HomeMy WebLinkAbout19C - EMPOWERMENT-FINANCIAL AUDIT FY 2009-2010REQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
SEPTEMBER 20, 2010
TITLE:
SANTA ANA EMPOWERMENT
CORPORATION FINANCIAL AUDIT
FOR FY 2009-2010 AND DISSOLUTION OF
THE SANTA ANA EMPOWERMENT
CORPORATION
a, fi, 02??
CITY MANAGER
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
APPROVED
? As Recommended
? As Amended
? Ordinance on 1st Reading
? Ordinance on 2"d Reading
? Implementing Resolution
? Set Public Hearing For_
CONTINUED TO
FILE NUMBER
Approve the closing Financial Audit of the Santa Ana Empowerment Corporation for fiscal year
2009-2010 as prepared by Macias Gini & O'Connell LLP.
2. Authorize the City Attorney and City Manager to proceed with the dissolution of the Santa Ana
Empowerment Corporation.
DISCUSSION
The City of Santa Ana received a Federal Empowerment Zone designation in 1999 from the
Department of Housing and Urban Development (HUD). This designation expired on December 31,
2009. As part of the Empowerment Zone requirements, an A-133 audit is necessary. The Santa Ana
Empowerment Corporation (SAEC) contracted with Macias Gini & O'Connell LLP to conduct a final
financial audit of the Corporation that was established to oversee and implement the grant on behalf
of the City.
The financial audit took place the week of August 9, 2010. The auditors found no material issues and
determined that the SAEC was in compliance with the Nonprofit Integrity Act of 2004. A copy of the
audit will be submitted to HUD for its records and the City Attorney will proceed with dissolving the
Santa Ana Empowerment Corporation with the Secretary of State.
FISCAL IMPACT
There is no fiscal impact associated with this action
/7 _ . ,-l_ '-f
Cynthia"J. Nelson V
Deputy City Manager for Development Services
Community Development Agency
CJN/LAS/DS/mlr
Exhibit: 1. Financial Audit
19C-1
19C-2
Certified Pubt c Accountants.
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To the Mayor and City Council
of the City of Santa Ana
We have audited the financial statements of the Santa Ana Empowerment Corporation (Organization) for the
year ended June 30, 2010, and have issued our report thereon dated September 10, 2010. Professional
standards require that we provide you with the following information related to our audit.
Our Responsibilities under U.S. Generally Accepted Auditing Standards and OMB Circular A-133
As stated in our engagement letter dated May 8, 2009, our responsibility, as described by professional
standards, is to express an opinion about whether the financial statements prepared by management with
your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted
accounting principles. Our audit of the financial statements does not relieve you or management of your
responsibilities.
In planning and performing our audit, we considered the Organization's internal control over financial
reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the
financial statements and not to provide assurance on the internal control over financial reporting. We also
considered internal control over compliance with requirements that could have a direct and material effect
on a major federal program in order to determine our auditing procedures for the purpose of expressing
our opinion on compliance and to test and report on internal control over compliance in accordance with
OMB Circular A-133.
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 grants, 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 is not an objective of our audit. Also in accordance with OMB Circular A-133, we
examined, on a test basis, evidence about the Organization's compliance with the types of compliance
requirements described in the "U.S. Office of Management and Budget (OMB) Circular A-133
Compliance Supplement" applicable to its major federal program for the purpose of expressing an opinion
on the Organization's compliance with those requirements. While our audit provides a reasonable basis
for our opinion, it does not provide a legal determination on the Organization's compliance with those
requirements.
Planned Scope and Timing of the Audit
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements; therefore, our audit involved judgment about the number of transactions to be
examined and the areas to be tested.
EXHIBIT 1
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Our audit included obtaining an understanding of the Organization and its environment, including internal
control, sufficient to assess the risks of material misstatement of the financial statements and to design the
nature, timing, and extent of further audit procedures. Material misstatements may result from (1) errors,
(2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or
governmental regulations that are attributable to the entity or to acts by management or employees acting
on behalf of the Organization.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by Organization are described in Note (1) to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during year.
