Finance for Commissioners 101: What You Need to Know

Finance for Commissioners 101: What You Need to Know

Finance for Commissioners 101: What You Need to Know 2017 FAHRO Annual Convention August 1, 2017 Lance E.H. Schmidt, CPA, CFE, Principal Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. | 2015 CliftonLarsonAllen LLP WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Objectives Identify top risks related to your Authority Identify which financial indicators matter the most for your

Authority Understand the information you should receive each month and what to do with it Determine the effectiveness and efficiency of your internal staff Demonstrate how to read a financial statement What do YOU want to get out of this session? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING DAY! 2017 CliftonLarsonAllen LLP

Its that time of the year AUDITOR 3 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Audience Poll 4 2017 CliftonLarsonAllen LLP Why are you so important?

YOU WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 5 2017 CliftonLarsonAllen LLP Our Mission To provide affordable housing to our communities. WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 6

2017 CliftonLarsonAllen LLP What makes a PHA unique? HUD Grants Tenants Development WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 7 2017 CliftonLarsonAllen LLP

Measuring Success This or Healthy cash reserves? Serving as many families as possible? Complying with HUD requirements? Spending all available resources on housing? Have a good reputation with the City/County? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING That? Providing quality housing?

Ensuring housing is truly affordable? Providing quality customer service? Having resources to develop new housing? Ensuring programs have long-term viability? 8 Defining Success for Your PHA Looking deeper into PHA programs 2017 CliftonLarsonAllen LLP 9

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP 1. Section 8 Housing Choice Voucher 10 2017 CliftonLarsonAllen LLP 1. Section 8 Housing Choice Voucher Key Metrics Number of vouchers leased determines admin funding (set amount per unit) Number of vouchers leased tells you how many families you are serving

Section 8 Management Assessment Program (SEMAP) 14 indicators to assess High, Standard, Substandard and Troubled Self-reporting, though HUD may review Focus on compliance Portables are the number one way PHAs get in trouble with this program Is the PHA collecting amounts due from other authorities? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 11 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP 2. Public Housing and Capital Fund

12 2017 CliftonLarsonAllen LLP 2. Public Housing and Capital Fund Key Metrics Number of units leased (heads in beds) Managing operating costs (manage by the budget)

Collecting rent Identifying tenant fraud Managing unit turnarounds (the quicker the better) Each AMP or Project is scored individually by HUD Monitoring your PHAS score WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 13 PHAS stands for Public Housing Assessment Scoring PHAS, is the system that HUD uses to assess a PHAs performance in managing its low-rent public housing programs. Each individual public housing project is assessed to determine the PHAs overall performance based of the following four indicators and associated point values.

2017 CliftonLarsonAllen LLP What is a PHAS Score? We see the most point reduction in the Financial & Management subindicators. WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 14 After the score is calculated for each project under the Physical, Financial, and Management Indicators, a weighted average (by number of units) indicator score is calculated and summed with the Capital Fund Program Indicator score to determine the PHAs overall PHAS score and performance designation. The criteria for the performance designations are: High Performer, Standard, Substandard, Troubled, or Capital Fund Troubled.

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Performance Designation 15 Average of Average of Average of Average of PHAS Score FASS Score MASS Score PASS Score Average of Capital Fund Score High Performer

93.6 24.4 23.0 36.9 10.1 Small PHA Deregulation 89.6 23.2

22.3 35.7 10.3 Standard Performer 85.5 23.1 20.7 32.5

9.8 Substandard 71.8 16.5 14.1 33.0 8.5 Grand Total

89.0 23.1 21.6 35.3 10.0 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Where do PHAs lose points? 16

2017 CliftonLarsonAllen LLP Management Operations Sub-Indicator (MASS) There are three management operations sub-indicators used to assess the operations of the project. These sub-indicators are discussed below. 1. Occupancy Rate(AR) Max 16 Points: Emphasizes and measures projects performance in keeping available units occupied (Higher rate, higher score) 2. Tenant Accounts Receivable(TAR) Max 5 Points: Represents the amount of

tenant accounts receivable against tenant revenue (Lower ratio, higher score) 3. Accounts Payable(AP) Max 4 Points: Measures total vendor accounts payable, both current and past due against total monthly operating expenses (lower ratio, higher score) WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 17 2017 CliftonLarsonAllen LLP How to improve MASS Monthly monitoring of sub-indicators Increase number of occupied units/reduce vacancies

Shorten time for unit turn over Maintain updated waitlist Collect rents on time Enforce collection policies Pay vendors timely to reduce accounts payable WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 18 2017 CliftonLarsonAllen LLP Financial Condition Sub-Indicator (FASS) There are three financial condition sub-indicators used to assess the financial condition of a project. These sub-indicators are discussed below.

1. Quick Ratio (QR) Max 12 Points: A measure of liquidity; measures the PHAs ability to cover its current obligations. 2. Months Expendable Net Assets Ratio (MENAR) Max 11 Points: A measure of viability; measures the PHAs ability to operate using its net available unrestricted resources without relying on additional funding. 3. Debt Service Coverage Ratio (DSCR) Max 1 Points: A measure of a PHAs capability to meet its long-term obligations.

WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 19 2017 CliftonLarsonAllen LLP How to improve FASS Monthly monitoring of sub-indicators by AMP Use excess cash rules to adjust for a poor performing AMP where applicable Verify accurate placement of activity on FDS Cash unrestricted vs restricted vs restricted for liability Review liabilities in detail to determine current vs non current obligations Pay off liabilities before year end

Settle interfund payables before year end Increase cash flow, by enforcing rent collection, and reducing operating cost WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 20 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Other Score Adjustments 21 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

2017 CliftonLarsonAllen LLP 3. Central Office Cost Center (COCC) 22 2017 CliftonLarsonAllen LLP WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 23 2017 CliftonLarsonAllen LLP 3. Central Office Cost Center (COCC) So what went wrong? HUD OIG determined HUD did not do enough to justify the

management fees and costs been charged by the COCC Also stated COCC ARE federal funds (previously these were considered by most to be de-federalized) Still many things to be resolved WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 24 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP 4. Business Activities 25

2017 CliftonLarsonAllen LLP 4. Business Activities Key Metrics Are your PHAs business activities making earning a surplus? Are the risks worth the investment? What other opportunities exist that you are not taking advantage of? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 26 2017 CliftonLarsonAllen LLP 4. Business Activities

Maximize non-federal sources of income Opportunity to do more creative deals, retain good talent, provide beneficial services to tenants Ideas for generating income No organization is better suited to provide affordable housing than you Team up with the City and County to run their housing related programs (i.e. HOME, CDBG, Affordable Properties) Taking over mature LIHTC properties or multifamily properties that owners no longer want WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 27

Mixed Finance and Development You cant afford to not ask these questions! 2017 CliftonLarsonAllen LLP 28 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Audience Poll 29 2017 CliftonLarsonAllen LLP

Questions you should be asking for mixed finance projects: How much is the management or developer fee? How much will the consultants cost? When will the management or developer fee be paid? If we make a loan in a mixed finance deal, do we know the likelihood we will ever be paid? Are we ok if we never get paid? Do we get the property at a later date? Do we get to manage the property? What are the risks or what can go wrong? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 30

Understanding PHA Financial Statements The Numbers Just Tell a Story 2017 CliftonLarsonAllen LLP 31 2017 CliftonLarsonAllen LLP Top 5 Uses for Your PHAs Financial Statements 5. A cure for insomnia 4. To look really important while hanging out at Starbucks 3. Starting a bonfire 2. Punishing your kids by telling them you will read every

page of the financials until they clean up their room 1. TO UNDERSTAND YOUR AUTHORITYS FINANCIAL HEALTH! WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 32 WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 2017 CliftonLarsonAllen LLP Audience Poll 33

2017 CliftonLarsonAllen LLP Whats in a financial statement? Management Discussion and Analysis Statement of Net Position (aka Balance Sheet) Statement of Changes in Revenues, Expenses and Net Position (aka Income Statement) Statement of Cash flows Notes to the Financial Statements Financial Data Schedule Auditor Reports Schedule of Expenditures and Federal Awards (SEFA) Schedule of Findings and Questioned Cost WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 34

2017 CliftonLarsonAllen LLP Management Discussion and Analysis (MD&A) Provides a comparative analysis of the Authoritys health (current year vs. prior year) Provides summarized financial information Provides an opportunity for management to formally discuss the Authoritys operations If you only have time to read one section, this is a must read! WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 35 2017 CliftonLarsonAllen LLP

The Statements Statement of Net Position Provides as snapshot as of the end of year regarding the health of the Authority (e.g December 31 or June 30) How are we doing as of the end of the year? Statement of Changes in Revenues, Expenses and Net Position Provides a measure of health over the course of the previous year (e.g. January 1 through December 31) How did we do last year? Statement of Cash Flows Show sources and uses of cash over the course of the year Why did our cash increase/decrease this past year? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

36 2017 CliftonLarsonAllen LLP The Footnotes Footnotes tell the rest of the story Personal Favorites: Long-term debt

Notes Receivable Accounts receivable Subsequent events Concentration footnote Commitments and Contingencies Prior period adjustment Pension and Other Post Employment Benefits WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 37 2017 CliftonLarsonAllen LLP Financial Data Schedules (aka REAC) Forms prescribed by HUD Organized by Line of Business (programs and projects)

Standardizes HUDs ability to analyze PHAs to each other Same for every authority Used in HUD scoring Compared to other HUD systems to ensure data is consistent WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 38 2017 CliftonLarsonAllen LLP Auditor Reports Independent Auditors Report 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 Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance and Schedule of Expenditures of Federal Awards in Accordance with Uniform Grant Guidance WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 39 2017 CliftonLarsonAllen LLP SEFA and Findings SEFA Provides a list of federal expenditures/awards

Schedule of Findings and Questioned Costs Shows the Authoritys Compliance with Federal Programs Provides a listing of programs audited by the auditors for compliance Identifies issues noted during the compliance testing and internal controls of financial reporting WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 40 Call to Action How can I make my Authority financially more healthy? 2017 CliftonLarsonAllen LLP

41 2017 CliftonLarsonAllen LLP Next Steps Know your Authoritys programs Identify the key metrics important to the success of your authority Monitor the metrics Ask the tough questions Engage with your auditors WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 42 2017 CliftonLarsonAllen LLP

Address Significant Risks What risks exist at your Authority? Financial Stability Is the Authority threatened by decreased funding? Is there excessive pressure on management to perform? Is management compensation dependent on performance? Are there related party transactions? Adequate segregation of duties? WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 43 2017 CliftonLarsonAllen LLP

Monthly Board Financial Reports Insist on timely and relevant financial information Most authorities will need 30 days to close out the financial statements, some will be less Balance Sheet & Income Statement Recommend year over year comparison and budget to actual comparison Tenants Accounts Receivable Vacancy Reports Portability Reports WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING 44

2017 CliftonLarsonAllen LLP Questions? Lance Schmidt, CPA, CFE Principal 863-680-5634 [email protected] CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/CLAconnect

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