the City of N ew O rleans. The corporation issupported prim arily through governm entgrants. A ccordingly,96% of the corporation's supportforthe yearended D ecem ber 31,2002 cam e from governm entgrants. 2. FinancialStatem entpresentation The corporation'sfinancialstatem entsare presented in accordance with requirem entsestablished by thefinancialaccounting StandardsBoard (FASB)assetforth in thestatementof Financial A ccounting Standards N o. 117, "Financial Statem ents of N ot-for-profit Organi zations". Accordingly,thenetassetsof thecorporation arereclassified to presentthefolowing classes:(a) unrestricted netassets,(b)temporarily restricted netassets,and (c)permanently restricted net assets. There w ere no perm anently restricted netassets. N etassetsof the restricted classare created only by donor-im posted restrictionson theiruse.all othernetassets,including board-designated orappropriated am ounts,arelegally unrestricted,and are reported aspartof the unrestricted class. Contributed supportisreported asunrestricted orrestricted depending on the existence of donor stipulations thatlim itthe use of the support. W hen a donorrestriction expires,thatis,w hen a stipulated tim e restriction endsorpurpose restriction isaccom plished,tem porarily restricted net assetsare reclassified to unrestricted netassetsand reported in the statem entof activity as"net assetsreleased from restrictions".

9 N EW O R LE A N S A FFO R D A B LE H O M EO W N ER SH IP,IN C. N O TES TO FIN A N CIA L STA TEM EN TS -C ontinued D ecem ber 31,2002 N O TE A -SUM M A R Y O F SIG N IFICA N T A C C O UN TIN G PO LIC IE S -Continued 3. R evenue R ecovnition -Continued G rantrevenue isrecognized asitisearned in accordance w ith approved contracts R ealestate salesare recognized on the fullaccrualm ethod and are recognized atthe tim e the salesare com pleted and allrisk and rew ardsof ow nership have been transferred to the buyer. The corporation considersaccountsreceivable to be fully collectible since the balance consists of paym entsdue undergovernm entalcontracts.if am ountsdue becom e uncollectible,they w ill be charged to operationswhen thatdeterm ination ism ade. L o~ns L oans are stated atthe am ount of unpaid principal,reduced by an allow ance forloan losses. Interest on loans is calculated by using the sim ple interest m ethod on daily balances of the principalam ountoutstanding. M anagem entreview sthe O rganization'sloan portfolio to determ ine the existence of and extent ofwhich notesaresubjectto specialconsideration asto any doubtregarding theircolectibility. All nonaccruai loans are considered to be im paired to accordance w ith SFA S N o. 114, "Accounting by CreditorsforImpairmentof aloan."w hen,in management'sjudgment,aloan isdeterm ined to be of doubtfulcollectibility,the loan ischarged to the R eserve forloan Losses, subjectto approvalfrom thefunding source,if applicable. A ccrualof interest is discontinued on a loan w hen m anagem entbelieves,aider considering econom ic and businessconditionsand collection efortsthatthe borrow ers'financialcondition issuch thatcollection of interestisdoubtful.

10 N EW O R L E A N S A FFO R D A BL E H O M EO W N ER SH IP,IN C. N O TE S TO FIN A N C IA L STA TEM EN TS -C ontinued D ecem ber 31,2002 N O TE A -SU M M A R Y O F SIG N IFICA N T A C C O UN TIN G PO LICIE S -C ontinued 6. Provision and R eserve/'or Loan Losses The reserve forpossible loan lossesism aintained to provide forpossible lossesinherentin the loan portfolio. O n January 1,1995,the corporation adopted SFA S N o.114,as am ended by SFAS N o 118 "Accounting by CreditorsforIm pairmentof a Loan -Incom e Recognition and D isclosures." In accordance with SFA S N o.114,the 1995 reserve forpossible loan losses related to loansthatare identified as im paired isbased upon discounted cash flow susing the loan'sinitialefective interestrate orthe fairvalue of the collateral. M anagem entdeterm inesthe appropriate levelof reserv e to be m aintained based on an analysis of the portfolio and evaluation of econom ic factors. The provision forloan lossesisrecognized by a reduction of m oniesdue to the funding source depending on the source of the loan proceeds. H ow ever,because such factorsasloan grow th,the fu ture collectibility of loans,and the am ounts and tim ing of future cash flow sexpected to be received on im paired loansare uncertain,the level of fu ture provisionsgenerally cannotbe predicted. 7. R ealestate H em for Resale R ealestate H eld forr esale is carried atcostnotto exceed estim ates of netrealizable value determined on an individualprojectbasis.therealestatehasbeen acquired to berehabilitated in accordance w ith governm entcontractsand sold to qualified program participants. 8. Provertv and E auiom ent N ew O rleansa fordable H om eow nership,inc.recordsproperty acquisitionsatcosts.d onated assetsare recorded attheirestim ated fairvaluesatdate of donation.such donationsare reported as unrestricted contribution unless the donor has restricted the donated assets to a specific purpose. A ssetsdonated w ith explicitrestrictionsregarding theiruse are reported asrestricted contributions.the O rganization reportsexpirationsof donorrestrictionsw hen the donated assets are placed in serv ice asinstructed by the donor.d epreciation iscom puted on a straight-line basis overthe estim ated usefullivesof the assets. The building presented in balance sheetw asnotutilized asof D ecem ber31,2002,accordingly no depreciation w asrecorded forthe year2002.

