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HomeMy WebLinkAboutTSHA Audit 08-31-14TEXAS STUDENT HOUSING AUTHORITY FINANCIAL REPORT AUGUST 31, 2014 CONTENTS Page INDEPENDENT AUDITOR'S REPORT 1 MANAGEMENTS DISCUSSION AND ANALYSIS (unaudited) 4 FINANCIAL STATEMENTS Statement of Net Position 7 Statement of Revenues, Expenses, and Changes in Net Position 8 Statement of Cash Flows 9 Notes to Financial Statements 10 SUPPLEMENTAL INFORMATION Budgetary Comparison Schedule 14 weaver INDEPENDENT AUDITOR'S REPORT To the Board of Directors Texas Student Housing Authority Report on the Financial Statements We have audited the accompanying financial statements of Texas Student Housing Authority (the Authority), a component unit of Town of Westlake, as of and for the year ended August 31, 2014, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements The Authority's management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. AN INDEPENDENT WEAVER AND TIDWELL LLP DALLAS MEMBER OF BAKER TILLY CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 12221 MERIT DRIVE, SUITE 1400, DALLAS, TX 75251 INTERNATIONAL WWW.WEAVERLLP.COM P:(972) 490 1970 F:(972) 702 8321 Texas Student Housing Authority Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of August 31, 2014, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 — 6 be presented to supplement the basic financial statements. Such information, 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 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. Emphasis of Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that the Authority will continue as a going concern. As discussed in Note 7 to the financial statements, each of the four projects operated by the Authority are in default on its bonds, which gives the projects' bondholders the right to accelerate and demand payment on the bonds in full. Because a significant portion of the Authority's revenue is dependent on the projects, this condition raises substantial doubt about the Authority's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 7. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Authority's basic financial statements. The Budgetary Comparison Schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements. Texas Student Housing Authority Page 3 The Budgetary Comparison Schedule 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. Such 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 Budgetary Comparison Schedule is fairly stated, in all material respects, in relation to the basic financial statements as a whole. c- .P WEAVER AND TIDWELL, L.L.P. Dallas, Texas February 5, 2015 MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited) TEXAS STUDENT HOUSING AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2014 (UNAUDITED) As staff of the Texas Student Housing Authority (the "Authority"), we offer the readers of the Authority's financial statements this narrative overview and analysis of the financial activities of the Authority for the fiscal year ended August 31, 2014. We encourage readers to consider the information presented herein in conjunction with the Authority's financial statements. The Authority is a component unit of the Town of Westlake and is considered a governmental entity; accordingly, the Authority has adopted Governmental Accounting Standards Board Statement 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments. The reader should note that this financial report addresses only the financial condition of the Authority itself. Properties managed by the Authority are reported individually by property under separate cover. FINANCIAL HIGHLIGHTS • The assets of the Authority exceeded its liabilities at the close of the fiscal year by $535,029, an increase of $129,755 over the prior fiscal year. All of the assets and liabilities of the Authority are classified as current. • At the end of the current fiscal year, the total cash balances were $552,388, an increase of $102,668 over the prior fiscal year. • All revenues are generated from management of the properties and scholarship activity of the Authority and totaled $421,262. Total expenses incurred were $292,320. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Authority's basic financial statements. The Authority's report consists of three parts, Management's Discussion and Analysis, the basic financial statements, and notes to financial statements. The basic financial statements include a statement of net position, statement of revenues, expenses and changes in net position, and a statement of cash flows. The statement of net position presents information on the Authority's assets and liabilities with the difference between the two reported as net position. The statement of revenues, expenses and changes in net position accounts for all of the Authority's revenues and expenses regardless of when cash is paid or received. The statement of cash flows reflects cash inflows and outflows by operating, noncapital financing, capital financing, and investing activities during the year. 4 TEXAS STUDENT HOUSING AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2014 (UNAUDITED) The statement of net position presents information on all of the Authority's assets and liabilities with the difference between the two reported as net positon. Table 1 provides a summary of the statement of net position for the current and prior fiscal years: TABLE 1 — NET POSITION Current and other assets Business -type Activities 2014 2013 $ 576,106 $ 450,693 Total assets 576,106 450,693 Other liabilities 41,077 45,419 Total liabilities 41,077 45,419 Net Position Unrestricted 