Preiss-Steele Place Housing, Inc. Annual Financial Report

Transcription

1 Annual Financial Report For the fiscal year ended December 31, 2012

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3 Table of Contents Independent Auditor s Report... Error! Bookmark not defined. Basic Financial Statements... 7 Exhibit A Statement of Financial Position... 8 Exhibit B Statement of Activities... 9 Exhibit C Statement of Cash Flows Notes to Basic Financial Statements

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5 CliftonLarsonAllen LLP Independent Auditor's Report Members of the Board of Directors Preiss Steele Place Housing We have audited the accompanying financial statements of Preiss Steele Place Housing (a nonprofit organization), which comprise the statements of financial position as of December 31, 2012 and 2011, and the related statements of activities and cash flows for the years 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. Auditors 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 of America. 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 auditors 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Preiss Steele Place Housing as of December 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. A CliftonLarsonAllen LLP Baltimore, Maryland December 13, 2013 An independent member of Nexia International 5

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7 Basic Financial Statements 7

8 Exhibit A Statement of Financial Position Preiss-Steele Place Housing, Inc. December 31, ASSETS Current assets Cash & cash equivalents $ 94,279 $ 95,120 Cash & cash equivalents - restricted 21,997 21,117 Accounts receivable (net) 18,815 11,244 Inventory & prepaid items 1,760 2,971 Total current assets 136, ,452 Noncurrent assets Capital assets Land 322, ,242 Buildings 5,004,705 5,004,705 Furniture, fixtures & equipment 130, ,191 Less: Accumulated depreciation (3,429,021) (3,256,708) Total capital assets (net) 2,028,117 2,200,430 Ot her 125, ,726 Total noncurrent assets 2,154,071 2,329,156 Total Assets $ 2,290,922 $ 2,459,608 LIABILITIES & NET DEFICIT Liabilities Current liabilities Accrued expenses $ 74,664 $ 73,726 Unearned revenue 13,238 9,746 Tenant security deposits 21,997 21,117 Other current liabilities 82,350 82,350 Long-term debt, current portion 125, ,107 Interprogram due to 439, ,900 Total current liabilities 756, ,946 Noncurrent liabilities Long-term debt, less current portion 2,145,307 2,270,455 Accrued compensated absences Total noncurrent liabilities 2,146,212 2,270,853 Total liabilities 2,902,950 2,969,799 Net deficit Unrestricted (612,028) (510,191) Total net deficit (612,028) (510,191) Total liabilities and net deficit $ 2,290,922 $ 2,459,608 The accompanying notes are an integral part of the financial statements. 8

9 Exhibit B Statement of Activities Preiss-Steele Place Housing, Inc. December 31, OPERATING REVENUE Tenant rent $ 477,754 $ 427,374 Other revenue 33,333 66,667 Total operating revenue 511, ,041 OPERATING EXPENSES Administration 64,220 74,344 Tenant services Utilities 85,305 78,838 Maintenance 174, ,052 Protective services General expense 38,675 14,833 Depreciation and amortization 172, ,085 Total operating expenses 535, ,445 Operating Income/ (Loss) (24,435) (27,404) NONOPERATING REVENUES Investment income Interest expense (77,441) (81,614) Casualty loss - (2,000) Total nonoperating revenues (77,402) (83,492) Change in net deficit (101,837) (110,896) Net deficit beginning of year (510,191) (399,295) Net deficit end of year $ (612,028) $ (510,191) The accompanying notes are an integral part of the financial statements. 9

10 Exhibit C Statement of Cash Flows Preiss-Steele Place Housing, Inc. December 31, CASH FLOWFROM OPERATING ACTIVITIES Receipts from tenants and others $ 507,499 $ 423,168 Payments to suppliers (251,067) (200,939) Payment to employees (27,884) (27,611) Net cash provided by (used in) operating activities 228, ,618 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Change in accured interest expense - (329) Interest expense paid (77,441) (81,614) Net cash provided by noncapital financing activities (77,441) (81,943) CASH FLOWS FROM INVESTING ACTIVITIES Interest received Net cash provided by investing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Gain from elimination of notes payable - 66,667 Changes in long-term debt payable (151,107) (177,341) Casualty losses - (2,000) Net cash provided by (used in) capital and related financing activities (151,107) (112,674) Increase/(Decrease) in cash and cash equivalents Cash and cash equivalents beginning of year 116, ,114 Cash and cash equivalents end of year $ 116,276 $ 116,237 Reconciliation of operating income to net cash provided by operating activities Operating income (24,435) (27,404) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 172, ,085 Changes in assets and liabilities: Decrease/(Increase) in accounts receivable (7,571) (8,316) Decrease/(Increase) in prepaid expenses 1, Decrease/(Increase) in other noncurrent assets 2,772 - Increase/(Decrease) in interprogram due to 78, ,431 Increase/(Decrease) in accounts payable - (60,545) Increase/(Decrease) in accrued expenses 1,445 (3,660) Increase/(Decrease) in unearned revenue 3,492 7,220 Increase/(Decrease) in security/trust deposits 880 (3,110) Increase/(Decrease) in notes payable - (66,667) Net cash provided by operating activities $ 228,548 $ 194,618 The accompanying notes are an integral part of the financial statements. 10