11 N EW O R LEA N S A FFO R D A B LE H O M EO W N ER SH IP,IN C. N O TES TO FIN A N C IA L STA TEM E N TS -C ontinued D ecem ber 31,2002 N O TE A -SU M M A R Y O F SIG N IFICA N T A C C O U N TIN G PO LICIE S -C ontinued 8. Provertv and E auivm ent-continued M aintenanceand repairsarecharged to expenseasincurred:majorrenewalsand betterments,and equipm ent,are capitalized when the acquisition costexceeds$5,000. W hen item sof property are sold orretired,the related costand accum ulated depreciation are rem oved from the accounts and a gain or lossisincluded in the changes in netassets. The O rganization usesadvertising to raise public aw arenessof the variousservicesofered to qualified participants. The costof advertising is expensed w hen incurred. A dvertising costs totaled $6,123 during the year. For purposes of the statem entof cash flow s,the corporation considers allinvestm ents w ith originalm aturitiesof three m onthsorlessto be cash equivalents. 11. E stim ates The preparation of financial statem ents in conform ity w ith generally accepted accounting principlesrequiresm anagem entto m ake estim atesand assum ptionsthatafectcertain reported am ountsand disclosures. Accordingly,actualresultscould diferfrom these estim ates. 12. F air values of FinancialInstrum ents Cash and cash equivalents,notes,grantsand otherreceivablescarrying am ountsreported in the statem entof financialposition approxim ate fairvaluesbecause of the short m aturitiesof those investm ents.

12 N EW O R LEA N S A FFO R D A B LE H O M E O W N ER SH IP,IN C. N O TES TO FIN A N C IA L STA TEM EN T S -C ontinued D ecem ber 31,2002 N O TE B -G R A N TS R ECEIV A BLE G rantsreceivable atd ecem ber31,2002 consistof the follow ing City of N ew O rleans D ivision of H ousing and N eighborhood D evelopm ent M ayor'schalenge G rant $ 36,072 _ 86,8I! $ 122~883 N O TE C -N O TE S RE CEIV A B LE N otesreceivable consistof m ortgage loansto qualified program participants.the loansare serviced by the Finance A uthority of N ew Orleans. N O TE D -RE SER VE FO R LO A N LO SSES A sum m ary of the activity in the R eserve for Loan Losses for the year ended D ecem ber 31, 2002 follow s: B alance atbeginning of year R eduction of reserve asa charge to D ue from Funding Source B alance asof D ecember3 l,2002 $ 569,329 (179,001) $ 390,328 N O TE E -RE A L E STA TE H ELD FO R SA LE The O rganization purchasesand renovatesblighted property w ith fundsfrom the M ayor'schallenge Grant. The propertiesare latersold to qualified participantsthatare approved by the City of N ew O rleans'd epartm entof N eighborhood and H ousing D evelopm ent. Allcosts associated w ith the purchase and renovation of such propertiesare capitalized untilthe propertiesare sold to participants. Properties held forresale are classified astem porarily R estricted N eta ssetsuntildonorrestrictions are satisfied by the O rganization. 10

