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Home My WebLink AboutHousing & Redevelopment Authority - HRA-Finance-Committee-Packet-09-05-2023 Supporting Documents - 09/05/2023 OTTER TAIL COUNTY – MINNESOTA HOUSING AND REDEVELOPMENT AUTHORITY FINANCE COMMITTEE BOARD PACKET September 5, 2023 OTTER TAIL COUNTY – MINNESOTA HOUSING AND REDEVELOPMENT AUTHORITY Government Services Center, Lida Lake Room 500 West Fir Avenue, Fergus Falls, MN September 5, 2023 HOUSING AND REDEVELOPMENT AUTHORITY FINANCE COMMITTEE AGENDA 3:30 p.m. 1. 2022 Audited Financial Statements – Brian Opsahl and Bryce Karel, Brady Martz & Associates, P.C. 2. HRA Financial Policies 3. General Discussion – Topics by Commissioners 4. Adjourn MEMO TO: Otter Tail County HRA Finance Committee Wayne Johnson, Chairperson Lee Rogness, Vice Chairperson DATE: August 31, 2023 FROM: Barbara Dacy, Executive Director, Otter Tail County HRA RE: Item #1 - 2022 Audited Financial Statements Annual Report. Brian Opsahl and Bryce Karel from Brady Martz & Associates, P.C. will present the 2022 Audit at next Tuesday’s meeting. In general, the Authority’s net position, from 2021 to 2022, increased in order to accomplish Strategic Initiatives of “Creating New Homes” and “Keeping People in Homes”. It should be remembered that housing development initiatives can take two to four years to complete. The audit findings from 2021 are repeated in this year’s audit (pages 33 and 34). A. The first finding is in regard to preparation of financial statements. Due to cost constraints, the Authority will continue to have the Auditors draft the financial statements and accompanying notes to the financial statements. B. The second finding relates to journal entries. 2022 was the first full year of accounting through County staff assigned to the Authority. While staff continued to develop internal controls through 2022, there were some adjustments that needed to be made. The Corrective Action Plan proposes staff and the Board to review current and prior audit entries and implement a process to prepare these entries prior to the succeeding audit’s field work for any entries the Authority is able to prepare. MEMO TO: Otter Tail County HRA Finance Committee Wayne Johnson, Chairperson Lee Rogness, Vice Chairperson DATE: August 31, 2023 FROM: Barbara Dacy, Executive Director, Otter Tail County HRA RE: Item #2 – Financial Policies Staff is nearing the conclusion on bringing financial and other important program policies to the Board for approval. There are approximately 15 financial policies that deal with routine financial matters including but not limited to account payable, check writing, financial reports, inter fund transfers, etc. It may be more appropriate for the Financial Committee to perform a detailed review of these policies first, their recommended approval at a subsequent board meeting. If the committee agrees with this approach a date in October would be appropriated. Ultimately the goal is to complete all policy approvals, financial and non-financial by December 31, 2023. Brady Martz August 3, 2023 Board of Commissioners Otter Tail County Housing and Redevelopment Authority Fergus Falls, Minnesota We have audited the financial statements of the Otter Tail County Housing and Redevelopment Authority (the Authority) for the year ended December 31, 2022. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and the Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated January 30, 2023. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Matters Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Authority 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 2022. We noted no transactions entered into by the Authority 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. The Authority makes estimates in preparation of its financial statements; however, none have been determined to be sensitive. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. -1-Make Every Day Count I www.bradymartz.com Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements which consisted of several material adjustments. A schedule of adjustments detected as a result of our audit procedures is attached. Disagreements with Management For purposes of this letter, a disagreement with management is 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. Management Representations We have requested certain representations from management that are included in the management representation letter dated August 3, 2023. Management Consultations 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 housing authority'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 housing authority's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the management's discussion and analysis, which is required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. -2-Make Every Day Count I www.bradymartz.com We were engaged to report on the combining schedules and the schedule of capital fund program which accompany the financial statements but are not RSI. With respect to th is supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the Roster of Officials, which accompanies the financial statements. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. Restriction on Use This information is intended solely for the use of the Board of Commissioners and management of the Otter Tail County Housing and Redevelopment Authority and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, BRADY, MARTZ & ASSOCIATES, P.C. GRAND FORKS, NORTH DAKOTA -3-Make Every Day Count I www.bradymartz.com Client: 10063 -Otler Tail County Housing and Redevelopment Authorily 10063 -Oller Tail County Housing and Redevelopment Aulhotily 12131/2022 Engagement: Period Ending: Trla! Balance: 2400.00-Government Funcl Trial Balance 2200.00-Adjusting Journal Entries Worl<paper. Fund Level: All Index: All Account Description Adjusting Journal Entries Adjusting Jouni.al Entries JE # 1001 To record CY depreciation expense 01-DEPR Oepreciatlon Expense 01-1400.5 Accumulated Depreciation Total Adjusting Journal Entries JE # 1002 To adjust Down Payment Assistance note activity to actua 03-3692 CHIP Down Payment Assistance Repayment 03-1130.2 Loan Receivable-Oown Payment Assistance 03-4594 CHIP Down Payment Assistance Total Adjusting.Journal Entries JE # 1003 To adjust Rental Rehab note activity lo actua 03-3693.05 CHIP Rental Rehab Revolving Loan Payments 03-1130.1 Loan Receivable-Rental Rehab Total Adjusting Journal Entries JE# 1004 To adjust Homeowner/Owner Occupied Ren la! Rehab note activity to actuc 03-1130.9 Loan Allowance 03-1130.3 Loan Receivable-Tax Levy Rehab Provision 03-1130.4 Loan Receivable-Homeowner Rehab Total Adjusting Journal Entries JE # 1005 To adjust MHFA loan activity to actua 03-3695.01 MHFA Loan Distributions -A!! Projects 03-4591 MHFA Impact Fund Expenses 03-MHFA LOAN MHFA Note Payable Total Adjusting Journal Entries JE # 1006 To accrue PILOT expense 01-4520 PILOT 01-2139 Accrued Liabilities -Other Total Adjusting Journal Entries JE # 1007 To adjus_\ tax levy receivable to actual 03-1135.5 Taxes Receivable 03-3691 Levy Revenue Total Adjusting }oumal Entries JE # 1008 To adjust equity to property rollfor.varc 03-4190 Other Administrative Expenses 03-4521 Assessments 03-2806 Unrestricted Net Position Total Adjusting Journal Entries JE # 1009 To adjust AMP issurance policy lo actual 03-2250 Prepaid lnsuance 03-4510 Insurance Total Adjusting Journal Entries JE # 1010 To adjust Assets Held for Resale and related Retainage Payable balances to actiJa 03-1400.12 Assets Held for Resale 03-4591 MHFA Impact Fund Expenses 03-4591.01 MHFA Administration/Overrun 03-4592.01 HOP Demolition/Site Clearance 03-RETAlNAGE Retainage Payable Total W/P Ref Debit 4605.00 42,179.12 42,179.12 4201.01 27,400.00 27,400.00 4201.01 132,802.37 132,802.37 4201.01 353,529.64 353,529.64 5305,00 72,429.00 94,577.00 167,006.00 5100.05 2,689.72 2,689.72 4207.00 13,994.41 13,994.41 6101.00 96.00 416.00 512.00 4401.00 14,402.52 14,402.52 