This is the report on the audit of financial statements of the Northern Mariana Housing Corporation (NMHC) in accordance with OMB Circular A-133 for the year ended September 30, 2010. Also included is the Report on Internal Controls and on Compliance for the year ended September 30, 2010. The audit was conducted by Deloitte & Touche LLC.

Financial Highlights

Management's Discussion and Analysis provided the following highlights:

• Total assets decreased by 2% from $19,407,494 in fiscal year 2009 to $19,081,197 in fiscal year 2010 mainly due to housing assistance payment (HAP) equity being utilized to fund the deficiency in revenues received from the grantor over actual HAP payments made for fiscal year 2009. In addition, all disaster vouchers from Typhoons Tingting and Chaba were converted to regular vouchers bringing the total to 363 voucher units that NMHC now administers and monitors for compliance.
• Total liabilities slightly increased by 1% from $7,427,196 in fiscal year 2009 to $7,465,357 in fiscal year 2010 and total net assets decreased by 3% from $11,980,298 in fiscal year 2009 to $11,615,840 in fiscal year 2010.
• Net operating revenues decreased by 3% from $7,396,398 in fiscal year 2009 to $7,167,505 in fiscal year 2010. The decrease is primarily attributable to the decrease in CDBG grant revenues offset by the new HPRP and HOME grants in fiscal year 2010.
• Total operating expenses decreased by 6% from $8,559,197 in fiscal year 2009 to $8,051,102 in fiscal year 2010. The decrease is primarily attributable to decreases in repairs and maintenance, the provision for loan guaranty, travel, CDBG Program Grant and ESG Program Grant expenses.

Internal Control and Compliance

Major Federal Award Programs

The report on internal control and on compliance for the year ended September 30, 2010, disclosed that NMHC did not comply with requirements regarding eligibility, reporting and special tests and provisions that are applicable to its Lower Income Housing Assistance Program_Section 8 New Construction/Substantial Rehabilitation major program (CFDA 14.195), allowable costs/cost principles, equipment and real property management, period of availability of Federal funds and procurement and suspension and debarment that are applicable to its Community Development Block Grants/Special Purpose Grants/Insular Area major program (CFDA 14.225), eligibility, program income, reporting and special tests and provisions that are applicable to its HOME Investment Partnerships Program major program (CFDA 14.239) and allowable costs/cost principles, eligibility, reporting and special tests and provisions that are applicable to its Section 8 Housing Choice Vouchers major program (CFDA 14.871).

Financial Statements Findings

The report on internal control and on compliance disclosed the following financial statement findings, which  are required to be reported in accordance with Generally Accepted Government Auditing Standards (GAGAS):

• An analysis of NMHC’s past due loans was performed to determine the propriety of the allowance for doubtful loans as of September 30, 2010. This analysis revealed that loans, including interest, which are over one hundred twenty days past due amounted to $4,924,041 or 58.46% of total loans and interest outstanding of $8,422,357 as of September 30, 2010. An audit adjustment of $74,524 was proposed to increase the allowance for loans receivable as of September 30, 2010.
• As of September 30, 2010, NMHC has ten properties at an aggregate value of $9,650,313. NMHC did not obtain appraisals of its property in fiscal year 2010. In fiscal year 2008, an appraisal of one lot with a carrying value of $117,500 resulted in a $45,500 decrease in recorded value. The last appraisal of the remaining nine properties occurred during fiscal year 2003. Currently, the properties are not for sale and are recorded by NMHC based on the most recent appraisal values. In the event that the land will be marketed, NMHC will adjust to reflect the carrying amount or fair value, whichever is lower.
• NMHC has existing loan guarantee and purchase agreements with certain financial institutions. As of September 30, 2010, NMHC’s related loan guarantees amounted to $15,207,859. Of the total, approximately $6,293,327 is delinquent and past due. NMHC has received demand notices of $1,755,611. However, NMHC is unable to determine if an additional reserve should be established due to limited information provided by the institutions. NMHC is currently working with related institutions to obtain sufficient information to determine a better estimate of the reserve for loan guarantees.
• NMHC initially records all disbursements as a general expense. On a quarterly basis, NMHC allocates the expenses to various grant expense accounts through interfund transaction accounts. Tests of this process noted the following:
   
  • Personnel costs and travel expenses related to grant awards of $203,048 and $15,395, respectively, were not deducted from the general expense accounts.
  • The accounts payable general account included a debit balance of $125,921 as of September 30, 2010 resulting from improper allocation of grant expenses.

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