11 Notes to the Basic Financial Statements December 31, 2012 Notes to Basic Financial Statements Note A Summary of Organization, Significant Accounting Policies and Reporting Entity 1. Organization PSPHI is a not-for-profit corporation formed to provide affordable housing for citizens of Durham and to increase the quantity and quality of housing within the City of Durham. PSPHI has the authority to issue notes and other obligations and controls its own projects and expenditures. PSPHI s financial statements have been included in the Durham Housing Authority's (DHA's) financial statements as a blended component unit due to the ability of DHA to control the direction and policies of PSPHI. DHA's management and staff control PSPHI s operations and financial activity. This report includes the general operations of Preiss-Steele Place, a low-income housing development for qualified elderly, near-elderly and disabled individuals owned and operated by PSPHI. 2. Basis of Accounting The accompanying financial statements are presented in accordance with the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when incurred. The financial statement presentation is in accordance with the requirements of Statement of Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) , and Financial Statements of Not-for-Profit Organizations. Under ASC , PSPHI is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. PSPHI had no temporarily or permanently restricted net assets at December 31, Income Taxes PSPHI is exempt from income tax under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no federal income taxes have been provided in the accompanying financial statements. PSPHI adopted the guidance related to Accounting for Uncertainty in Income Taxes. Management has determined that PSPHI has no material uncertain tax positions that would require recognition under FASB ASC 740. The returns for calendar years 2009 through 2011 remain subject to examination by federal and various state tax jurisdictions. 4. Basis of Presentation The statements of PSPHI are presented on the accrual basis of accounting. Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor imposed stipulations. Accordingly, the net assets of PSPHI and changes therein are classified and reported as follows: Unrestricted net assets Net assets not subject to donor imposed stipulations; Temporarily restricted net assets Net assets subject to donor imposed stipulations that may or will be met either by actions of PSPHI and/or the passage of time; Permanently restricted net assets Net assets subject to donor imposed stipulations that require the corpus be maintained permanently by PSPHI. PSPHI had no permanently restricted net assets as of December 31, 2012 and Contributions with donor-imposed restrictions that are met in the same year as received are reported as unrestricted income. 11

12 Notes to the Basic Financial Statements December 31, Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 6. Revenues and Expenses Revenues and expenses are recognized in essentially the same manner as used in commercial accounting. Revenues relating to PSPHI s operating activities include rental related income, interest income and other sources of revenues are recognized in the accounting period in which they are earned. 7. Budgets PSPHI adopts an annual budget at the function level. Although not required, the adoption of a budget is a tool used to manage the financial activity of PSPHI. 8. Cash & Investments PSPHI s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with an original maturity of three months or less when purchased to be cash equivalents. 9. Compensation for Futures Absences It is DHA s policy to permit employees to accumulate earned but unused vacation benefits which will be paid to the employees upon separation from Authority service. These benefits have been accrued, allocated and recorded for PSPHI. DHA employees are eligible to accrue leave balances as an employee benefit. DHA makes estimates regarding projected use of these balances and allocates the accrued balance between a current portion anticipated to be used within the next year and the non-current portion that will be used beyond the next year. 10. Deferred Charges Payments made to vendors for services that will benefit periods beyond the fiscal year end are recorded as deferred charges. 11. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Inventories consist primarily of maintenance materials and supplies held for consumption. The cost of these supplies is regarded as an expense at the time the items are consumed. Inventories are classified as deferred charges on the Statement of Net Assets. 12. Capital Assets All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets are valued at their estimated market value on the date donated. Capital assets are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the respective assets ranging as follows: buildings, years; equipment, 7 years; automobiles, 5 years; and site improvements, 10 years. The costs of assets retired or otherwise disposed of and the related accumulated depreciation have been eliminated from the respective accounts. Gains or losses resulting from such dispositions are recognized in current 12