4301.00 337,005.19 337,005.19 Credit 42,179.12 42,179.12 9.900.00 17.500.00 27,400.00 132,802.37 132,802.37 62,206.58 291,323.06 353,529.64 167.006.00 167,006.00 2.689.72 2,689.72 13.994.41 13,994.41 512.00 512.00 14,402.52 14,402.52 262,040.92 19,658.77 41,537.50 13,768.00 337,005.19 8/3/2023 11:38AM 1 of2 Adjusting Journal Entries JE # 1011 To record transfered Ford F250 to HRA from OTC Hwy Dept (and related deprecation 03-DEPR Depreciation Expense BMA 03-1400.9 Vehicles 03-1400.5 Accumulated Depreciation 03-3690 Other Revenue MISC Total Adjusting Journal Entries JE # 1012 To record capital asset disposals in the current yea 01-1400.5 Accumulated Depreciation BMA 01-3691 Loss on Disposal of Capital Assets Total OM400.7 Buildings 01-1400.8 Furn/Equip/Mach -Dwellings 01-DEPR Depreciation Expense Total Adjusting Journal Entries Total All Journal Entries 4605.00 4606.00 268.25 9,657.00 9,925.25 32,298.TT 17,268.32 49,567.09 1,151,013.31 1,151,013.31 268.25 9,657.00 9,925.25 26,141.02 21,132.31 2,293.76 49,567.09 1,151,013.31 1,151,013.31 813/2023 11:38AM 2 of2 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY FERGUS FALLS, MINNESOTA AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2022 TABLE OF CONTENTS ROSTER OF OFFICIALS INDEPENDENT AUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL STATEMENTS Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Notes to the Financial Statements SUPPLEMENTARY INFORMATION Combining Schedule of Net Position Combining Schedule of Revenues, Expenses, and Changes in Net Position Combining Schedule of Cash Flows Schedule of Capital Fund Costs Page 1 2 5 9 10 11 13 24 26 28 30 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 GOVERNMENT AUDITING STANDARDS 31 SCHEDULE OF FINDINGS AND RESPONSES SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS CORRECTIVE ACTION PLAN 33 35 36 OTTER TAIL COUNTYHOUSING AND REDEVELOPMENT AUTHORITY ROSTER OF OFFICIALS -UNAUDITED DECEMBER 31, 2022 Name Position Term Expires Wayne Johnson Chairperson December 2027* Lee Rogness Vice-chairperson August 2024 John Lindquist Commissioner August2026 Betty Murphy Commissioner August 2025 Kurt Mortenson Commissioner August2023 Barbara Dacy Executive Director December 2023 * Annual appointment: -1- Brady Martz INDEPENDENT AUDITOR'S REPORT Board of Commissioners Otter Tail County Housing and Redevelopment Authority Fergus Falls, Minnesota Report on the Audit of the Financial Statements Opinion We have audited the accompanying financial statements of the business-type activities of Otter Tail County Housing and Redevelopment Authority, a component unit of Otter Tail County, Minnesota, as of and for the year ended December 31, 2022, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of Otter Tail County Housing and Redevelopment Authority, as of December 31 , 2022, and the changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion 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. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Otter Tail County Housing and Redevelopment Authority, and to meet our ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Otter Tail County Housing and Redevelopment Authority's ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Make Every Day Count I www.bradymartz.com -2- Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis , evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 Authority's internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Authority's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis as listed in the table of contents be presented to supplement the basic financial statements. Such information is the responsibility of management and , although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of -3-Make Every Day Count I ww.bradymartz.com America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority's basic financial statements. The combining schedules and capital fund costs are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining schedules and capital fund costs, as noted in the accompanying table of contents, are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Information The Roster of Officials table on page 1 has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 3, 2023, on our consideration of the Authority'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 solely 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 effectiveness of Otter Tail County Housing and Redevelopment Authority's 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 Authority's internal control over financial reporting and compliance. BRADY, MARTZ & ASSOCIATES, P.C. GRAND FORKS, NORTH DAKOTA August 3, 2023 -4 -Make Every Day Count I www.bradymartz.com OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31 , 2022 INTRODUCTION The Otter Tail County Housing and Redevelopment Authority's (the Authority) Management's Discussion and Analysis (MD&A) is designed to (a) assist the reader in focusing on significant financial information, (b) provide an overview of the financial activity, (c) identify changes in the financial position (its ability to address the next and subsequent year challenges), and (d) identify individual issues or concerns. Since the MD&A is designed to focus on the current year's activities, resulting changes, and current known facts, it should be read in conjunction with the Authority's financial statements. FINANCIAL HIGHLIGHTS Key financial highlights for the 2022 fiscal year include the following: • The assets of the Authority exceeded its liabilities at the close of the recent fiscal year by $3,150,922 (net position). Of this amount, $2,503,427 (unrestricted net position ) may be used to meet the Authority's ongoing obligations to citizens and creditors. • The Authority's cash and cash equivalents balance at December 31 , 2022 was $2,122,815, representing an increase of $843,784 from December 31 , 2021. • The Authority had HUD Grant revenue of $581 ,150, a decrease of $58,292 from that received in 2021 . OVERVIEW OF THE FINANCIAL ST A TEMENTS The discussion and analysis is intended to serve as an introduction to the Authority's basic financial statements. The Authority's basic financial statements comprise two components: 1) Financial statements, and 2) Notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The Authority is a special-purpose government engaged only in Housing Assistance type activities and accounts for its financial activities as an enterprise fund. Accordingly, only business- activities financial statements are presented as the basic financial statements. The financial statements are prepared on the accrual basis of accounting. Therefore, revenues are recognized when earned and expenses are recognized when incurred. Capital assets are capitalized and depreciated, except for land, over their useful lives. See notes to the financial statements for a summary of the Authority's significant accounting policies and practices. The Authority's basic financial statements include the statement of net position, the statement of revenues, expenses and changes in net position, and the statement of cash flows. The statement of net position provides information about the nature and amount of assets and obligations (liabilities) of the Authority as of the end of the year. The statement of revenues, expenses and changes in net position reports revenues and expenses for the current year. The statement of cash flows reports cash receipts, cash payments, and net changes in cash resulting from operating activities, capital and related financing activities, and investing activities. -5- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS -CONTINUED FOR THE YEAR ENDED DECEMBER 31 , 2022 This report also contains other supplementary information in addition to the basic financial statements themselves. The Authority is a special-purpose government engaged only in Housing Assistance type activities and accounts for its financial activities as an enterprise fund . Accordingly, only