535,029 405,274 Total net position $ 535,029 $ 405,274 The statement of revenues, expenses and changes in net position accounts for all of the Authority's revenues and expenses regardless of when cash is paid or received. Table 2 provides a summary of the statement for the current and prior fiscal years: TABLE 2 — CHANGE IN NET POSITION Business -type Activities 2014 2013 Total operating revenue $ 421,262 $ 819,070 Total operating expenses (292,320) (701,013) Total operating income 128,942 118,057 Interest income 813 Total nonoperating income 813 CHANGE IN NET POSITION 129,755 NET POSITION, BEGINNING 311 311 118,368 405,274 286,906 NET POSITION, ENDING $ 535,029 $ 405,274 5 TEXAS STUDENT HOUSING AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2014 (UNAUDITED) NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET It is anticipated that fiscal year 2014/2015 will end with less income to the Authority as we have Tess scholarships at our facilities in Austin, Texas. CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT This financial report is designed to provide the reader with a general overview of the Authority's finances and to demonstrate the Authority's accountability for the money it receives. If you have any questions about this report, or need additional information, please contact Pete Ehrenberg at (817) 490-5723. 6 FINANCIAL STATEMENTS TEXAS STUDENT HOUSING AUTHORITY STATEMENT OF NET POSITION AUGUST 31, 2014 ASSETS Cash $ 552,388 Accounts receivable 23,718 Total Assets 576,106 LIABILITIES Accrued liabilities 570 Unearned revenue 40,507 Total Liabilities 41,077 NET POSITION Unrestricted 535,029 Total net position The Notes to Financial Statements are an integral part of this statement. 7 $ 535,029 TEXAS STUDENT HOUSING AUTHORITY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED AUGUST 31, 2014 OPERATING REVENUES Basic property administration $ 220,643 Scholarship administration 200,619 Total operating revenue 421,262 OPERATING EXPENSES Scholarship expense 131,500 Labor expenses 34,563 Professional fees 6,350 Office expense and other 119,907 Total operating expenses OPERATING INCOME NON-OPERATING REVENUE Interest income 292,320 128,942 813 TOTAL NON-OPERATING REVENUE 813 CHANGE IN NET POSITION 129,755 NET POSITION, BEGINNING 405,274 NET POSITION, ENDING $ 535,029 The Notes to Financial Statements are an integral part of this statement. 8 TEXAS STUDENT HOUSING AUTHORITY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from scholarships and scholarship properties $ 399,196 Cash paid for contract services (6,350) Cash paid to others (290,991) Net cash provided by operating activities 101,855 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 813 Net cash provided by investing activities 813 Net change in cash and cash equivalents 102,668 CASH AND CASH EQUIVALENTS, BEGINNING 449,720 CASH AND CASH EQUIVALENTS, ENDING $ 552,388 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 128,942 Adjustments to reconcile operating income to net cash provided by operating activities: Accounts receivable (22,745) Accounts payable (5,021) Unearned revenue 679 Net cash provided by operating activities The Notes to Financial Statements are an integral part of this statement. 9 $ 101,855 TEXAS STUDENT HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS NOTE 1. GENERAL STATEMENT Texas Student Housing Authority (the Authority), a higher education authority, was established on January 23, 1995, as a duly constituted authority of the Town of Westlake (the Town), Texas, pursuant to Section 53.11 of Chapter 53 of the Texas Education Code, as amended. The Authority's purpose among other things is to acquire, finance, and operate student housing facilities and to provide scholarships to students from high schools and community colleges in Texas. The Authority operates several student housing projects in Texas. The accompanying financial statements do not present the projects, but the scholarship administration of the Authority. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Authority's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Reporting Entity For financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in GASB Statement No. 14 as amended by GASB statements No. 39 and 61. The criteria used are as follows: Financial Accountability - The primary government is deemed to be financially accountable if it appoints a voting majority of the organization's governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. Additionally, the primary government may be financially accountable if an organization is fiscally dependent on the primary government regardless of whether the organization has a separately elected governing board appointed by a higher level of government or a jointly appointed board. Accordingly, the Authority reports no component units. Measurement Focus and Basis of Accounting Measurement focus refers to what is being measured; basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. The Authority uses the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus means all assets and liabilities (whether current or non current) are included on the statement of net position and the operating statement presents increases (revenues) and decreases (expenses) in net position. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recognized at the time the liability is incurred. 