Independent Auditor s Reports and Financial Statements
Table of Contents Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards... 10
Independent Auditor s Report Board of Directors Denver Neighborhood Revitalization, Inc. Denver, Colorado Report on the Financial Statements We have audited the accompanying financial statements of Denver Neighborhood Revitalization, Inc. (the Organization), which comprise the statements of financial position as of December 31, 2015 and 2014, 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. 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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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.
Board of Directors Denver Neighborhood Revitalization, Inc. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of, 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 26, 2015, on our consideration of the Organization s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control over financial reporting and compliance. Denver, Colorado April 26, 2016 2
Statements of Financial Position 2015 2014 Assets Cash $ 761,722 $ 1,177,350 Property held for resale 758,721 473,566 Prepaid items 4,860 7,141 Total assets 1,525,303 1,658,057 Liabilities Accounts payable 6,858 1,182 Accounts payable - related party 16,227 10,108 Total liabilities 23,085 11,290 Net assets Unrestricted net assets $ 1,502,218 $ 1,646,767 The accompanying notes are an integral part of these financial statements 3
Statements of Activities Years Ended 2015 2014 Operating revenues Developer fee revenue $ 28,812 $ 21,173 Total operating revenues 28,812 21,173 Operating expenses Service agreement expense 107,803 104,273 Loss on sale of property 47,713 138,087 Other expenses 18,285 25,196 Total operating expenses 173,801 267,556 Operating revenues under operating expenses (144,989) (246,383) Nonoperating revenues Investment income 440 1,380 Total nonoperating revenues 440 1,380 Change in net assets (144,549) (245,003) Net assets - unrestricted, beginning of year 1,646,767 1,891,770 Net assets - unrestricted, end of year $ 1,502,218 $ 1,646,767 The accompanying notes are an integral part of these financial statements 4
Statements of Cash Flows Years Ended 2015 2014 Cash flows from operating activities Change in net assets $ (144,549) $ (245,003) Loss on sale of property 47,713 138,087 Changes in Accounts receivable - 13,077 Property held for resale (332,868) (6,284) Accounts payable and accrued expenses 11,795 3,800 Other current assets and liabilities 2,281 1,551 Net cash used in operating activities (415,628) (94,772) Cash flows from financing activities Repayments of advance to other government - (13,077) Net cash used in financing activities - (13,077) Net decrease in cash (415,628) (107,849) Cash, beginning of year 1,177,350 1,285,199 Cash, end of year $ 761,722 $ 1,177,350 The accompanying notes are an integral part of these financial statements 5
Notes to Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Denver Neighborhood Revitalization, Inc. (the Organization) was formed in 2009 for the purpose of administrating and executing the Neighborhood Stabilization Program (NSP or the Program) in Denver as directed by the City and County of Denver (the City). The Organization is registered with the Colorado Secretary of the State as a not-for-profit corporation. Its primary revenues and support is derived principally from fees for administering the NSP. The objectives of the NSP are to stabilize property values and lessen neighborhood decline, assist in preventing neighborhood blight, and stabilize communities hardest hit by residential foreclosures and abandonment resulting from the economic recession. The Organization achieves these objectives through the purchase, rehabilitation, and sale of foreclosed and abandoned residential properties. NSP funding is provided by the U.S. Department of Housing and Urban Development and is passed through to the Organization in the form of an advance from the City. While the Program allows for the Organization to recover its cost to acquire, rehabilitate, maintain, and market the properties, the properties cannot be sold at a gain. Proceeds received on the sale of properties are reinvested in the program to purchase the next property. The Organization is considered a component unit of the Denver Urban Renewal Authority (DURA), under Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity as amended by Governmental Accounting Standards Board Statement No. 61, The Financial Reporting Entity: Omnibus, an Amendment to GASB Statements No. 14 and No. 34 and Governmental Accounting Standards Board Statement No. 39, Determining Whether Certain Organizations Are Component Units an amendment of GASB Statement No. 14. Component units are legally separate organizations for which another governmental entity is financially accountable. DURA is considered financially accountable as the Organization s Board of Directors is appointed by DURA s Board of Commissioners and DURA s Board has the ability to modify those appointments. Unlike DURA, which uses the governmental accounting model to present its financial statements, the Organization s financial statements are prepared and presented in accordance with Financial Accounting Standards Board Accounting Standards Codification 958, relating to the reporting model for financial statements of not-for profit organizations. Related Party DURA is considered a related party of the Organization, as are the members of the Organization s Board of Directors who are either members of DURA s Board of Commissioners, or employees of DURA. 6