We noted no transactions entered into by the Organization during the year for which there is a lack of
authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
significantly from those expected We noted that the Organization's significant account balances are not
dependent upon management's estimates.
Certain financial statement disclosures are particularly sensitive because of their significance to financial
statement users. The most sensitive disclosure affecting the financial statements was regarding the
Organization's ability to continue as a going concern. This disclosure is included as Note (8) to the
financial statements.
Diculties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are trivial, and communicate them to the appropriate level of management.
Management has corrected all such misstatements. In addition, none of the misstatements detected as a
result of audit procedures and corrected by management were material, either individually or in the
aggregate, to the financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial
accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be
significant to the financial statements or the auditor's report. We are pleased to report that no such
disagreements arose during the course of our audit.
19C-4
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated September 10, 2010.
Management Consultation with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of
an accounting principle to the Organization's financial statements or a determination of the type of auditor's
opinion that may be expressed on those statements, our professional standards require the consulting
accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge,
there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the Organization's auditors. These discussions
occurred in the normal course of our professional relationship, and our responses were not a condition to our
retention.
This information is intended solely for the information and use of the Mayor, City Council and management
of the Organization and is not intended to be and should not be used by anyone other than these specified
parties.
?? ?- a.." I D
Certified Public Accountants
Newport Beach, California
September 10, 2010
19C-5
19C-6
SANTA ANA EMPOWERMENT CORPORATION
Financial Statements and Single Audit Report
Years Ended June 30, 2010 and 2009
(With Independent Auditor's Report Thereon)
19C-7
SANTA ANA EMPOWERMENT REPORT
Financial Statements and Single Audit Report
June 30, 2010 and 2009
Table of Contents
Page
Independent Auditor's Report ....................................................................................................................... 1
Financial Statements:
Statements of Financial Position ........................................................................................................... 3
Statements of Activities ........................................................................................................................ 4
Statements of Functional Expenses ....................................................................................................... 6
Statements of Cash Flows ..................................................................................................................... 8
Notes to the Financial Statements ......................................................................................................... 9
Single Audit Report:
Schedule of Expenditures of Federal Awards ..................................................................................... 16
Note to the Schedule of Expenditures of Federal Awards ..................................................................17
Independent Auditor's Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with GovernmentAuditing Standards ..........................................................19
Independent Auditor's Report on Compliance with Requirements That Could Have
a Direct and Material Effect on Each Major Program and On Internal Control
Over Compliance in Accordance with OMB Circular A-133 ................................................................21
Schedule of Findings and Questioned Costs .................................................................................................23
Summary Schedule of Prior Audit Findings .................................................................................................26
19C-8
Certified PubUc Accountants.
M
ctigocpa.corn
To the Mayor and City Council
of the City of Santa Ana
Independent Auditor's Report
We have audited the accompanying statement of financial position of the Santa Ana Empowerment
Corporation (Organization), a California nonprofit organization, as of June 30, 2010 and 2009, and the
related statements of activities, functional expenses, and cash flows for the years then ended. These
financial statements are the responsibility of the Organization's management. 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 of material
misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Organization's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Organization as of June 30, 2010 and 2009, and the changes in its net assets and
its cash flows for the year then ended in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the Organization will continue
as a going concern. As discussed in Note (8) to the financial statements, the Department of Housing and
Urban Development has determined that the grant period for all Empowerment Zone grants ended on
August 30, 2010. The Organization will have until September 15, 2010 to request reimbursement for
eligible Empowerment Zone expenses. At the conclusion of the grant period the Organization will
discontinue operations.
In accordance with Government Auditing Standards, we have also issued our report dated September 10,
2010, on our consideration of Organization's internal control over financial reporting and on 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 internal control
over financial reporting or on compliance. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be considered in assessing the results of our
audit.