business-activities financial statements are presented as the basic financial statements. The financial statements are prepared on the accrual basis of accounting. Therefore, revenues are recognized when earned and expenses are recognized when incurred. Capital assets are capitalized and depreciated, except for land, over their useful lives. See notes to the financial statements for a summary of the Authority's significant accounting policies and practices. USING THIS ANNUAL REPORT Our auditors have provided assurance in their independent auditor's report, located immediately preceding this Management's Discussion and Analysis, that the Basic Financial Statements are fairly stated. Varying degrees of assurance are being provided by the auditors regarding the other information included in this report. A user of this report should read the independent auditor's report carefully to ascertain the level of assurance being provided for each of the other parts of this report. CHANGES IN NET POSITION Total net position increased from the previous year by $875,319. The largest component of net position is unrestricted. Unrestricted net position increased from the previous year by $952,243. FINANCIAL POSITION The following table summarizes the financial position of the Authority as of December 31, 2022 and 2021 . Condensed Statement of Net Position Current assets Loans receivable, noncurrent Capital assets, net Total assets Current liabilities Long-term liabilities Total liabilities Net position Net investment in capital assets Restricted Unrestricted Total net position -6- $ 2022 2,548,718 165,914 631 ,703 3,346,335 28,407 167,006 195,413 631 ,703 15,792 2,503,427 $ $ 3, 150,922 $ 2021 1,362,847 273,560 679,467 2,315,874 40,271 40,271 679,467 44,952 1,551,184 2,275,603 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS -CONTINUED FOR THE YEAR ENDED DECEMBER 31 , 2022 The following table summarizes the changes in net position of the Authority for the years ended December 31 , 2022 and 2021 : Condensed Statement of Revenues, Expenses and Changes in Net Position 2022 2021 Operating revenues $ 2,127,369 $ 1,686,966 Operating expenses 1,246,606 1,452,999 Operating income (loss) 880,763 233,967 Nonoperating income (loss) {5,444) 1,657 Change in net position 875,319 235,624 Total net position -beginning of year 2,275,603 2,039,979 Total net position -end of year $ 3,150,922 $ 2,275,603 Operating revenues increased by $440,403 due to an increase in tax levy revenues of approximately $465,000 and state and local government grants of approximately $52,000 and a decrease in housing choice vouchers of approximately $68,000. Operating expenses decreased by $206,393 due to decreases in tenant services of approximately $112,000 and in general expenses of approximately $96,000. Federal grants totaled $581 ,150 for the year ended December 31 , 2022 and $639,442 for the year ended December 31 , 2021 . Housing Units Managed The following table shows housing units managed by the Authority for the years ended December 31 , 2022 and 2021 : Owned by Authority United under vouchers Total housing units managed CAPITAL ASSETS 2022 13 141 154 2021 13 140 153 During 2022, there was no additional capital assets placed into service. For disposals, the Authority disposed $47,273 worth of assets during 2022 . Please see Note 6 for additional details. DEBT ADMINISTRATION As of December 31 , 2022, the Authority has new long term debt relating to a loan obtained from the Minnesota Housing Finance Agency for $750,000, of which $167,006 was awarded in 2022. Please see Note 7 for additional details. -7- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS -CONTINUED FOR THE YEAR ENDED DECEMBER 31 , 2022 ECONOMIC FACTORS The Otter Tail County Housing and Redevelopment Authority administers several programs aimed at providing affordable housing choices for individuals, families, and seniors seeking both rental and owner-occupied housing. The Authority also operates rehabilitation programs in partnership with homeowners and rental property owners. From time to time, the Authority also responds to specific community requests for services to redevelop properties that, due to their condition, are obsolete or unsafe, and have a detrimental impact in the community. While the Authority receives federal funding from the Department of Housing and Urban Development (HUD) for its Housing Choice Voucher and Public Housing program, the Authority's budget is also bolstered by the Special Benefit Levy permitted in state law for housing authorities and other public or private funding sources. Combined, the Authority uses these funding sources to accomplish its mission in partnership with cities and townships. REQUESTS FOR INFORMATION The annual financial report is designed to provide a general overview of the Authority's finances for all those with an interest in the Authority's finances. Questions concerning any information provided in this report or requests for additional information should be addressed to Barbara Dacy, Executive Director, Otter Tail County Housing and Redevelopment Authority, 500 W Fir Ave, Fergus Falls, Minnesota 56537. -8- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY STATEMENT OF NET POSITION DECEMBER 31 , 2022 Current assets Cash and cash equivalents Restricted cash Accounts receivable ASSETS Tenants, net of allowance for doubtful accounts Taxes receivable Loans receivable, current Assets held for resale Prepaid expenses Total current assets Noncurrent assets Loans receivable, net of allowance for doubtful accounts Capital assets Nondepreciable Depreciable, net Total capital assets Total noncurrent assets Total assets Current liabilities Accounts payable Payment in lieu of taxes Tenant security deposits Unearned revenue LIABILITIES AND NET POSITION Total current liabilities Long-term liabilities Loan payable Net position Total long-term liabilities Total liabilities Net investment in capital assets Restricted for Section 8 HAP Unrestricted Total net position See Notes to the Financial Statements -9- $ 2,097,979 24,836 3,038 30,089 18,120 338,056 36,600 2,548,718 165,914 32,990 598,713 631 ,703 797,617 3,346,335 16,046 2,690 9,044 627 28,407 167,006 167,006 195,413 631 ,703 15,792 2,503,427 $ 3,150,922 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31 , 2022 Operating revenues Dwelling rentals Property taxes HUD operating grants Operating subsidy Housing choice vouchers Other government grants Tenant utility charges Fraud recovery Other Total operating revenues Operating expenses Service agreement fees Contract services Professional services Bad debt expense Advertising Office expense Travel Dues Staff training Consulting fees Tenant services Utilities Repairs and maintenance Insurance General expenses Payments in lieu of taxes Housing assistance payments Depreciation Total operating expenses Operating income (loss) Nonoperating revenues (expenses) Interest income Investment income Interest expense Contribution from Otter Tail County Gain (loss) on disposal of capital assets Total nonoperating revenues (expenses) Change in net position Net position -beginning of year Net position -end of year See Notes to the Financial Statements -10- $ 30,093 1,316,930 147,801 433,349 81 ,069 33,987 999 83,141 2,127,369 217,168 197,867 125,474 9,475 1,066 5,247 2 ,528 1,000 5,294 8,507 7,680 29,631 28,923 31,757 67,276 2,690 464,870 40,153 1,246,606 880,763 57 2,432 (322) 9,657 (17 ,268) (5,444) 875,319 2,275,603 $3,150,922 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2022 Cash flows from operating activities: Receipts from tenants Receipts from other governmental units Receipts from property taxes Other receipts Payments to vendors Payments to other governmental units Payments for housing assistance Other payments Net cash provided (used) by operating activities Cash flows from capital and related financing activities: Proceeds from loans payable Interest paid Net cash provided (used) by capital and