13 Notes to the Basic Financial Statements December 31, 2012 income. The Capitalization Policy for PSPHI calls for items purchased or betterments, not repairs, in excess of $5, and a useful life of one (1) year, to be capitalized. The cost of maintenance and repairs are charged to operations as incurred. Costs of major additions, improvements, and betterments are capitalized. Interest cost is capitalized on proprietary fund capital assets. Interest is not capitalized on assets acquired or constructed with gifts and grants (contributed capital) that are restricted by the donor or grantor to acquisition of those assets to the extent that funds are available from such grants and gifts. No interest was capitalized during the audit period. 13. Revenue Recognition Contributions are recognized as support when received or pledged by the donor. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the revenue is recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statements of Activities as net assets released from restrictions. Grant revenue is recognized when all eligibility requirements are met. Deferred revenue represents cash received under grant agreements for which eligibility requirements have not been met. In-kind contributions of property are recorded as support at their estimated fair value at the date of donation. Based on independent services, such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Contributed services are recognized as contributions in accordance with FASB ASC , if the services (a) create or enhance nonfinancial assets, or (b) require specialized skills, are performed by people with those skills, and would otherwise have been purchased by DVI. DVI benefits from the efforts of many volunteers. These in-kind contributions by volunteers are recorded in the financial statements as they meet the requirements. Note B Cash and Investments 1. Cash All the deposits of PSPHI are either insured or collateralized using the Dedicated Method whereby all deposits that exceed the federal depository insurance coverage level are collateralized with securities held by PSPHI s agents in these units' names. PSPHI has no policy regarding custodial credit risk for deposits. At December 31, 2012, PSPHI s deposits had a carrying amount of $116,276 and bank balances of $116,276. Of the bank balances held in various financial institutions, $250,000 was covered by federal depository insurance and the remainder was covered by collateral held under the Dedicated Method. Bank balances at December 31, 2012 and 2011, were as follows: 13

14 Notes to the Basic Financial Statements December 31, Checking accounts $ 116,276 $ 116,237 Total bank balances $ 116,276 $ 116, Investments Interest rate risk- As a means of limiting its exposure to fair value losses arising from rising interest rates, PSPHI typically limits its investment portfolio to maturities of 12 months or less. PSPHI has no specific policy regarding interest rate risk. Credit risk PSPHI has no policy regarding credit risk. PSPHI investments were limited to savings that were 100% collateralized. Custodial credit risk - For an investment, the custodial risk is the risk that in the event of the failure of the counter-party, PSPHI will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. All investments in repurchase agreements are collateralized by the securities are held by the counterparty, or by its trust department. PSPHI has no policy on custodial credit risk. Concentration of credit risk PSPHI places no limit on the amount that PSPHI may invest with any one issuer. 100% of PSPHI s investments are in SunTrust Bank as of December 31, PSPHI has no policy regarding concentration of credit risk. Note C Accounts Receivable Accounts receivable at December 31, 2012 and 2011, consisted of the following: Accounts receivable - tenants $ 36,048 $ 15,199 Allowance for doubtful accounts - tenants (17,233) (3,955) Total accounts receivable $ 18,815 $ 11,244 Note D Inventory & Prepaid Items Inventory and Prepaid Items at December 31, 2012 and 2011 consisted of the following: Inventory $ 1,760 $ 2,971 Total inventory & prepaid items $ 1,760 $ 2,971 14

15 Notes to the Basic Financial Statements December 31, 2012 Note E Capital Assets A summary of changes in capital assets during 2012 is as follows: Beginning balances Increases Decreases Ending balances Capital assets not being depreciated: Land $ 322,242 $ - $ - $ 322,242 Total capital assets not being depreciated 322, ,242 Capital assets being depreciated: Buildings & improvements 5,004, ,004,705 Furniture, fixtures & equipment 130, ,191 Total capital assets being depreciated 5,134, ,134,896 Less accumulated depreciation: Buildings & improvements (3,256,708) (172,313) - (3,429,021) Total accumulated depreciation (3,256,708) (172,313) - (3,429,021) Net capital assets being depreciated 1,878,188 (172,313) - 1,705,875 Total capital assets, net $ 2,200,430 $ (172,313) $ - $ 2,028,117 Note F Other Assets Other Assets at December 31, 2012 and 2011 consisted of the following: Unamortized organization costs $ 30,954 $ 33,726 Syndication fees 95,000 95,000 Total Other Assets $ 125,954 $ 128,726 Other Assets consists of organization and syndication costs related to the original purchase of Preiss-Steele Place. The organization costs are being amortized at a rate of $2,772 annually. Note G Accrued Expenses Accrued expenses consisted of the following at December 31, 2012 and 2011: Accrued wages & taxes payable $ 1,645 $ 443 Accrued compensated absences - current portion Accrued interest payable 72,793 73,183 Total accrued expenses $ 74,664 $ 73,726 Note H Unearned Revenue During the year, PSPHI receives tenant payments prior to being earned. These payments are recognized as unearned revenue and PSPHI recognizes these unearned revenues as income on a periodic basis as they are 15