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Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the
Organization taken as a whole. The accompanying schedule of expenditures of federal awards is
presented for purposes of additional analysis as required by U.S. Office of Management and Budget
Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required
part of the basic financial statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
%ia'c ?-? ae;? ? 0 4 &'nzd L-C'R
Certified Public Accountants
Newport Beach, California
September 10, 2010
19G-10
SANTA ANA EMPOWERMENT CORPORATION
Statements of Financial Position
June 30, 2010 and 2009
Assets:
Current assets:
Grant receivable
Total current assets
Loans receivable
Total assets
Liabilities and net assets:
Current liabilities:
Accounts payable
Accrued program reimbursements to subrecipients
Total current liabilities
Payable to HUD
Advances from the City of Santa Ana
Total liabilities
Net assets:
Unrestricted
Total liabilities and net assets
See Accompanying Notes to the Financial Statements.
2010 2009
$ 109,608 $ 436,029
109,608 436,029
1,799,033 133,304
$ 1,908,641 $ 569,333
$ 15,138 $ 1,187
41,714 41,438
56,852 42,625
1,799,033 133,304
52,756 393,404
1,908,641 569,333
$ 1,908,641 $ 569,333
3
19C-11
SANTA ANA EMPOWERMENT CORPORATION
Statements of Activities
Years Ended June 30, 2010 and 2009
2010
Unrestricted net assets:
Revenue and support:
Empowerment Zone grant $ 2,780,246
Program income -
Total revenue and support
Expenses:
Program services
Management and general
Total expenses
Change in net assets
Net assets, beginning of year
Net assets, end of yeas
See Accompanying Notes to the Financial Statements.
2009
$ 1,385,243
1,571
2,780,246 1,386,814
2,151,741
628,505
2,780,246
716,534
687,566
1,404,100
(17,286)
17,286
4
19C-12
This page intentionally left blank.
19C-13
SANTA ANA EMPOWERMENT CORPORATION
Statements of Functional Expenses
Years Ended June 30, 2010 and 2009
2010
Salaries
Fringe benefits
Total salaries and benefits
Occupancy
Communications
Training and transportation
Advertising and promotion
Office expense
Equipment and software
Indirect costs
Payments to subrecipients
Other contracted services
Loan to subrecipient
Totals
Program Management Total
Services and General Expenses
$ - $ 398,133 $ 398,133
96,265 96,265
494,398 494,398
- 26,679 26,680
- 3,609 3,609
- 2,605 2,605
- 89 89
- 9,769 9,769
- 10,241 10,241
420,802 - 420,802
- 81,115 81,115
1,730,939 - 1,730,939
$ 2,151,741 $ 628,505 $ 2,780,246
See Accompanying Notes to the Financial Statements.
6
19C-14
2009
Program Management Total
Services and General Expenses
$ - $ 444,727 $ 444,727
- 102,753 102,753
- 547,480 547,480
- 15,210 15,210
- 5,290 5,290
- 2,665 2,665
- 3,928 3,928
- 13,675 13,675
- 257 257
- 20,605 20,605
716,534 - 716,534
- 78,456 78,456
$ 716,534 $ 687,566 $ 1,404,100
7
19C-15
SANTA ANA EMPOWERMENT CORPORATION
Statements of Cash Flows
Years Ended June 30, 2010 and 2009
Cash flows from operating activities:
Change in net assets
Adjustments to reconcile change in net assets
to net cash provided (used) by operating activities:
(Increase) decrease in grants receivable
(Increase) decrease in interest receivable
(Increase) decrease in loans receivable
Increase (decrease) in accounts payable
Increase (decrease) in accrued program
reimbursements to subrecipients
Increase (decrease) payable to HUD
2010
326,421
(1,665,729)
13,951
2009
$ (17,286)
Net cash provided (used) by operating activities
Cash flows from noncapital financing activities:
Advances from (reimbursements to) the City of Santa Ana
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See Accompanying Notes to the Financial Statements.
(22,319)
17,286
405,373
(68,091)
276 15,630
1,665,729 (405,373)
340,648 (74,780)
(340,648) 74,780
8
19C-16
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements
June 30, 2010 and 2009
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Activities
Santa Ana Empowerment Corporation (Organization) is a California nonprofit corporation, which was
incorporated on August 16, 1999. The City of Santa Ana (City), the State of California, and the United
States Department of Housing and Urban Development (HUD) entered into an agreement in which
HUD designated the City as an Urban Empowerment Zone effective January 1, 1999, which will
remain in effect until July 2, 2010 or the effective date of HUD's revocation of this designation. In
conjunction with this designation, the Organization was created under an approved strategic plan to
undertake the responsibilities of the Empowerment Zone program which includes the administration of
funds received consistent with community vision, goals, and objectives of the approved strategic plan.