13 N EW O R LEA N S A FFO R D A B LE H O M E O W N ER SH IP,IN C. N O TE S TO FINA N C IA L STA TEM EN TS -C ontinued D ecem ber 31,2002 N O TE F -IN C O M E TA XE S The N ew O rleans A fordable H om eow nership,inc.is exem ptfrom corporate incom e taxesunder Section 501(c)(3)of theinternalrevenuecode. N O TE G -B O A R D O F D IR ECTO R S C O M PEN SA TIO N The board of directorsisa voluntary board;therefore,no com pensation w aspaid to any board m em ber during the yearended D ecember31,2002. N O TE H -SIG N IFICA N T C O N CEN TR ATIO N TheOrganization receivesamajority of itsrevenuefrom fundsprovided through grantsadministered by the City of N ew O rleans. The grantam ountsare appropriated each yearby the federaland local governm ents. If significantbudgetcutsare m ade atthe federaland/orlocallevel,the am ountof the fu nds the O rganization receives could be reduced significantly and have an adverse im pacton its operations.m anagem entisnotaw are of any actionsthatw illadversely affectthe am ountof fu ndsthe O rganization w illreceive in the nextfiscalyear. 11

14 SUPPLEM EN TA L IN FO R M A TIO N

15 N EW O R LEA N S A FFO R D A B LE H O M EO W N ER SH IP,IN C. C O M B INE D STA TEM EN T O F A CTIV ITIE S A ND C HA N G ES IN N ET A SSETS Y ear ended D ecem ber 31,2002 Project Nu -Coat Paint Project N u -R oof Soft Second Program R evenue Governm entgrants $ 670,790 $ 802,016 $ 1,887,662 Realestate sales M ayor's Challenge $ 641, ,965 Other TotalR evenues ,361 Expenses Salaries Fringe benefits Travel O perating supplies Insurance Professionalservices O perating serv ices Training Equipm entexpense Property acquisitions Construction costs Painting costs R oofing costs SoftSecond Costs Othercosts TotalExpenses 101,867 7, ,833 30,768 1, ,621 5, ,613 6,000 1, , , ,016 1,912,979 1_ ,866 3, , , , ,090 10, Increase(decrease)in netassets ( 25,317) 23,558 TransferTo/From general 25,317 N etassets,beginning of year 397,825 N etassets,end of year $ $ 42L383

16 N EW O R LEA N S A FFO RD A BLE H O M EO W N ER SH IP,IN C. C O M B IN ED STA TEM EN T O F A C TIVITIE S A N D C H A N G ES IN N ET A SSETS -Continued Y ear ended D ecem ber 31,2002 R evenue G overnm entgrants Realestate sales Other TotalRevenues H om e Program G eneral T otal $ 52,272 $ 182, $ 4,236, , Expenses Salaries Fringe benefits Travel Operating supplies Insurance Professionalservices Operating services Training Equipm entexpense Property acquisitions Construction costs Painting costs Roofin g costs Soft Second Costs Othercosts TotalExpenses , ,081 3,415 8,822 5,061 95,296 6,570 7,163 37,387 3_ , ,772 33,750 3,415 9,931 28, ,664 13,135 7,163 37,687 94, , , ,822 1,912,979 14,217 4,422,626 Increase(decrease) in netassets 3,768 2,009 Tran sferto/from general (25,317) N etassets,beginning of year Netassets,end of year $ $ _ $ 712,110

17 N EW O R LEA N S A FFO RD A BLE H O M EO W N ER SH IP,IN C. SCH ED U LE O F EX PEN D ITU R E S O F FEDERA L A W A R D S For the year ended D ecem ber 31,2002 PR O GRA M TITLE G RA N T PER IO D FEDERA L CFDA N UM BER TO TAL FEDERA L EXPENDITURES U.S.D EPA R TM ENT O F H O U SIN G AND URB AN DEVELO PM ENT Passed through the City of N ew O rleans ProjectNu-Coat M ayor'schallenge Fund ProjectNu-Roof Soft Second Program H om e Program TotalU.S.Departm entof H ousing and U rban Developm ent $ 697, , ,016 1,887, TO TA L EXPEND ITURE S O F FED ERA L A W A RD S N O TES TO SCH ED ULE O F EX PENDITUR ES O F FEDERA L A W A RD S A. Presentation of FinancialStatem en The accompanying Schedule of Expendituresof FederalAwardshasbeen prepared on theaccrualbasisof accounting.grantrevenues are recorded,forfmanciatreporting purposes,when N ew OrleansAfordable H om eownership,inc.hasm etthe costof reim bursem entof funding qualificationsforfile respective grants.