16 Notes to the Basic Financial Statements December 31, 2012 earned. The balance at December 31, 2012 was $13,238. Note I Tenant Security Deposits PSPHI collected security deposits from tenants of the Preiss-Steele Place housing community. PSPHI holds these security deposits in trust until a tenant moves out of unit. At that point, the security deposit is used to pay for amounts due by the tenant for repairs to the unit or the security deposit is returned to the tenant. These security deposits are treated as a liability. Tenant security deposits consisted of the following at December 31, 2012 and 2011: Preiss-Steele Place security deposits $ 21,997 $ 21,117 Total tenant security deposits $ 21,997 $ 21,117 Note J Current Portion of Long-Term Debt PSPHI has incurred long-term debt for capital improvements as explained in Note K Notes Payable. Principal amounts due within one year are treated as the current portion of that long-term debt. As of December 31, 2012, the amount due within one year for the outstanding Notes Payable was $125,148. Note K Other Current Liabilities During 2010, PSPHI replaced the chiller unit for the HVAC system at Preiss-Steele Place. To finance the purchase of the replacement chiller unit, PSPHI borrowed $82,350 from the Authority s Central Office Cost Center. No amortization or repayment schedule was prepared for this cash advance, but PSPHI is to pay this amount back when cash is available to do so. This cash advance is treated as an other current liability. Note L Notes Payable Preiss-Steele Place PSPHI has three notes payable related to the Preiss-Steele Place property as follows: A $1,086,039 first mortgage note payable to Community Investment Corporation of North Carolina, collateralized by the project carried at $1,081,444. The note bears interest at 9.25%. Payments were fixed at $8.935 monthly until December For loan years 17 through 30, the monthly payments of principal and interest are adjusted annually based on prevailing interest rates. The balance of this loan at December 31, 2012 was $699,134. This loan will mature in December A second mortgage note payable to the City of Durham, the note accrues interest at 0.5% per annum. Annual payments began in 2001 and continue through 2014 with a balloon payment of $1,386,351 due on December 31, The balance of this loan is $1,459,611 as of December 31, DHA is currently engaged in negotiations with the City of Durham to modify the terms of this loan. A third mortgage in the amount of $300,000 payable to the North Carolina Housing Finance Agency. The note bears interest at 3.0% per annum on $200,000 of the balance and $100,000 is interest-free. In addition, the $100,000 portion was eliminated from the amount due because PSPHI and DHA met certain performance parameters defined within the loan agreement as of January 1, A balloon payment of the remaining principal balance will be due on February 1, The final thirty-four percent of the $100,000 elimination was recognized as Other Revenue 16

17 Notes to the Basic Financial Statements December 31, 2012 during The balance of this loan is $111,710 as of December 31, Principal payments due on all mortgages and notes payable in each of the next five years and subsequent maturities are as follows: Year(s) Principal Interest Total 2013 $ 125,148 $ 73,042 $ 198, ,442,697 61,608 1,504, ,283 56, , ,416 48, , ,205 43, , , , , ,774-2,774 Total $ 2,270,455 $ 392,423 $ 2,662,878 Note M Pension Plan Obligations PSPHI uses the employees of DHA and therefore does not have its own employee pension plan. DHA operates the Durham Housing Authority Retirement Plan, which is a defined contribution plan. A description of the pension plan and disclosures regarding the plan is made in the consolidated financial report for DHA and is not restated in this report. Note N Contingencies The entity is subject to possible examinations made by federal regulators who determine compliance with terms, conditions, laws and regulations governing grants given to the entity in the current and prior years. These examinations may result in required refunds by the entity to federal grantors and/or program beneficiaries. Note O Related Party Transactions PSPHI is considered to be a component unit of the Housing Authority of the City of Durham. Consequently, all transactions and activity are managed and recorded by DHA. Note P Risk Management PSPHI is exposed to all common perils associated with the ownership and rental of real estate properties. A risk management program has been established to minimize loss occurrence and to transfer risk through various levels of insurance. Property, casualty, employee dishonesty and public official s liability forms are used to cover the respective perils. No contingent liabilities requiring disclosure are believed to exist as of December 31, Note Q Subsequent Events Management evaluated subsequent events through December 13, 2013, the date the financial statements were available to be issued. Events or transactions occurring after December 31, 2012, but prior to December 13, 2013, that provided additional evidence about conditions that existed at December 31, 2012, have been recognized in the financial statements for the year ended December 31, Events or transactions that provided evidence about conditions that did not exist at December 31, 2012 but arose 17

18 Notes to the Basic Financial Statements December 31, 2012 before the financial statements were available to be issued have not been recognized in the financial statements for the year ended December 31, This information is an integral part of the accompanying financial statements. 18