The Empowerment Zone program is funded by HUD.
(b) Basis of Accounting
The preparation of these financial statements requires management to make estimates and assumptions.
Those estimates and assumptions affect the reported amount of assets, liabilities, revenues, and
expenses, as well as contingent assets and liabilities. Actual results could differ from those estimates.
Management also determines the accounting principles to be used in the preparation of these financial
statements. A description of significant accounting policies employed in the preparation of these
financial statements follows.
The financial statements of the Organization have been prepared on the accrual basis of accounting and
accordingly reflect all significant receivables, payables, and other liabilities.
(c) Financial Statement Presentation
The Organization follows the financial statement presentation recommended by the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-205-45
(Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements ofNot for-Profit
Organizations). Under this guidance, the Organization is required to report information regarding its
financial position and activities according to three classes of net assets: unrestricted net assets,
temporarily restricted net assets, and permanently restricted net assets.
(d) Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Organization considers all unrestricted, highly liquid
investments with a maturity of three months or less to be cash equivalents. Cash equivalents consist of
various demand deposits. As of June 30, 2010 and 2009, the Organization did not have any cash or
cash equivalents Refer to Note (3) for an explanation of the advances from the City of Santa Ana.
19C-17
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements (Continued)
June 30, 2010 and 2009
(e) Property and Equipment
Property and equipment is capitalized at cost. It is the Organization's policy to capitalize expenditures
for property and equipment in excess of $5,000. Property and equipment are being depreciated over
their estimated useful lives of three to five years using the straight-line method. All property and
equipment has been fully depreciated.
(f) Restricted and Unrestricted Revenue and Support
The Organization follows FASB ASC 958-605-25 (SFAS No. 116, Accounting for Contributions
Received and Contributions Made). In accordance with this guidance, contributions received are
recorded as unrestricted, temporarily restricted or permanently restricted support, depending on the
existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as
an increase in unrestricted net assets if the restriction expires in the reporting period in which the
support is recognized. All other donor-restricted support is reported as an increase in temporarily or
permanently restricted net assets, depending on the nature of the restriction. When a restriction expires
(that is, when stipulated time restriction ends or purpose restriction is accomplished), temporarily
restricted net assets are reclassified to unrestricted net assets and reported in the Statements of
Activities as net assets released from restrictions.
As described in Note (1)(b), the Organization accounts for its revenues using the accrual basis of
accounting. The Organization's most significant source of revenues is the Empowerment Zone Grant
from HUD. Grant revenue is recognized when expenditures are incurred.
(g) Concentration of Risk
The Organization receives all of its funding from HUD. The Organization has a written memorandum
of understanding with HUD, which will remain in effect until July 2, 2010 or the effective date of
HUD's revocation of this agreement.
(h) Income Taxes
The Organization is exempt from federal and state income taxes under Internal Revenue Code (IRC)
Section 501(c)(3) and Section 23701d of the California Revenue and Taxation Code (CR & TC) and
therefore has made no provision for income taxes in the accompanying financial statements. In
addition, the Organization has been determined by the Internal Revenue Service not to be a "private
foundation" within the meaning of the IRC Section 509(a).
The Organization adopted the authoritative guidance for uncertainty in income taxes included in FASB
ASC 740-10 Income Taxes (FASB Interpretation (FIN) No. 48, Accountingfor Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109), as amended by Accounting Standards Update
(ASU) 2009-06, Implementation Guidance on Accounting for Uncertainty in Taxes and Disclosures
Amendments for Nonpublic Entities. The adoption of ASC 740 (FIN 48) did not have an impact on the
Organization's financial statements.
19C_18
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements (Continued)
June 30, 2010 and 2009
(i) Functional Allocation of Expenses
The costs of providing various programs and activities have been summarized on a functional basis in
the Statements of Activities.
6) Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") implemented the FASB Accounting Standards
Codification (the "Codification") effective July 1, 2009. The Codification has become the source of
authoritative Generally Accepted Accounting Principles ("GAAP") recognized by FASB to be applied
to nongovernmental entities. On the effective date of the Codification, the Codification superseded all
then existing accounting and reporting standards. All accounting literature not included in the
Codification has become non-authoritative. References to GAAP included in the FASB Codification
are noted as Accounting Standards Codification ("ASC").
Following the effective date of the Codification, FASB will not release new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force abstracts, but instead will issue
Accounting Standards Updates ("ASU"). ASUs will not be considered authoritative in their own right,
but will serve only to update the Codification, provide background information about the guidance in
the Codification, and provide the basis for the conclusions on the changes in the Codification.
19C-19
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements (Continued)
June 30, 2010 and 2009
(2) EMPOWERMENT ZONE GRANT
The total amounts granted and allocated are as follows:
Approved Grants:
Second round grant - Year One $ 3,000,000
Second round grant - Year Two 3,666,000
Second round grant - Year Three 12,306,200
Second round grant - Year Four 3,000,000
Second round grant - Year Five 1,987,000
Second round grant - Year Six 994,100
Second round grant - Year Seven 661,333
Second round grant - Year Eleven 667
Total Approved Grants 25,615,300
Allocated Grant Amounts:
Expensed during the period ended June 30, 2000 (1,199,953)
Expensed during the period ended June 30, 2001 (2,856,500)
Expensed during the period ended June 30, 2002 (3,847,624)
Expensed during the period ended June 30, 2003 (2,337,630)
Expensed during the period ended June 30, 2004 (3,190,000)
Expensed during the period ended June 30, 2005 (2,471,670)
Expensed during the period ended June 30, 2006 (2,243,119)
Expensed during the period ended June 30, 2007 (1,687,564)
Expensed during the period ended June 30, 2008 (1,566,386)
Expensed during the period ended June 30, 2009 (1,404,100)
Expensed during the period ended June 30, 2010 (2,780,246)
Total Allocated Grant Amounts (25,584,792)
Total Unexpended as of June 30, 2010 $ 30,508
(3) OPERATING AGREEMENT WITH THE CITY OF SANTA ANA
On December 6, 1999, the Organization entered into an operating agreement with the City to administer
the goals and objectives of the approved strategic plan of the Empowerment Zone. These duties
include the monitoring of programs, staffing, administration, and payment of program funds. Through
the Memorandum of Understanding with HUD, the City requests payment from HUD for program costs
incurred by subrecipients which are administered through the Organization in accordance with the
operating agreement. The City advances the funds for these program costs and is reimbursed by HUD.
19G-20
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements (Continued)
June 30, 2010 and 2009
All funds for the Empowerment Zone program are received directly by the City then passed through to
the Organization who in turn reimburses subrecipients. The subrecipients' programs have been selected
by the Organization to fulfill the goals stipulated in the approved strategic plan. The City is reimbursed
for its administration costs associated with this agreement. The initial term of the agreement was
through December 31, 2000; thereafter unless cancelled by the Organization through an action of its
Board of Directors, which action shall take place no later than November 30 or any calendar year, the
agreement shall be extended for the succeeding calendar year or until the termination date of the
program. The outstanding advances from the City of Santa Ana were $52,756 and $393,404 at June 30,
2010 and 2009, respectively.
(4) PROPERTY AND EQUIPMENT
The Organization's property and equipment consist of the following at June 30:
2010 2009
Equipment $ 22,884 $ 22,884
Furniture 30,816 30,816
Subtotal 53,700 53,700
Less: accumulated depreciation (53,700) (53,700)
Property and equipment, net of accumulated depreciation $ - $ -
(5) GRANT RECEIVABLE
The Organization receives all of its grant revenue from HUD through the City. Grant revenue is
recognized when expenditures are incurred since all monies received are on a reimbursement basis.
The amount due from HUD was $109,608 at June 20, 2010 and $436,029 at June 30, 2009.