related financing activities Cash flows from investing activities: Payments received on loans receivable Issuance of loans Interest income Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents -beginning of year Cash and cash equivalents -end of year Reconciliation of cash and cash equivalents Cash and cash equivalents Restricted. cash -tenant security deposits Restricted cash -Section 8 HAP Total See Notes to the Financial Statements -11- $ 63,154 662,219 1,306,115 84,175 (482,477) (230,116) (464,870) (404,316) 533,884 167,006 (322) 166,684 160,202 (19,475) 2,489 143,216 843,784 1,279,031 $ 2,122,815 $ 2,097,979 9,044 15,792 $ 2,122,815 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY STATEMENT OF CASH FLOWS-CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2022 Reconciliation of cash flows from operating activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation Bad debt expense Changes in assets and liabilities Accounts receivable Taxes receivable Assets held for resale Prepaid expenses Accounts payable Payments in lieu of taxes Ten ant security deposits Unearned revenue Due to Otter Tail County Cash flows from operating activities Schedule of noncash investing, capital and financing activities: Transfer of vehicle from Otter Tail County Gain (loss) on disposal of capital assets See Notes to the Financial Statements -12- $ $ $ 880,763 40,153 9,475 (223) (10,815) (337,005) (36,600) (903) 1,192 (11 ) (692) {11,450) 533,884 9,657 (17,268) OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31 , 2022 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Otter Tail County Housing and Redevelopment Authority (the Authority) is a separate legal entity formed by Otter Tail County, Minnesota under the State of Minnesota statutes. The Authority was formed to own and operate housing for low-income clients, which is accounted for in the Low Rent Public Housing activity. The Authority has an agreement with the Housing and Urban Development (HUD) to help individuals and families procure decent and affordable housing by subsidizing their rent payments (Housing Choice Vouchers Program), which is accounted for in the Section 8 Housing Choice Vouchers activity. All other activities of the Authority are accounted for in the General & State/Local activity. The Authority, a component unit of Otter Tail County, Minnesota, was established in 1972 and is governed by a six-member Board of Commissioners who are appointed by the Otter Tail County Board of Commissioner. General The accounting policies of the Authority conform to accounting principles generally accepted in the United States of America. Basis of Accounting The Authority is a governmental entity and uses the proprietary fund model to account for its operations; therefore, the accrual basis of accounting is followed. Under this method of accounting, revenues are recognized when earned and expenses are recognized when incurred. When both restricted and unrestricted resources are available for use, it is the Authority's policy to use restricted resources first and then unrestricted resources as needed. Basis of Presentation The funds of the Otter Tail County Housing and Redevelopment Authority are presented as proprietary funds. Proprietary funds are used to account for operations financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund 's principal ongoing operations. Operating revenues include intergovernmental revenue and property taxes. Operating expenses for proprietary funds include the cost of service agreement fees, contract services, housing assistance payments, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. -13- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS -CONTINUED DECEMBER 31 , 2022 The Authority reports on the following programs: The General & State/Local Fund accounts for money levied under state statute through Otter Tail County. These funds are used for both owner-occupied and rental rehabilitation throughout Otter Tail County, excluding the City of Fergus Falls. Owner- occupied loans are deferred over ten years and forgiven if the property remains owner occupied. These funds are also used to cover unreimbursed administration expenses in the Section 8 Housing Choice Voucher Program. The Low Rent Public Housing Program Fund is used to account for the operations of the 13 units (nine buildings) of family public housing that are rented to families who meet the low-income guidelines as established by the U.S. Department of Housing and Urban Development (HUD). Revenues for continuing operations consist primarily of dwelling rentals and operating subsidies from HUD. The Public Housing Capital Fund Program is used to account for grant funds provided to the Authority by HUD annually for capital and management activities, including the ongoing modernization of its public housing stock. The funds received for this program are transferred to the Low-Rent Public Housing Program. The Section 8 Housing Choice Voucher Program is used to account for the operation of the income-based program, which is funded by HUD. HUD contracts with the Authority, which, in turn, contracts with owners of rental housing to make assistance payments on the tenant's behalf. Payments made to the owners are generally the difference between the local payment standard and 30 percent of the family's adjusted gross income. Cash and Cash Equivalents The Authority's cash and cash equivalents consist of savings and checking accounts, cash on hand, and certificates of deposit. Restricted cash is shown separately from cash and cash equivalents. Receivables Property tax levies are set by the Authority and are certified to Otter Tail County each year for collection in the following year. In Minnesota, counties act as collection agents for all property taxes. Real property taxes are generally due from taxpayers in equal installments on May 15 and October 15. The County remits tax settlements to the Authority at various times during the year. Taxes collectible in a given calendar year are generally recognized as revenue during that fiscal year. Amounts due from individuals and organizations are recorded as receivables at year-end. Receivables in the Low Rent Public Housing Program Fund have been shown net of an allowance for uncollectible accounts of $200. Prepaid Expenses Certain payments to vendors reflect expenses applicable to future accounting periods are recorded as prepaid expenses. -14- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS -CONTINUED DECEMBER 31 , 2022 Restricted Assets Certain funds of the Authority are classified as restricted assets on the statement of net position because the restriction is either imposed by law through constitutional provisions or enabling legislation or imposed externally by creditors, grantors, contributors, or laws or regulations of other governments. Therefore, their use is limited by applicable laws and regulations. Capital Assets Capital assets, which include land and bu ildings, are reported in the fund financial statements. Capital assets are defined by the Authority as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or co nstructed. Donated capital assets are recorded at acquisition value. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend lives are not capitalized. Capital assets are depreciated using the straight-line method over their useful lives (5-50 years). The estimated useful lives are as follows: Buildings and improvements Furniture, equipment and machinery Vehicles Net Position Classification Net position is classified and displayed in three components: 10-50 years 5-10 years 3 years a. Net investment in capital assets -Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction , or improvement of those assets. b. Restricted net position -Consists of net position with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. c. Unrestricted net position -All other net position that does not meet the definition of "restricted" or "invested in capital assets." -15- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS-CONTINUED DECEMBER 31 , 2022 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 at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual resu lts could differ from those estimates. Grants The Authority participates in federal grant programs, which are governed by various rules and regulations of the grantor Authority. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agency; therefore, to the extent that the Authority has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectability of any related receivable at December 31, 2022, may be impaired. In the opinion of the Authority, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying financial statements for such contingencies. NOTE 2 DEPOSITS AND INVESTMENTS Deposits In accordance with Minnesota statutes, the Authority maintains deposits at those depository banks and brokerages authorized by the Authority Commission, all of which are covered by Federal Depository Insurance. Statutes require that all Authority deposits be protected by insurance, collateral, or surety bonds. The market value of the collateral pledged must be equal to or greater than 110% of the deposits not covered by insurance or bonds. At December 31 , 2022, the carrying amount of the Authority's deposits was $2,122,815 and the bank balance was $2,354,880. The entire bank balance was covered by the Federal Depository Insurance Corporation (FDIC) and pledged collateral at December 31 , 2022. Interest Rate Risk The Authority does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from changing interest rates. Credit Risk The Authority may invest idle funds in deposits that are properly secured by FDIC insurance coverage and are with designated depositories, which meet or exceed the Governmental National Mortgage Association Ratings. NOTE 3 RESTRICTED CASH Restricted cash consists of $9,044 in Low Rent Public Housing tenant security deposits and $15,792 restricted for HUD Section 8 vouchers. -16- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS-CONTINUED DECEMBER 31 , 2022 NOTE 4 LOANS RECEIVABLE The Authority offers several loan programs through its General & State/Local Fund. The loans due are from homeowners and landlords for assistance purchasing or rehabilitating properties. Homeowner rehab loans are "deferred loans" that are completely forgiven after ten years if all conditions are met. If the rehabilitated property is not sold, transferred, or otherwise conveyed within ten years, the conditions are met, and no repayment shall be due, the loan will be forgiven. If the conditions are not met, the recipient shall repay the principal amount of the loan, and the Authority shall have a lien for repayment of all funds. It is estimated that conditions are likely to be met by the borrower, and an allowance for the full amount of outstanding homeowner rehab loans has been recognized to offset the loan balance. Rental rehab loans are required to be paid back by the landlords in monthly payments, typically over ten years with a zero percent interest rate. Loans may have a forgivable portion, typically 25 percent, which will be forgiven after the first five years of loan compliance. The initial loan is reduced by the 25 percent forgivable portion when recorded on the books at inception. Down payment assistance loans are written for the term of the original mortgage on the home. The loans have a zero percent interest rate. The loans are to be repaid at final payment of original mortgage, upon loan refinancing, or upon sale or transfer of the property. The Authority records the loan at face value at inception, and it remains at that value until paid or written-off. Tax levy rehab loans are "deferred loans" that are forgivable at ten percent each year and completely forgiven after ten years, if all conditions are met. If the rehabilitated property is not sold, transferred, or otherwise conveyed within ten years, the conditions are met, and no repayment shall be due, the loan will be forgiven. If the conditions are not met, the recipient shall repay the principal amount of the loan, and the Authority shall have a lien for repayment of all funds. It is estimated that conditions are likely to be met by the borrower, and an allowance for the full amount of outstanding tax levy rehab loans has been recognized to offset the loan balance. -17- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS -CONTINUED DECEMBER 31, 2022 Loans receivable activity for the year ended December 31 , 2022, was as follows: Ending Beginning Balance 1/1/2022 Balance Due Within Loan receivable Homeowner rehab Rental rehab Down payment assistance Tax levy rehab provision Total Allowance for doubtful accounts: Homeowner rehab Tax levy rehab provision Total Total loan receivable, net Additions Retirements 12/31/2022 One Year $ 629,281 $ 6,532 $ (297,855) $ (132,806) 10,000 (27,396) 245,098 89,138 331 ,011 --~2,_94_3 (65,150) 1,294,528 19,475 (523,207) (629,281) (6,532) 297,855 (331,011) --~(2~,9_4~3) __ 6_5~, 1_5_0 337,958 $ 112,292 71 ,742 268,804 790,796 (337,958) (268,804) 18,120 18,120 (960,292) --=(9_._.4_7"""5) 363,005 (606,762) ___ _ $ 334,236 $ 10,000 $ (160,202) $ 184,034 _$ __ 1_8 __ ,1_2_0 NOTE 5 ASSETS HELD FOR RESALE The Authority has assets held for resa le totaling $338,056 as of December 31, 2022. These assets held for resale represent costs incurred to purchase and rehabilitate/renovate homes and also land that the Authority expects to be sold for economic development in the Pelican Rapids, MN and Battle Lake, MN areas. These assets have been classified as current on the statement of net position and are reported at cost. See also Note 7 for a loan received to assist in financing these activities. -18- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS-CONTINUED DECEMBER 31 , 2022 NOTE 6 CAPITAL ASSETS The Authority's capital asset activity for the year ended December 31 , 2022, was as follows: Beginning Ending Balance Balance 1/1/2022 Additions Retirements 12/31/2022 Capital assets, not being depreciated: Land $ 32,990 $ -$ -$ 32,990 Total capital assets not being depreciated 32,990 32,990 Capital assets, being depreciated: Buildings and improvements 1,688,010 (26,140) 1,661 ,870 Furniture, equipment and machinery 21 ,133 (21,133) Vehicles 9,657 9,657 Total capital assets being depreciated 1,709,143 9,657 (47,273) 1,671 ,527 Less accumulated depreciation for: Buildings and improvements (1,044,576) (39,885) 11 ,915 (1,072,546) Furniture, equipment and machinery (18,090) 18,090 Vehicles (268) (268) Total accumulated depreciation (1 ,062,666) (40,153) 30,005 (1 ,072,814) Total capital assets, being depreciated -net 646,477 (30,496) (17,268) 598,713 Total capital assets $ 679,467 $ (30,496) $ (17,268) $ 631 ,703 NOTE 7 LONG-TERM LIABILITIES On April 1, 2022 , the Authority entered into a loan agreement with the Minnesota Housing Finance Association (MHFA). The Authority obtained an Interim Loan Pilot Program loan of $750,000 through the MHFA's Community Homeownership Impact Fund to be used for economic development related to assets held for resale in Note 5. The loan is due at its maturity date of June 1, 2024, and bears an interest rate of 3.75 percent. As of December 31 , 2022, $167,006 has been requested and drawn down from MHFA. The following is a summary of the activity in long-term liabilities for the year: Interest Balance Balance Current Rate 1/1/2022 Additions Retirements 12/31/2022 Maturities MHFA Interim Loan 3.75% s s 167,006 $ -$ 167,006 s Totals $ -s 167,006 $ -s 167,006 $ Requirements to maturity for long-term liabilities are as follows: PrinciQal 2023 $ 2024 167,006 Total $ 167,006 -19- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS -CONTINUED DECEMBER 31 , 2022 NOTE 8 ANNUAL CONTRIBUTIONS CONTRACT The Authority has an annual contributions contract for Section 8 Housing Choice Vouchers and adjustments vary based on requirements. The total of administrative and HAP revenues was $512,550 for 2022 . NOTE 9 RISK MANAGEMENT The Authority is exposed to various risks of losses including general liability, property damage and employee bodily injury. The insurance coverage is considered to be adequate to cover unexpected claims against the Authority. The Authority reta ins the responsibility to cover any settlements exceeding the specific coverage. There was no reduction in coverage from the prior year and settlements have not exceeded insurance coverage in the past three years. NOTE 10 COMMITMENTS AND CONTINGENCIES Grants The Authority participates in federal grant programs, which are governed by various rules and regulations of the grantor agency. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agency; therefore, to the extent that the Authority has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectability of any related receivable at December 31 , 2022, may be impaired. In the opinion of the Authority, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying financial statements for such contingencies. Construction At December 31 , 2022, the Authority had construction project contracts in progress related to assets held for resale. The commitments for the remaining contract balances totaled $432,000. NOTE11 MANAGEMENTFEES The Authority had a management contract with Otter Tail County. Under this contract, the County will provide on-site workspace, internet access, technology, technological support, and office related functions to the Authority as needed. The County will make County employees available to support operations and purposes of the Authority. The services under the agreement will begin January 1, 2022 and continue through December 31 , 2022 and will renew automatically for additional one-year terms. Either party may terminate this agreement early, upon not less than 90 days' notice given in writing prior to the end of the fiscal year. The management fee paid by the Authority was $217,168 for the year ended December 31 , 2022. -20- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS -CONTINUED DECEMBER 31 , 2022 NOTE 12 NEW PRONOUNCEMENTS GASS Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, improves financial reporting by addressing issues related to public- private and public-public partnership arrangements (PPPs) and also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). The statement provides definitions of PPPs and APAs and provides uniform guidance on accounting and financial reporting for transactions that meet those definitions. A PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. An APA is an arrangement in which a government compensates an operator for services that may include designing, constructing , financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. The requirements of this Statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Earlier application is encouraged. GASS Statement No. 96 , Subscription-Based Information Arrangements provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs). A SBITA is defined as a contract that conveys control of the right to use another party's (a SBIT A vendor's) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction. Under this Statement, a government generally should recognize a right-to use subscription asset-an intangible asset- and a corresponding subscription liability. The requirements of this Statement will improve financial reporting by establishing a definition for SBIT As and providing uniform guidance for accounting and financial reporting for transactions that meet that definition. The requirements of this Statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Earlier application is encouraged. GASS Statement No. 99, Omnibus 2022, provides guidance on the following accounting matters: • Classification and reporting of derivative instruments within the scope of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of either an investment derivative instrument or a hedging derivative instrument. • Clarification of provisions in Statement No. 87, Leases, as amended, related to the determination of the lease term, classification of a lease as a short-term lease, recognition and measurement of a lease liability and a lease asset, and identification of lease incentives. • Clarification of provisions in Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to (a) the determination of the public-private and public-public partnership (PPP) term and (b) recognition and measurement of installment payments and the transfer of the underlying PPP asset. • Clarification of provisions in Statement No. 96, Subscription-Based Information Technology Arrangements, related to the subscription-based information technology arrangement (SB ITA) term, classification of a SBITA as a short-term SBITA, and recognition and measurement of a subscription liability. -21 - OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS -CONTINUED DECEMBER 31 , 2022 • Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate risk of taxable debt. • Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP). • Disclosures related to nonmonetary transactions. • Pledges of future revenues when resources are not received by the pledging government. • Clarification of provisions in Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, as amended, related to the focus of the government-wide financial statement. • Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. • Terminology used in Statement 53 to refer to resource flows statements. The requirements of this statement are effective as follows: • The requirements related to extension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain provisions in Statement 34, as amended, and terminology updates related to Statement 53 and Statement 63 are effective upon issuance. • The requirements related to leases, PPPs, and SBIT As are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. • The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter. GASB Statement No. 100, Accounting Changes and Error Corrections -An Amendment of GASB Statement No. 62, provides guidance on accounting and financial reporting requirements for accounting changes and error corrections. Statement requires that (a) changes in accounting principles and error corrections be reported retroactively by restating prior periods, (b) changes to or within the financial reporting entity be reported by adjusting beginning balances of the current period, and (c) changes in accounting estimates be reported prospectively by recognizing the change in the current period. The requirements of this Statement for changes in accounting principles apply to the implementation of a new pronouncement in absence of specific transition provisions in the new pronouncement. This Statement also requires that the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position, as applicable, be displayed by reporting unit in the financial statements. This Statement requires disclosure in notes to financial statements of descriptive information about accounting changes and error corrections, such as their nature. In addition, information about the quantitative effects on beginning balances of each accounting change and error correction should be disclosed by reporting unit in a tabular format to reconcile beginning balances as previously reported to beginning balances as restated. The requi rements of this -22- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS-CONTINUED DECEMBER 31 , 2022 Statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged. GASS Statement No. 101 , Compensated Absences, provides guidance on the recognition and measurement guidance for compensated absences. This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered , (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used. This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee's pay rate as of the date of the financial statements. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities. This Statement amends the existing requirement to disclose the gross increases and decreases in a liability for compensated absences to allow governments to disclose only the net change in the liability (as long as they identify it as a net change). In addition, governments are no longer required to disclose which governmental funds typically have been used to liquidate the liability for compensated absences. The requ irements of this Statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. Earlier application is encouraged. Management has not yet determined the effect these pronouncements will have on the Authority's financial statements. NOTE13 SUBSEQUENTEVENTS No significant events occurred subsequent to the Authority's year end. Subsequent events have been evaluated through August 3, 2023, which is the date the financial statements were available to be issued. -23- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY COMBINING SCHEDULE OF NET POSITION DECEMBER 31, 2022 Section 8 Low Rent Housing General & Public Choice State/Local Housing Vouchers Totals ASSETS Current assets Cash and cash equivalents $ 1,986,051 $ 72,427 $ 39,501 $ 2,097,979 Restricted cash 9,044 15,792 24,836 Accounts receivable Tenants, net of allowance for doubtful accounts 3,038 3,038 Taxes receivable 30,089 30,089 Loans receivable, current 18,120 18,120 Assets held for resale 338,056 338,056 Prepaid expenses 20,837 15,763 36,600 Total current assets 2,393,153 100,272 55,293 2,548,718 Noncurrent assets Loans receivable, net of allowance for doubtful accounts 165,914 165,914 Capital assets Nondepreciable 32,990 32,990 Depreciable, net 9,390 589,323 598,713 Total capital assets (net) 9,390 622,313 631 ,703 Total noncurrent assets 175,304 622,313 797,617 Total assets $ 2,568,457 $ 722,585 $ 55,293 $ 3,346,335 -24- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY COMBINING SCHEDULE OF NET POSITION -CONTINUED DECEMBER 31 , 2022 Section 8 Low Rent Housing General & Public Choice State/Local Housing Vouchers Totals LIABILITIES AND NET POSITION Current liabilities Accounts payable $ 14,772 $ 1,274 $ -$ 16,046 Payment in lieu of taxes 2,690 2,690 Tenant security deposits 9,044 9,044 Unearned revenue 627 627 Total current liabilities 14,772 13,635 28,407 Long-term liabilities Loan payable 167,006 167,006 Total long-term liabilities 167,006 167,006 Total liabilities 181 ,778 13,635 195,413 Net position Net investment in capital assets 9,390 622,313 631 ,703 Restricted 15,792 15,792 Unrestricted (deficit) 2,377,289 86,637 39,501 2,503,427 Total net position 2,386,679 708,950 55,293 3,150,922 Total liabilities and net position $ 2,568,457 $ 722,585 $ 55,293 $ 3,346,335 -25- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2022 Operating revenues Dwelling rents Property taxes HUD operating grants Operating subsidy Housing Choice Vouchers Other government grants Tenant utility charges Fraud recovery Other Total operating revenues Operating expenses Service agreement fees Contract services Professional services Bad debt expense Advertising Office expense Travel Dues Staff training Consulting fees Tenant services Utilities Repairs and maintenance Insurance General expenses Payments in lieu of taxes Housing assistance payments Depreciation Total operating expenses Operating income (loss) General & State/Local $ -$ 1,316,930 81,069 67,179 1,465,178 113,516 197,867 121,529 9,475 1,066 4,398 945 1,000 5,294 6,562 7,680 8,643 18,953 60,526 268 557,722 907,456 -26- Low Rent Public Housing 30,093 $ 68,600 33,987 15,523 148,203 15,776 3,945 610 543 29,631 20,280 12,804 6,374 2,690 39,885 132,538 15,665 Section 8 Housing Choice Vouchers 79,201 433,349 999 439 513,988 87,876 239 1,040 1,945 376 464,870 556,346 (42,358) Totals $ 30,093 1,316,930 147,801 433,349 81,069 33,987 999 83,141 2,127,369 217,168 197,867 125,474 9,475 1,066 5,247 2,528 1,000 5,294 8,507 7,680 29,631 28,923 31,757 67,276 2,690 464,870 40,153 1,246,606 880,763 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - CONTINUED FOR THE YEAR ENDED DECEMBER 31 , 2022 Section 8 Low Rent Housing General & Public Choice State/Local Housing Vouchers Totals Nonoperating revenues (expenses) Interest income 57 57 Investment income 2,326 106 2,432 Interest expense (322) (322) Contribution from Otter Tail County 9,657 9,657 Gain (loss) on disposal of capital assets {17,268) {17,268) Total nonoperating revenues (expenses) 11,983 (17,533) 106 (5,444) Change in net position 919,439 (1,868) (42,252) 875,319 Net position -beginning of year 1,467,240 710,818 97,545 2,275,603 Net position -end of year $ 2,386,679 $ 708,950 $ 55,293 $ 3,150,922 -27- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY COMBINING SCHEDULE OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31 , 2022 Cash flows from operating activities: Receipts from tenants Receipts from other governmental units Receipts from property taxes Other receipts Payments to vendors Payments to other governmental units Payments for housing assistance Other payments Net cash provided (used) by operating activities: Cash flows from capital and related financing activities: Proceeds on loans payable Interest paid Net cash provided (used) for capital and related financing activities Cash flows from investing activities: Payments received on loans receivable Issuance of loans receivable Interest income Net cash provided (used) for investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, Beginning of year Cash and cash equivalents, End of year Reconciliation of cash and cash equivalents Cash Restricted cash TOTAL General & State/Local $ -$ 81 ,069 1,306,115 67,214 (393,092) (124,693) (397,531 ) 539,082 167,006 167,006 160,202 (19,475) 2,326 143,053 849,141 1,136,910 $ 1,986,051 $ $ 1,986,051 $ $ 1,986,051 $ -28- Low Rent Public Housing 63,154 $ 68,600 15,523 (85,909) (17,547) (6,409) 37,412 (322) (322) 57 57 37,147 44,324 81,471 $ 72,427 $ 9,044 81 ,471 $ Section 8 Housing Choice Vouchers Totals -$ 63,154 512,550 662,219 1,306,115 1,438 84,175 (3,476) (482,477) (87,876) (230,116) (464,870) (464,870) (376) (404,316) (42,610) 533,884 167,006 (322) 166,684 160,202 (1 9,475) 106 2,489 106 143,216 (42,504) 843,784 97,797 1,279,031 55,293 $ 2,122,815 39,501 $ 2,097,979 15,792 24,836 55,293 $ 2,122,815 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY COMBINING SC HEDULE OF CASH FLOWS -CONTINUED FOR THE YEAR ENDED DECEMBER 31 , 2022 Low Rent Housing General & Public Choice State/Local Housing Vouchers Totals Reconciliation of cash flows from operating activities Operating income (loss) $ 907,456 $ 15,665 $ (42,358) $ 880,763 Adjustments to reconcile operating income (loss) to net cash from operating activities Depreciation 268 39,885 40,153 Bad debts (recovery) 9,475 9,475 Changes in assets and liabilities: Accounts receivable (223) (223) Taxes receivable (10,815) (10,815) Due from other funds 35 35 Assets held for resale (337,005) (337,005) Prepaid expenses (20,837) (15,763) (36,600) Accounts payable 1,682 (2,333) (252) (903) Payments in lieu of taxes 1,192 1,192 Tenant security deposits (11) (1 1) Unearned revenue (692) (692) Due to other funds (35) (35) Due to Otter Tail County (11 ,177) (273) (11,450) Cash flows provided (used) by operating activities $ 539,082 $ 37,412 $ (42,610) $ 533,884 Schedule of noncash investing, capital and financing activities: Transfer of vehicle from Otter Tail County $ 9,657 $ -$ -$ 9,657 Gain (loss) on disposal of capital assets (17,268) (17,268) -29- OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY SCHEDULE OF CAPITAL FUND COSTS DECEMBER 31, 2022 Grant Year Grant Year Grant Year 2022 2021 2020 Grant Year 2019 MN46P17750122 MN46P17750121 MN46P17750120 MN46P17750121 Funds Approved $ 41,474 $ 34,495 $ 33,107 $ 33,054 Funds Expended 11 ,550 32,874 Excess of Funds Approved $ 41,474 $ 34,495 $ 21 ,557 $ 180 -30- Brady Martz 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 GOVERNMENT AUDITING STANDARDS To the Board of Commissioners Otter Tail County Housing and Redevelopment Authority Fergus Falls, Minnesota We have audited, in accordance with the 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 the business-type activities of Otter Tail County Housing and Redevelopment Authority as of and for the year ended December 31 , 2022, and the related notes to the financial statements and have issued our report thereon dated August 3, 2023. Report on Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority'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 entity'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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and responses as items 2022-001 and 2022-002 that we consider to be significant deficiencies. Make Every Day Count I www.bradymartz.com -31 - Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, non-compliance with which could have a direct and material effect on the financial statements. 