10 TEXAS STUDENT HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED Measurement Focus and Basis of Accounting — Continued The Governmental Accounting Standards Board (GASB) is the accepted standards setting body for establishing governmental accounting and financial reporting principles (GAAP). Management uses estimates and assumptions in preparing financial statements in accordance with GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that are used. Income Taxes The Authority is an instrumentality of the Town and, therefore, its income is not subject to federal income taxation pursuant to Section 115 of the Internal Revenue Code. Cash and Cash Equivalents The Authority considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. At August 31, 2014, the Authority had no such investments included in cash and cash equivalents. Accounts Receivable Accounts receivable are stated at amounts management expects to collect from outstanding balances. At year end, management assesses the accounts receivable balance and establishes a valuation allowance based on historical experience and an evaluation of the outstanding balances. As of August 31, 2014, management has determined that all accounts doubtful of collection have been charged to operations and an allowance is not required. Capital Assets Texas Student Housing Authority utilizes space within the Town of Westlake offices and does not have capital assets at this time. Subsequent Events The Authority has evaluated all events or transactions that occurred after August 31, 2014, and up through February 5, 2015, the date the financial statements were issued. NOTE 3. CASH AND INVESTMENTS The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies relating to a governmental entity's cash and investments. 11 TEXAS STUDENT HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS NOTE 3. CASH AND INVESTMENTS — CONTINUED Disclosure Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an instrument. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. The Authority is not significantly exposed to interest rate risk as all investments earn a variable rate. Disclosure Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Public Funds Investment act has a minimum rating that is required for investments. The Authority holds all of its cash and investments with commercial banks in liquid investments. Concentration of Credit Risk Texas Student Housing Authority holds no investments at August 31, 2014 and is not exposed to concentration of credit risk. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government entity will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Public Funds Investment Act does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The Public Funds Investment Act requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least the bank balances less FDIC insurance at all times. As of August 31, 2014, the Authority's cash balances totaled $552,388 (bank balance of $550,813). Of the bank balance, $250,000 was covered by federal depository insurance while the remaining amount was collateralized by a Bank Deposit Guarantee Bond from the Authority's depository in the amount of $300,813. 12 TEXAS STUDENT HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS NOTE 4. NET POSITION Net position represents the residual assets after liabilities are deducted. Net position is reported as follows. Unrestricted Net Position — consists of the residual portion of net position after net investment in capital assets and restricted net position have been satisfied. At August 31, 2014, the Authority had no restricted net position or capital assets. AN net position, therefore, is considered to be unrestricted. NOTE 5. CONCENTRATIONS The Authority services scholarships for Texas students attending Texas higher education facilities and is dependent upon the geographic areas and the higher education facilities in Texas. NOTE 6. RELATED PARTY TRANSACTIONS The Town of Westlake usually charges an oversight fee to the Authority; however, the Town did not charge a fee in fiscal year 2014. In addition, the Town did not charge rent for the Authority's office space, which is maintained within the Town Hall. During fiscal year 2014, the Authority also received revenues of $220,643 related to its oversight of the various properties. NOTE 7. GOING CONCERN The 2014 financial statements were prepared assuming the Authority will continue as a going concern. Each of the four student housing projects operated by the Authority are in default on its bonds, which gives the projects' bondholders the right to accelerate and demand payment on the bonds in full. Because a significant portion of the Authority's revenue is dependent on the projects, this condition raises substantial doubt about the Authority's ability to continue as a going concern. Management and the project property managers are in the process of developing and implementing plans to increase occupancy and rental rates at the properties to help improve the projects' financial performance. 13 SUPPLEMENTAL INFORMATION TEXAS STUDENT HOUSING AUTHORITY BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED AUGUST 31, 2014 Revenues: Basic property administration Scholarship value Scholarship administration Interest income Total revenues Expenses: Scholarship Scholarship expense Labor expenses Professional fees Office expense and other Total expenses Change in net position Net position - beginning Net position - ending Original and Final Budgeted amounts $ 217,140 475,300 229,690 922,130 475,300 149,600 140,220 7,000 119,600 891,720 30,410 405,274 Actual Variance with Final Budget Positive (Negative) $ 220,643 $ 3,503 (475, 300) 200,619 (29,071) 813 813 422,075 131,500 34,563 6,350 119,907 292,320 129,755 405,274 (500,055) 475,300 18,100 105,657 650 (307) 599,400 99,345 $ 435,684 $ 535,029 $ 99,345 14