(6) LOANS RECEIVABLE
On May 3, 2002, the Organization entered into an agreement with Taller San Jose, a subrecipient
organization, whereby the Organization lent Taller San Jose $200,000 for the purchase of property that
will be used for a vocational training program for young at-risk adults. The interest free loan is payable
on July 1, 2009. The principal amount is deemed repaid by $2,353 on the first day of each calendar
month. Taller San Jose is not obligated to make any payments to the Organization as long as the
property is used for the Empowerment Zone program. In the event that the property is put to any other
use than the designated Empowerment Zone program, the remaining principal balance would be
payable in full to the Organization who would then return the funds to HUD. The outstanding balance
was $0 and $2,353 at June 30, 2010 and 2009, respectively.
19C.-21
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements (Continued)
June 30, 2010 and 2009
On June 14, 2005, the Organization entered into an agreement with Kidworks, whereby the
Organization awarded Kidworks a conditional grant of $314,282. The funds were used to fund the
renovation costs for a community center site located in the Zone 1 area of the Santa Ana Empowerment
Zone. As long as Kidworks complies with the terms of the agreement and uses the property for the
Empowerment Zone program, an amount equal to $62,856 will be forgiven annually. In the event the
property is put to any other use than for the designated Empowerment Zone program before July 31,
2010, the remaining balance would be payable in full to the Organization who would then return the
funds to HUD. The outstanding balance was $68,094 and $130,951 at June 30, 2010 and 2009,
respectively.
On August 20, 2009, the Organization entered into an agreement with The Cambodian Family, a
subrecipient, whereby the Organization loaned the Cambodian Family $1,730,939 for the purchase of
property that will be used for its headquarters where it will undertake programs for education, job
placement and health. The interest free loan is payable on August 20, 2014. The Cambodian Family is
not obligated to make payments to the Organization as long as the property is used for the
Empowerment Zone program. In the event that the property is put to any other use than the designated
Empowerment Zone program, the balance would be payable in full to the Organization who would then
return the funds to HUD. The outstanding balance is $1,730,939 as June 30, 2010.
(7) ACCRUED PROGRAM REIMBURSEMENTS TO SUBRECIPIENTS
Accrued program reimbursements to subrecipients, including retentions payable, consisted of the
following at June 30:
2010 2009
The Cambodian Family
Mexican American Oppurtunity Foundation
Templo Calvario CDC
Total
(8) GOING CONCERN
$ 40,081 $ 13,262
- 10,630
1,633 17,546
$ 41,714 $ 41,438
The Department of Housing and Urban Development (HUD) has determined that the grant period for
all Empowerment Zone grants will end on July 2, 2010. HUD has granted the Organization an
extension until August 30, 2010 to incur expenses. The total unexpended grant funds of $30,509 at June
30, 2010 must be expended by that date. The Organization will have until September 15, 2010 to
request reimbursement for eligible Empowerment Zone expenses. At the conclusion of the grant period
the Santa Ana Empowerment Corporation will discontinue operations. All assets will be reverted to the
City of Santa Ana. The salaries and benefits of the staff under the Santa Ana Empowerment
Corporation will be transferred to other projects within the Santa Ana Redevelopment Agency.
19C-22
SANTA ANA EMPOWERMENT CORPORATION
Notes to the Financial Statements (Continued)
June 30, 2010 and 2009
(9) SUBSEQUENT EVENTS
The Organization has evaluated subsequent events through September 10, 2010 the date the financial
statements were available to be issued.
19C-23
SANTA ANA EMPOWERMENT CORPORATION
Schedule of Expenditures of Federal Awards
Year Ended June 30, 2010
Federal
CFDA
Federal Grantor/Pass-through Grantor Number
U.S. Department of Housing
and Urban Development:
Passed through the City of Santa Ana:
Empowerment Zones Program 14.244
Grant Term
Amount
Federal Provided to
Expenditures Subrecipients
$ 2,780,246 $ 420,802
Total
5/4/00-07/02/10
See Accompanying Note to the Schedule of Expenditures of Federal Awards.
