HOUSING AUTHORITY OF THE CITY OF STERLING, COLORADO

Condition During our audit, we noted that the Authority has not yet implemented formal procedures for monitoring and investing available cash balances. Substantial funds continue to be maintained in non-interest-bearing accounts. Total cash and investment balances at year-end amounted to approximately $2,494,505, consisting of $2,367,938 held in bank deposits and $126,267 in investments. Of this total, $379,415 represented restricted cash not available for investment, leaving approximately $1.99 million in unrestricted cash balances held primarily in bank deposits. In addition, the Authority had an operating subsidy receivable of $331,592 at year-end, indicating that a significant portion of available HUD funds had not yet been drawn. The Authority made only two operating-subsidy drawdowns during the year rather than performing monthly draws as required by HUD. Criteria Governmental entities should ensure that available cash balances are prudently invested in accordance with approved policies and applicable regulations to maximize earnings while maintaining safety and liquidity. Operating subsidies should also be drawn down as expenses are incurred to comply with HUD cash-management requirements. Effect Maintaining significant cash balances in non-interest-bearing accounts results in lost investment opportunities and reduced interest income. Infrequent drawdowns may also result in inefficient cash-flow management and noncompliance with HUD requirements for timely use of program funds. During the fiscal year, the Authority earned total interest income of approximately $13,326, of which approximately $5,937 was derived from investments yielding an average rate of return of approximately 4.82 percent, based on average investment balances. To estimate the potential earnings had available funds been properly invested, we assumed that approximately $1.99 million of unrestricted cash balances, less $200,000 retained in checking accounts for operating needs ($100,000 for Public Housing and $100,000 for MacLaren), were invested in an account earning a comparable 4.82 percent rate of return. Based on this assumption, projected interest income would have been approximately $86,300, representing an increase of about $73,000 over actual earnings. Even under a conservative 3 percent rate of return, projected interest income would have been approximately $53,700, or about $40,400 higher than actual earnings. This analysis demonstrates the continued opportunity cost associated with maintaining large cash balances in non-interest-bearing accounts. Cause The Authority did not have effective cash management and investment procedures in place. Recommendation The Authority should establish separate cash management and investment procedures. The Authority should advance funds as they are obligated from HUD, which would generally require operating subsidy being advanced on a monthly basis.

Condition During our audit, we noted that the Authority has not yet implemented formal procedures for monitoring and investing available cash balances. Substantial funds continue to be maintained in non-interestbearing accounts. Total cash and investment balances at year-end amounted to approximately $2,554,904, consisting of $2,434,274 held in bank deposits and $120,330 in investments. Of this total, $361,135 represented restricted cash not available for investment, leaving approximately $2.07 million in unrestricted cash balances held primarily in bank deposits. In addition, the Authority had an operating subsidy receivable of $149,309 at year-end, indicating that a significant portion of available HUD funds had not yet been drawn. The Authority made only two operating-subsidy drawdowns during the year rather than performing monthly draws as required by HUD. Criteria Governmental entities should ensure that available cash balances are prudently invested in accordance with approved policies and applicable regulations to maximize earnings while maintaining safety and liquidity. Operating subsidies should also be drawn down as expenses are incurred to comply with HUD cash-management requirements. Effect Maintaining significant cash balances in non-interest-bearing accounts results in lost investment opportunities and reduced interest income. Infrequent drawdowns may also result in inefficient cashflow management and noncompliance with HUD requirements for timely use of program funds. The Authority earned total interest income of approximately $18,472 during the fiscal year, of which $5,982.69 was from investments yielding an average rate of return of about 5.10 percent. To estimate the potential earnings had available funds been properly invested, we assumed that unrestricted cash balances, less $200,000 retained in checking accounts for operating needs ($100,000 for Public Housing and $100,000 for MacLaren), were invested in an account earning a similar 5.10 percent return. Based on this assumption, projected interest income would have been approximately $93,665, an increase of about $75,000 over actual earnings. Even under a conservative 3 percent rate of return, projected interest income would be about $55,000, or nearly $36,000 higher. This analysis demonstrates the continued opportunity cost of maintaining large balances in non-interest-bearing accounts. Cause The Authority did not have effective cash management and investment procedures in place. Recommendation The Authority should establish separate cash management and investment procedures. The Authority should advance funds as they are obligated from HUD, which would generally require operating subsidy being advanced on a monthly basis.