18 FR~ os J.CAsao,CPA M E~CS~.S JAN E.DAVIS,CTA.4~ Rtc,t~ I~swrv~ o~ STEVEN A.SCHM~ T~CPA PubLIc ACCOUNTANTS 5OCI~ Y Or LOgLSIANA CEirnt~Zl) PUBLIC ACCOUNTA,~T$ R EPO R T O N C O M PLIA N CE A N D O N /in TER NA L C O N TR O L O VER FIN A N C IA L RE PO R TIN G BA SED O N AN A U D IT O F FIN AN CIA L STA TEM ENTS PERFO R M ED IN A CC O RD A N CE W ITH G O VE RNM ENT A UD ITIN G STA NDARD S To the B oard of D irectors N ew O rleansafordable H om eownership, Inc W e have audited the financialstatem entsof N ew O rleansafordable H om eow nership, Inc.(anonprofit corporation)asof and fortheyearended December31,2002,and haveissued ourreportthereon dated M ay 13,2003.W e conducted ourauditin accordance with auditing standards generally accepted in the U nited States of Am erica and the standards applicable to fnancialaudits contained in G overnm ent Auditing Standards,issued by the Com ptrollerg eneralof the U nited States. C om pliance Aspartof obtaining reasonable assurance aboutwhethernew OrleansAfordable Hom eownership, Inc.'sfinancialstatem entsare free of m aterialm isstatem ent,w e perform ed testsof itscom pliance w ith certain provisionsof law s,regulations,contractsand grants,noncom pliance w ith w hich could have a directand m aterialefectonthe determ ination of financialstatem entam ounts.h ow ever,providing an opinion on compliance with thoseprovisionswasnotan objectiveof ourauditand,accordingly,wedo notexpresssuch an opinion.the resultsof ourtestsdisclosed no instancesof noncom pliance thatare required to be reported underg overnm enta uditing Standards ernalc ontrolo ver FinancialR In planning and perform ing ouraudit,w e considered N ew O rleansafordable H om eow nership, Inc.'s internalcontroloverfinancialreporting in orderto determ ine ourauditing proceduresforthe purpose of expressing ouropinion on the financialstatem entsand notto provide assurance on the internaicontrol overfinancialreporting.h ow ever,w e noted certain m attersinvolving the internalcontroloverfinancial reporting and itsoperation thatw e considerto be reportable conditions. Reportable conditionsinvolve matterscoming to ourreporting that,inourjudgement,could adversely afectnew OrleansAfordable H om eow nership, lnc.'sability to record,process,sum m arize and reportfinancialdata consistentw ith the assertionsof m anagem entin the financialstatem ents. A reportable condition isdescribed in the accom panying schedule of findingsand questioned costsasitem :2700 Lake Vila Drive ~Suite200 ~M etairie,la ~(504) ~FAX (504)

19 A m aterialw eaknessisa condition in w hich the design oroperation of one orm ore of the internal controlcom ponents does notreduce to a relatively low levelthe risk thatm isstatem ents in am ountsthat w ould be m aterialin relation to the financialstatem entsbeing auditing m ay occurand notbe detected w ithin a tim ely period by em ployeesin the norm alcourse of perform ing theirassigned functions. O ur consideration of the internalcontroloverfinancialreporting w ould notnecessarily disclose allm atters in the internalcontrolthatm ightbe reportable conditions and,accordingly,w ould notnecessarily disclose a/reportable conditionsthatare also considered to be m aterialw eaknesses. H ow ever,w e believe thatthe reportable condition described above isnota m aterialw eakness. Thisreportis intended solely forthe inform ation and use of the auditcom mi ttee,m anagem ent,others w ithi n the organization,and federalawarding agencies and pass-through entitiesand isnotintended to be and should notbe used by anyone otherthan these specified parties. / M etairie,louisiana M ay 13,

