Oklahoma Credit Enhancement Reserve Fund

              OKLAHOMA CREDIT
ENHANCEMENT
RESERVE FUND
June 30, 2003
OKLAHOMA CREDIT ENHANCEMENT
RESERVE FUND
June 30, 2003
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
June 30, 2003
Management's Discussion and Analysis i
Audited Financial Statements
Independent Auditors' Report 1
Statement of Net Assets 2
Statement of Revenues, Expenses and Changes in Net Assets 3
Statement of Cash Flows 4
Notes to Financial Statements 5
Independent Auditors' Report on Compliance and on
Internal Control Over Financial Reporting Based on an
Audit of Financial Statements Performed in Accordance
With Government Auditing Standards 8
Management's Discussion and Analysis
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
This section of the Oklahoma Credit Enhancement Reserve Fund's (the "Fund's") annual financial report
presents a discussion and analysis of its financial performance for the year ended June 30, 2003. Please
read it in conjunction with the financial statements which follow this section. The following table
summarizes the financial position and results of operations of the Fund:
2003 2002 Assets:
Current assets $ 572,219 $ 475,812
Total Assets 572,219 475,812
Liabilities:
Current liabilities 36,814 40,349
Long-term liabilities 315,292 344,452
Total Liabilities 352,106 384,801
Net Assets:
Unrestricted 220,113 91,011
Total Net Assets $ 220.113 $ 91.011
Operating Revenues:
Insurance premiums $ 135,104 $ 113,572
Interest income 3,508 6,401
Other 5,000 5,000
Total Operating Revenues 143,612 124,973
Operating Expenses 14,510 20,935
Total Operating Expenses 14,510 20,935
Change in net assets 129,102 104,038
Total net assets (deficit), beginning of the year 91,01l (13,027)
Total net assets, end of the year $ 220.113 $ 91.011
Management's Discussion and Analysis--Continued
THE OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
OVERVIEW OF THE FINANCIAL STATEMENTS
The three financial statements presented within the financial statements are as follows:
• Statement of Net Assets - This statement presents information reflecting the Fund's assets, liabilities
and net assets. Net assets represent the amount of total assets less total liabilities. The statement of
net assets is categorized as to current and non-current assets and liabilities. For purposes of the
financial statements, current assets and liabilities are those assets and liabilities with immediate
liquidity or which are collectible or becoming due within 12 months ofthe statement date.
• Statement of Revenues, Expenses and Changes in Net Assets - This statement reflects the operating
revenues and expenses, as well as non-operating revenues and expenses during the operating year.
Major sources of operating revenues are insurance premium income with major sources of operating
expenses being personnel and administrative expense. The change in net assets for an enterprise fund
is similar to net profit or loss for any other business enterprise.
• Statement of Cash Flows - The statement of cash flows is presented on the direct method of reporting
which reflects cash flows from operating, financial and investing activities. Cash collections and
payments are reflected in this statement to arrive at the net increase or decrease in cash for the
calendar year.
FINANCIAL HIGHLIGHTS
• The Fund's total assets for the year ended June 30, 2003, increased in comparison to the previous
year. Total assets during 2003 increased approximately $96,000, primarily due to increase in cash
and cash equivalents. Cash and cash equivalents increased due to more insurance premiums and
other receipts received than cash paid for operating expenses.
Total liabilities decreased during 2003 by approximately $33,000. This was primarily due to the
reduction of unearned revenues.
The operating revenues increased approximately $ I9,000 during 2003. Insurance premiums increased
approximately $22,000 and interest income decreased by approximately $3,000 during 2003.
Total operating expenses decreased approximately $6,000 during 2003 due to less administrative
expenses incurred during the current year compared to the prior year.
Total net assets increased by approximately $129,000 between July 1,2002 and June 30, 2003.
•
•
•
•
CONTACTING THE AUTHORITY'S MANAGEMENT
This financial report is designed to provide our bondholders, patrons and other interested parties with a
general overview of the Fund's finances and to demonstrate the Fund's accountability for its finances. If
you have questions about this report or need additional financial information, contact:
James G. Fulmer, President
The Oklahoma Development Finance Authority
Administrator of The Oklahoma Credit Enhancement Reserve Fund
5900 N. Classen Court
Oklahoma City, Oklahoma 731 18
Telephone: 405-842-1145
11
Cole & Reed, P.C.
~~f98~~
531 Couch Drive, SUite 200
Oklahoma City, OK 73102-2251
(405) 239-7961
FAX (405) 235-0042
Independent Auditors' Report
The Board of Directors
The Oklahoma Credit Enhancement Reserve Fund
We have audited the statement of net assets of Oklahoma Credit Enhancement Reserve Fund (the
"Fund"), a component unit of the Oklahoma Development Finance Authority, as of June 30, 2003, and
the related statements of revenues, expenses and changes in net assets and cash flows for the year then
ended. These financial statements are the responsibility of the Fund's management. Our responsibility is
to express an opinion on the Fund's financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Fund as of June 30, 2003, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted in the United States.
Management's Discussion and Analysis is not a required part of the basic financial statements but is
supplementary information required by the Governmental Accounting Standards Board. We have applied
certain limited procedures, which consisted principally of inquiries of management regarding the methods
of measurements and presentation of the supplementary information. However, we did not audit the
information and express no opinion on it.
In accordance with Government Auditing Standards, we have also issued our report dated September 8,
2003, on our consideration of the Fund's internal control over financial reporting and our tests of its
compliance with certain provisions of laws and regulations. That report is an integral part of an audit
performed in accordance with Government Auditing Standards and should be read in conjunction with
this report in considering the results of our audit.