$ 2,780,246 $ 420,802
19C,6--24
SANTA ANA EMPOWERMENT CORPORATION
Note to the Schedule of Expenditures of Federal Awards
Year Ended June 30, 2010
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Scope of Presentation
The accompanying schedule presents only the expenditures incurred by the Santa Ana Empowerment
Corporation (Organization) that are reimbursable under federal programs for federal financial
assistance. For purposes of this schedule, federal awards include federal financial assistance received
from the Department of Housing and Urban Development (HUD) through the City of Santa Ana. Only
the portion of program expenditures reimbursable with such federal funds is reported in the
accompanying schedule.
(b) Basis of Accounting
The expenses included in the accompanying schedule were reported on the accrual basis of accounting,
which is described in Note (1) to the Organization's financial statements. Expenses reported include
any property or equipment acquisitions incurred under the federal program.
(c) Subrecipients
During the fiscal year ended June 30, 2010, the Organization made the following payments to
subrecipients:
The Cambodian Family $ 304,146
El Puente CDC (Kidwojks) 116,136
Santa Ana WORK Center - Daisy Wheel 520
Total $ 420,802
19G-25
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190-26
Certified Public Accountants.
rngocpa.cc?m
To the Mayor and City Council
of the City of Santa Ana
Independent Auditor's Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Governmental Auditing Standards
We have audited the financial statements of the Santa Ana Empowerment Corporation (Organization),
California, as of and for the year ended June 30, 2010, and have issued our report thereon dated
September 10, 2010. Our report included an explanatory paragraph highlighting that the Organization will
discontinue operations after June 30, 2010. We conducted our audit 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Organization's internal control over financial
reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the
financial statements, but not for the purpose of expressing an opinion on the effectiveness of
Organization's internal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the Organization's internal control over financial reporting.
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 entity's financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of the internal control over financial reporting was for the limited purpose described in
the first paragraph of this section and was not designed to identify all deficiencies in internal control over
financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not
identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses, as defined above.
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.
24 S N zl „f;+,i? [swtf S;?I? 10? "t,. t SS
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We noted certain matters that we reported to management of the Organization in a separate letter dated
September 10, 2010.This report is intended solely for the information and use of the Mayor, City Council,
management and others within the Santa Ana Empowerment Corporation and federal awarding agencies
and pass-through entities and is not intended to be and should not be used by anyone other than these
specified parties.
)ha,.,c ?'? a?? ? o
Certified Public Accountants
Newport Beach, California
September 10, 2010
19C-28
Certified Pudic Accountants.
mgQCj)a.COIn
To the Mayor and City Council
of the City of Santa Ana
Independent Auditor's Report on Compliance with Requirements
That Could Have a Direct and Material Effect on Each Major
Program and on Internal Control over Compliance
in Accordance with OMB Circular A-133
Compliance
We have audited the Santa Ana Empowerment Corporation's (Organization) compliance with the types of
compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a
direct and material effect on the Organization's major federal program for the year ended June 30, 2010.
The Organization's major federal program is identified in the summary of auditor's results section of the
accompanying schedule of findings and questioned costs. Compliance with the requirements of laws,
regulations, contracts, and grants applicable to its major federal program is the responsibility of the
Organization's management. Our responsibility is to express an opinion on the Organization's compliance
based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of
States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133
require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance
with the types of compliance requirements referred to above that could have a direct and material effect
on a major federal program occurred. An audit includes examining, on a test basis, evidence about the
Organization's compliance with those requirements and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion. Our audit does not provide a legal determination of the Organization's compliance with those
requirements.
In our opinion, the Santa Ana Empowerment Corporation complied, in all material respects, with the
compliance requirements referred to above that could have a direct and material effect on its major federal
program for the year ended June 30, 2010. However, the results of our auditing procedures disclosed an
instance of noncompliance with those requirements, which is required to be reported in accordance with
OMB Circular A-133 and which is described in the accompanying schedule of findings and questioned
costs as item 2010-01.