20 Fpo~clsJ.Cxscuo,CPA JAN E.DAV~,CPA S~ ve~ A.SctlMm '~,CPA M ~,s AM~ IC~,N INS~TrUTE Or C~ PUBLIC ACCOW r~,m 'S S octe~ oflouisia~ CB ~rr~ PUBLIC ACCOUtCTAwrs REPORT ON COM PLIANCE W ITH RE Q UIR EM ENTS A PPLICA B LE TO EA CH M A JO R PR O G R A M A N D IN TERN A L C O N TR O L O V ER C O M PLIA N CE IN A C C O R DA N CE W ITH O M B C IR C ULA R A -133 FrEV Board of D irectors N ew O rleansafordable H om eow nership,inc C om pliance W e have audited the com pliance of N ew O rleansafordable H om eow nership,inc.w ith the typesof compliance requirementsdescribed in the"u.s.oficeof M anagementand Budget(OM B)CircularA- 133ComplianceSupplement"thatareapplicableto each of itsmajorfederalprogramsfortheyear ended December31,2002.New OrleansAfordableHomeownership,Inc.'sM ajorfederalprograms are identified in the sum m ary of auditor'sresultssection of the accom panying schedule of findingsand questioned costs. Com pliance w ith the requirem ents of law s, regulations, contracts and grants applicableto each of itsmajorfederalprogramsistheresponsibility of New OrleansAfordable H om eow nersbip,inc.'s m anagem ent. Ourresponsibility isto express an opinion on N ew Orleans A fordable H om eow nership,inc.'scom pliance based on ouraudit. W e conducted ourauditof com pliance in accordance w ith auditing standardsgenerally accepted in the U nited Statesof Am erica,the standardsapplicable to financialauditscontained in Governm entauditing Standards,issued by the Com ptrollerg eneralof the U nited States;and OM B CircularA -133,"Audits of States,LocalG overnm ents,and N on-profito rganizations." Those standardsand OM B CircularA require that w e plan and perform the audit to obtain reasonable assurance about w hether noncom pliance w ith the typesof com pliance requirem entsreferred to above thatcould have a directand materialefecton a majorfederalprogram occurred.an auditincluded examining,on a testbasis, evidence aboutn ew O rleansafordable H om eow nership,inc.'s com pliance w ith these requirem ents and perform ing such other proceduresasw e considered necessary in the circum stances.w e believe that ourauditprovidesa reasonable basisforouropinion.o urauditdoesnotprovide a legaldeterm ination on N ew O rleansaf ordable H om eow nership,inc.'scom pliance w ith those requirem ents. In ouropinion,n ew O rleansaf ordable H om eow nership,inc.com plied,in allm aterialrespects,w ith therequirementsreferred to abovethatareapplicableto each of itsmajorfederalprogramsfortheyear ended D ecem ber 31, Lake Vila Drive ~Suite200 ~M etairie,la ~(504) ~FAX (504)

21 InternalC ontrolo ver C om nliance The m anagem entof N ew O rleansafordable H om eow nership,inc.isresponsible forestablishing and m aintaining efective internalcontrolovercom pliance w ith requirem entof law s,regulations,contracts and grants applicable to federalprogram s. In planning and perform ing ouraudit,w e considered N ew O rleansaf ordable H om eow nership,inc.'s internalcontrolovercom pliance w ith requirem ents that could havea directand materialefecton a majorfederalprogram in orderto determine ourauditing proceduresforthe purpose of expressing ouropinion on com pliance and to testand reporton internal controlovercom pliance in accordance w ith O M B CircularA-133. W e noted certain m attersinvolving the internalcontrolovercom pliance and itsoperation thatw e consider to be a reportable conditions.r eportable conditionsinvolve m atterscom ing to ourattention relating to signi ficantdeficienciesin the design oroperation of the internalcontrolovercom pliance that in ourjudgment,could adversely afectnew OrleansAfordableHomeownership,Inc.'sability to administeramajorfederalprogram in accordancewith theapplicablerequirementsoflaws,regulations, contracts,and grants.a reportable condition isdescribed in the accom panying schedule of findingsand questioned costsasitem A m aterialw eaknessisa condition in w hich the design oroperation of one orm ore of the internal controlcom ponentsdoesnotreduce to a relatively low levelthe risk thatm isstatem entsin am ountsthat w ould be m aterialin relation to the financialstatem entsbeing audited m ay occurand notbe detected w ithi n a tim ely period by em ployeesin the norm alcourse of perform ing theirassigned functions. Our consideration of the internalcontroloverfinancialreporting w ould notnecessarily disclose allm atters in the intern alcontrolthat m ightbe reportable conditions and,accordingly,w ould not necessarily disclose allreportable conditionsthatare also considered to be m aterialw eaknesses. H ow ever,w e believe thatthe reportable condition described above isnota m aterialw eakness. Thi sreport isintended solely forthe inform ation and use of the auditcom m ittee,m anagem ent,others w ithi n the organization and federalaw arding agenciesand pass-through entitiesand isnotintended to be and should notbe used by anyone otherthan these specified parties. M etairie,louisiana M ay 13,2003