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. Otter Tail County Housing and Redevelopment Authority's Response to Findings Government Auditing Standards requires the auditor to perform limited procedures on Otter Tail County Housing and Redevelopment Authority's responses to the findings identified in our audit and described in the accompany schedule of findings and responses. Otter Tail County Housing and Redevelopment Authority's responses were not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the responses. 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 entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. BRADY, MARTZ & ASSOCIATES, P.C. GRAND FORKS, NORTH DAKOTA August 3, 2023 -32-Make Every Day Count I www.bradymartz com OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED DECEMBER 31, 2022 Significant Deficiency 2022-001 Preparation of Financial Statements Criteria -An appropriate system of internal control requires the Authority to prepare financial statements in compliance with accounting principles generally accepted in the United States of America. Condition -The Authority's personnel prepare periodic financial information for internal use that meets the needs of management and the board. However, the organization does not prepare financial statements, including accompanying note disclosures, as required by accounting principles generally accepted in the United States of America. The Authority has elected to have the auditors assist in the preparation of the financia l statements and notes. Cause -The Authority elected to not allocate resources for the preparation of the financial statements. Effect -There is an increased risk of material misstatement to the Authority's financial statements. Repeat Finding -This is a repeat finding of 2021-001 Recommendation -We recommend the entity consider the additional risk of having the auditors assist in the preparation of the financial statements and note disclosures and consider preparing them in the future. As a compensating control the entity should establish an internal control policy to document the annual review of the financial statements and schedules and to review a financial statement disclosure checklist. Views of Responsible Officials and Planning Corrective Actions -Due to cost constraints, the Authority will continue to have the auditors draft the financial statements and accompanying notes to the financial statements. -33- 2022-002 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY SCHEDULE OF FINDINGS AND RESPONSES -CONTINUED FOR THE YEAR ENDED DECEMBER 31 , 2022 Proposition of Journal Entries Criteria or Specific Requirement -The Authority is required to maintain internal controls at a level where underlying support for the general ledger accounts can be developed and a determination can be made that the general ledger accounts are properly reflected in accordance with GAAP. Condition -During our audit, adjusting entries to the financial statements were proposed in order to properly reflect the financial statements in accordance with GAAP. Cause -The Authority's internal controls continued to be developed throughout 2022 but were not fully sufficient to identify all adjustments necessary to properly reflect the financial statements in accordance with GAAP. Effect -The Authority's financial statements were materially misstated prior to adjustments detected as a result of audit procedures. Repeat Finding -This is a repeat finding of 2021-002 Recommendation -Accounting personnel will need to determine the proper balance in each general ledger account prior to the audit. Views of Responsible Officials and Planning Corrective Actions -The Authority's management and Board of Commissioners will review current and prior audit entries and implement a process to prepare those entries prior to the succeeding audit's field work for any entries the Authority is able to prepare. -34- 2021-001 OTTER TAIL COUNTY HOUSING AND REDEVELOPMENT AUTHORITY SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS FOR THE YEAR ENDED DECEMBER 31 , 2022 Preparation of Financial Statements Criteria or Specific Requirement -Management is responsible for preparing the Authority's financial statements in accordance with generally accepted accounting principles (GAAP). The financial statement preparation in accordance with GAAP requires internal control over both: (1) recording, processing, and summarizing accounting data (that is, maintaining internal books and records); and (2) preparing and reporting appropriate government-wide and fund financial statements, including the related notes to the financial statements. A deficiency in internal control over financial reporting 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 of the financial statements on a timely basis. Auditing standards define a material weakness as a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Authority 's financial statements will not be prevented, or detected and corrected, on a timely basis. Condition -The Authority's personnel prepare periodic financial information for internal use that meets the needs of management and the Authority. However, the Authority does not have internal resources to maintain a general ledger and prepare full-disclosure financial statements required by GAAP for external reporting. The Authority is aware of this deficiency, and obtains our assistance in the preparation of its annual financial statements. Current year status -See 2022-001 2021 -002 Proposition of Journal Entries Criteria or Specific Requirement -A complete system of internal accounting control contemplates an adequate system for recording and processing adjusting journal entries significant to the financial statements. Condition -During the course of our engagement, we proposed numerous significant audit adjustments that had not been identified as a resu lt of the Agency's existing internal controls, and therefore could have resulted in a material misstatement of the Agency's financial statements. Current year status -See 2022-002 -35- HOUSING AND REDEVELOPMENT AUTHORITY OTTERTAIL COUNTY -MINNESOTA CORRECTIVE ACTION PLAN FOR THE YEAR ENDED December 31, 2022 2022-001 Contact Person Barbara Dacy, Executive Director Corrective Action Plan Government Services Center 500 West Fir Avenue Fergus Falls, MN 56537 No action is planned on the finding. The Authority feels that the additional costs to the Authority would not be significantly beneficial. The Authority does mitigate this situation through the review of the draft financial statements and accompanying notes to the financial statements. Planned Completion Date for CAP None. See above. 2022-002 Contact Person Barbara Dacy, Executive Director Corrective Action Plan The Authority's management and Board of Commissioners will review proposed audit entries and approve them. Any common adjustments, such as those identified in the current year, not likely to be recurring will be reviewed and approved by appropriate Authority personnel. Planned Completion Date for CAP December 31 , 2023 218-998-8730 ~ <QUN. HOUS>IG OPPORTUNITY ottertailcounty.gov -36- hra@ottertailcounty.gov