Agenda - 04-21-1998 - 9c - Laserfiche WebLink

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3 ORANGE COMMUNITY HOUSING CORPORATION Report of Review of Financial System and Information Financial System Audit and Financial Reporting Orange Community Housing Corporation (OCHC) has an accounting system similar to those used by a number of non -profit corporations. The accounting is done on an accrual basis in accordance with Generally Accepted Accounting Principles. The financial records of the organization are audited annually by an independent CPA firm similar to the audits performed on the County and Towns. There is no indication of problems related to the accounting system or internal control structure of the Corporation. Each year the Corporation has received an "unqualified opinion" from the auditor on the financial records with the exception of 1997. The audit report for the fiscal year ended June 30, 1997 has not been issued. This was discussed with the OCHC Director and the CPA performing the audit. It is the advice of the CPA not to issue the report until liability issues related to the payment of certain creditors have been resolved. A copy of a letter from the CPA is attached. These liabilities are related to the partnership formed between OCHC and the builder of Magnolia Place known as Magnolia Place Partners. (See Impact of Magnolia Place Partnership below.) The liabilities could negatively impact the financial statements of the Corporation. However, negotiations are underway which could significantly reduce the liabilities thus impacting the Corporation's balance sheet favorably. If the audit report were to be issued now, it would contain a "qualified opinion" which means that the financial condition of the Corporation can not be fairly presented because of the uncertainty of the liability issues. Budget and Account Structure The current structure of the OCHC budget commingles all revenue and expenditure sources and uses. The income from the County and the Towns of Carrboro and Chapel Hill, which is provided to help pay the operating costs of the Corporation, are not consistently separated from the income and costs related to special projects. For example, predevelopment costs (architects and engineers) associated with the Meadowmont project are included in the operating budget. These costs will be paid with operating revenues thus draining resources intended for operations. All project revenues and expenditures should be accounted for and budgeted separate from operations. This separation is occurring for some projects in the current budget but not others. If up front costs are required when planning projects, revenue sources to fund these costs should be identified above and beyond the funds provided for operations. Payment of these costs with operating income is one of the reasons the Corporation is experiencing projected shortfalls.