22 N EW O R L EA N S A FFO R D A B LE H O M EO W N ER SH IP,IN C. SCHEDULE OF FINDING S AND QUESTIONED CO STS For the year ended D ecem ber 31,2002 A SUM M A R Y O F TH E A U D ITO R 'S R ESU LTS 1. An unqualified opinion w asissued on the financialstatem entsof the auditee 2. A reportable condition w asdisclosed during the auditof the financialstatem entsin the report titled "R eporton Com pliance and O n InternalControlO verfinancialr eporting Based on an Auditof FinancialStandardsPerform ed in A ccordance w ith G overnm entauditing Standards". The reportable condition w asnotdeem ed a m aterialw eakness. 3.N o instancesof noncom pliance m aterialto the financialstatem entsof N ew O rleansafordable H om eow nership,inc.w ere disclosed during the audit. 4.A reportablecondition in internalcontrolovermajorprogramswasdisclosed by theauditand such condition w asnotdeem ed a m aterialw eakness. 5.TheAuditor'sreporton complianceofthemajorfederalaward programsfornew Orleans A fordable H om eownership,inc.expressesan unqualified opinion. 6.Therewasonereportablecondition thatisrequired to bereported undersection 510(a)of CircularA Themajorprogramsfortheyearended December31,2002 were Soft Second ProjectNu-Living M ayor'schallenge Fund ProjectNu-eoat ProjectNu-Roof CFD A N o CFD A N o CFD A N o CFD A N o CFD A N o The threshold fordistinguishing Type A and Type B program sw as$300, The auditee did notqualify asa low -risk auditee 20

23 N EW O R LEA N S A FFO R D A B LE H O M EO W N ER SH IP,IN C. SCH EDULE OF FINDING S AND QUESTIONED CO STS -CONTINUED For the year ended D ecem ber 31,2002 B. FIN D IN G S -FIN A N C IA L STA TEM EN TS A UD IT R EPO R TA BLE C O N D ITIO N S R ealestate H eld for R esale Statem entof Condition A cquisitionsand salesof realestate purchased forrehabilitation and resale w ere notproperly reflected in the generalledgerforthe yearended D ecem ber3 I,2002. Criteria: The realestate accountsin the generalledgershould be m aintained on a currentbasis Efectof C ondition: The financialstatem entscould contain m isstated accountbalancesand the assetsnotproperly safeguarded. R ecom m endation: W e recom m end thatallacquisitionsbe properly capitalized and a subsidiary ledgerm aintained of realestate held forsale be reconciled to the generalledgerm onthly. R esponse: See Corrective A ction Plan 21

24 N EW O R LEA N S A FFO RD A B LE H O M E O W N ER SH IP,IN C. SCHEDULE OF FINDINGS AND Q UESTIONED COSTS -CONTIN UED For the year ended D ecem ber 31,2002 C. FINDINGS AND QUESTIONED CO STS -M AJO R FEDERAL AW ARD PRO GRA M A U D IT R E PO R TA BLE C O N D IT IO N S U.S.D EPA R TM EN T O F H O U SIN G A N D URB A N D EVELO PM E N T QUESTIONED C O STS M A Y O R 'S C H A LLEN G E G RA N T -C FD A N O R eale state H eld for R esale Statem entof Condition: A cquisitionsand salesof realestate purchased forrehabilitation and resale w ere notproperly reflected in the generalledgerforthe year ended D ecem ber31,2002. Criteria: The realestate accountsin the generalledgershould be m aintained on a currentbasis. Efectof Condition: The financialstatem entscould contain m isstated accountbalances and the assetsnotproperly safeguarded. Questioned Costs N one. R ecom m endation: W e recomm end thatalacquisitionsbe properly capitalized and a subsidiary ledgerm aintained of realestate held forsale be reconciled to the generalledgerm onth/y, R esponse: See Corrective A ction Plan 22

25 N EW O R LEA N S A FFO R D A BLE H O M EO W N ER SH IP,IN C. STA TU S O F PRIO R Y EA R FIN D IN G S For the year ended D ecem ber 31,2002 Finding R eportable Conditions 01-1 A ccounting System R esolved U nresolved CurrentFinding N o. X 01-2 A cquisition and Sale of R ealestate X O m itted Transactions R eversion of Funds X X

26 o,~~,~affordable,~ HOMEOWNERSHIE BOARD C~ DIRECTORS Ronald P.McClain president Edward shanklin Vice President Trocey Carmenia Secretary BOARD MEMBERS Rol0erlBrown Gre~3or/ Rafler EXECU 1VEDIRECTOR Stacey L Jackson C O R R E CTIVE A CTIO N PLA N REAL ESTA TE H ELD FOR RE SALE The sale of R ealestate w illbe recorded in the generalledgerin accordance w ith generally accepted accounting principals. ~_Jn,~ StaceyL.Jacs ~ IUNG AOO~ESS 1340 PoydrasStreet 10th Floor New Odeans,LA ofice fax 24