Notes to Financial Statements Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Organization considers all liquid investments with original maturities of three months or less to be cash equivalents. At, the Organization did not have any cash equivalents. At December 31, 2015, the Organization s cash accounts exceeded federally insured limits by approximately $511,722. Developer Fees Historically the Organization has been reimbursed by the City for the purchase price of the properties, rehabilitation costs, maintenance and marketing costs, and a developer fee upon the sale of properties. The Organization has recognized revenue for the developer fees once received from the City. During 2013, the NSP program, as previously structured, ended and the program entered a revolving status, whereby proceeds from the sale of properties are used to purchase additional properties and pay for related rehabilitation costs. These costs, along with the developer fees, are no longer reimbursed through the City and County of Denver. As a result of the change in the contract administration, the developer fees are only recognized to the extent that the appraised value of the property exceeds original purchase price, rehabilitation, maintenance and marketing costs. Developer fees are shown as a separate line item on the statements of activities. As of December 31, 2015, the unused developer fee balance was $368,901. Income Taxes The Organization is registered with the Colorado Secretary of State as a not-for-profit corporation and is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. The Organization is exempt from the requirement to file Form 990 under Rev. Proc. 95-48. Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the financial statements were available to be issued. 7
Notes to Financial Statements Note 2: Related-party Transactions DURA provides certain staffing, administrative and accounting services to the Organization. Under a Service Agreement between DURA and the Organization, costs incurred by DURA for these services are invoiced to the Organization. During the years ended December 31, 2015 and 2014, DURA invoiced the Organization $107,803 and $104,273, respectively, for services performed, of which $101,684 and $101,484 was repaid. The amount owed DURA at year-end is shown in the statements of financial position as account payable - related party. Note 3: Property Held For Resale Property held for resale consists of residential property that the Organization has purchased and is rehabilitating under the program. The property will be sold in accordance with the criteria of the Program. All properties must be sold at prices no greater than the costs incurred, including the original purchase price, rehabilitation, maintenance and marketing costs, and developer fee. As discussed earlier, the NSP does not allow the sale price to result in an economic gain. The balance of the property held for resale, along with the amount of property purchased, rehabilitated and sold, during the years ended are presented below. Balance Balance January 1, Rehabilitation December 31, 2015 Purchases Costs Sales 2015 $ 473,566 $ 862,136 $ 521,514 $ (1,098,495) $ 758,721 Balance Balance January 1, Rehabilitation December 31, 2014 Purchases Costs Sales 2014 $ 605,369 $ 883,271 $ 598,024 $ (1,613,098) $ 473,566 The Organization incurred losses on sold property in the amounts of $47,713 and $138,087 for the years ended, respectively. 8
Notes to Financial Statements Note 4: Notes Receivable Deferred Payment A Direct Subsidy is provided to make each home sale more affordable by providing NSP partial seller financing in the form of a deferred payment loan subordinate to prior deeds of trust. The amount of the Direct Subsidy is determined by the particular need of the sales transaction, but is $1,000 at a minimum. The term of the Direct Subsidy is based on the same terms as the federal Home Investment Partnerships Program (HOME) program terms, which are as follows: Up to $15,000 5 years $15,001 to $40,000 10 years More than $40,000 15 years New Construction 20 years A Secondary Note and Deed of Trust are executed and recorded at the time of the property sale to the qualifying NSP homebuyer. The homebuyer is required to be the owner and occupant of the property for the full term of the Direct Subsidy lien. If they are not the owner and occupant for the full lien term, the lien must be repaid in full. If the NSP homebuyer remains the owner and occupant of the home for the full lien term, the lien is released at the expiration of the lien term. Deferred loans outstanding at December 31, 2015 totaled $64,400 and are all expected to be forgiven. Because the loans are payable only upon the conditions discussed above, they are not recorded in the financial statements. Note 5: Construction Commitments The Organization has entered into certain construction contracts and has approximately $13,789 of remaining commitments under contract at December 31, 2015. 9
Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors Denver Neighborhood Revitalization, Inc. Denver, Colorado We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of Denver Neighborhood Revitalization, Inc. (the Organization), which comprise the statement of financial position as of December 31, 2015, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated April 26, 2016. Internal Control Over Financial Reporting Management of the Organization is responsible for establishing and maintaining effective internal control over financial reporting (internal control). In planning and performing our audit of the financial statements, we considered the Organization s internal control to determine the 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. 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. 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Board of Directors Denver Neighborhood Revitalization, Inc. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Denver, Colorado April 26, 2016 11