Internal Control Over Compliance
Management of the Organization is responsible for establishing and maintaining effective internal control
over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal
programs. In planning and performing our audit, we considered the Organization's internal control over
compliance with the requirements that could have a direct and material effect on a major federal program
to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test
and report on internal control over compliance in accordance with OMB Circular A-133, but not for the
purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly,
we do not express an opinion on the effectiveness of the Organization's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a
deficiency, or combination of deficiencies, in internal control over compliance, such that there is a
reasonable possibility that material noncompliance with a type of compliance requirement of a federal
program will not be prevented, or detected and corrected, on a timely basis.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not
identify any deficiencies in internal control over compliance that we consider to be material weaknesses,
as defined above. However, we identified a certain deficiency in internal control over compliance that we
consider to be a significant deficiency as described in the accompanying schedule of findings and
questioned costs as item 2010-01. A significant deficiency in internal control over compliance is a
deficiency, or a combination of deficiencies, in internal control over compliance with a type of
compliance requirement of a federal program that is less severe than a material weakness in internal
control over compliance, yet important enough to merit attention by those charged with governance.
The Organization's response to the finding identified in our audit is described in the accompanying
schedule of findings and questioned costs. We did not audit the Organization's response and, accordingly,
we express no opinion on the response.
This report is intended solely for the information and use of the Mayor, City Council, management and
others within the Organization and federal awarding agencies, and passthrough entities and is not
intended to be and should not be used by anyone other than these specified parties.
a;,uz, ? 0 16nned zcP
Certified Public Accountants
Newport Beach, California
September 10, 2010
19CA0
SANTA ANA EMPOWERMENT CORPORATION
Schedule of Findings and Questioned Costs
Year Ended June 30, 2010
Section I - Summary of Auditor's Results
Financial statements:
Type of auditor's report issued: Unqualified
Internal control over financial reporting:
• Material weakness(es) identified? No
• Significant deficiency(ies) identified not
considered to be material weaknesses? None noted
Noncompliance material to financial statements noted? No
Federal Awards:
Internal control over major programs:
• Material weakness(es) identified? No
• Significant deficiency(ies) identified not
considered to be material weaknesses? Yes
Type of auditor's report issued on compliance
for major programs: Unqualified
Any audit findings disclosed that are required
to be reported in accordance with
Section 510(a) of OMB Circular A-133? No
Identification of major programs:
CFDA No. 14.244 Empowerment Zones Program
Dollar threshold used to distinguish between
Type A and Type B programs: $300,000
Auditee qualified as a low-risk auditee? Yes
19G3 31
SANTA ANA EMPOWERMENT CORPORATION
Schedule of Findings and Questioned Costs
Year Ended June 30, 2010
Section II - Financial Statement Findings
None.
Section III - Federal Award Findings and Ouestioned Costs
Finding 2010-01
Federal Grantor: Department of Housing and Urban Development
Program: Empowerment Zones Program
CFDA No. 14.244
Criteria or Specific Requirement
When Empowerment Zone funds are expended the grantee must minimize the time elapsing between
the disbursement and drawdown.
Condition
During our testwork of cash management in accordance with OMB Circular A-133, we noted that the
Organization's administrative expenses that occurred and were disbursed during FY 08/09 were not
drawn down until January 15, 2010; which is not on a timely basis.
Cause
The deficiency appears to be due to inconsistent implementation of policies and procedures in place
by the Organization.
Effect
Noncompliance with the aforementioned requirement results in the Organization not submitting
drawdowns in a timely manner or the receipt of those funds.
Questioned Cost
Noncompliance with the aforementioned requirement results in untimely drawdown of $35,574.
Recommendation
We recommend the Organization adhere to policies and procedures that are in place by the
Organization to ensure drawdowns are made in a timely manner.
19C .32
SANTA ANA EMPOWERMENT CORPORATION
Schedule of Findings and Questioned Costs
Year Ended June 30, 2010
Management's Response
We concur with this one untimely draw-down of $35,574. We have reminded Finance staff of the
importance of drawing down funds in a timely manner. The Finance staff is aware of the
Organization's policy and procedures and will apply them consistently.
19G--33
SANTA ANA EMPOWERMENT CORPORATION
Summary Schedule of Prior Audit Findings
Year Ended June 30, 2010
There were no findings reported for fiscal year ended June 30, 2009.
1966 34