Oklahoma City, Oklahoma
September 8, 2003
STATEMENT OF NET ASSETS
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
June 30, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Interest receivable
Insurance premiums receivable
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Deferred revenue
TOTAL CURRENT LIABILITIES
LONG- TERM LIABILITIES
Deferred revenue
Reserve for losses
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
NET ASSETS
Unrestricted
See accompanying notes to financial statements.
2
$ 562,979
207
9,033
572,219
572,219
3,000
33,814
36,814
263,918
51,374
315,292
352,106
$ 220,113
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
For the Year Ended June 30, 2003
OPERA TING REVENUES
Insurance premiums
Investment income
Other
OPERA TING EXPENSES
Professional services
Administrative
CHANGE IN NET ASSETS
NET ASSETS AT BEGINNING OF YEAR
NET ASSETS AT END OF YEAR
See accompanying notes to financial statements.
TOTAL OPERATING REVENUES
TOTAL OPERATING EXPENSES
OPERA TING INCOME
3
$ 135,104
3,508
5,000
143,612
11,010
3,500
14,510
129,102
129,102
91,011
$ 220,113
STATEMENT OF CASH FLOWS
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
For the Year Ended June 30, 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received for insurance premiums
Cash paid to suppliers and employees
Interest income received
Other receipts
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Operating income
CHANGE IN ASSETS AND LIABILITIES
Decrease in fees receivable and other current assets
Decrease in interest receivable
Increase in accounts payable
Decrease in deferred revenue and reserve for losses
NET CASH PROVIDED BY OPERATING ACTIVITIES
See accompanying notes to financial statements. .
4
$ 103,627
(I 1,932)
3,703
5,000
100,398
462,581
$ 462,581
$ 129,102
$
3,796
195
2,578
(35,273)
100,398
NOTES TO FINANCIAL STATEMENTS
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
June 30, 2003
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Credit Enhancement Reserve Fund: Under Oklahoma statutes, the Credit Enhancement Reserve Fund Act
(the "Act") created the Oklahoma Credit Enhancement Reserve Fund (the "Fund") to be managed,
administered, and utilized by the Oklahoma Development Finance Authority (the "Authority") solely to
secure the payment of interest, principal, and premium, if any, on revenue bonds and other financial
obligations issued by the Authority for the specific purpose of enhancing and supporting the credit of
such obligations.
In addition, the Act authorizes the Fund to issue bonds which are the direct and general obligations of the
state of Oklahoma (the "State") (to which the full faith and credit of the State is pledged) in a total
principal amount not to exceed $100,000,000 for the purpose of generating monies to be deposited to the
Fund.
Method of Reporting in the Authority's Financial Statements: The Fund is a component unit of the
Authority and is included in the Authority's financial reporting entity. The financial activity of the Fund
is discretely presented in the Authority's financial statements.
Basis of Accounting: The operations of the Fund are accounted for as an enterprise fund on an accrual
basis in order to recognize the flow of economic resources. Under this basis, revenues are recognized in
the period in which they are earned, and expenses are recognized in the period in which they are incurred.
Balances classified as operating revenues and expenses are those which comprise the Fund's principal
ongoing operations. Since the Fund's operations consist of insuring lending activities, most revenues and
expenses are considered operating.
Principles of Presentation: The Fund has prepared its financial statements in accordance with accounting
principles generally accepted in the United States. The Fund has implemented Governmental Accounting
Standards Board ("GASB") Statement No. 34, Basic Financial Statements - and Management's
Discussion and Analysis - for State and Local Governments ("Statement 34"). With the implementation
of Statement 34, the Fund has prepared required supplementary information titled "Management's
Discussion and Analysis" which precedes the financial statements, has prepared a statement of net assets
classified between current and noncurrent assets and liabilities, has categorized changes in revenues and
expenses as changes in net assets (liabilities), and has prepared cash flows using the direct method.
5
NOTES TO FINANCIAL STATEMENTS--Continued
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
June 30, 2003
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Principles of Presentation--Continued: GASB is the accepted standard-setting body for establishing
governmental accounting and financial reporting principles. The Fund applies Financial Accounting
Standards Board pronouncements and Accounting Principles Board opinions issued on or before
November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, in
which case GASB prevails.
Accounting principles generally accepted in the United States require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Fund, for purposes of reporting cash flows, considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents.
Insurance Premiums: Insurance premiums include billed amounts for insurance premiums at year-end.
Insurance premiums are accrued based on the annual fee as stipulated in the bond indenture.
Deferred Revenue: On certain debt financing which the Fund is guaranteeing, the Fund has received all
of its insurance premiums in advance. These premiums are deferred and recognized as revenue over the
life of the various debt obligations on a straight-line basis.
Reserve for Losses: The reserve for losses is an estimate based on management's evaluation of the loan
portfolio (those obligations guaranteed by the Fund) giving consideration to general economic conditions,
the nature and volume of the loan portfolio, and the historic loan loss experience of the Fund. It is
maintained at a level that management considers adequate to absorb potential losses in the loan portfolio.
Income Taxes: The Fund, as an integral part ofthe State, is exempt from federal and state income taxes.
NOTE B--DEPOSITS
At June 30, 2003, the carrying amount and bank balance of the Fund's cash deposits was $562,979. All
bank balances were covered by Federal Deposit Insurance or collateralized with securities held by the
Fund's agent in the Fund's name.
6
NOTES TO FINANCIAL STATEMENTS--Continued
OKLAHOMA CREDIT ENHANCEMENT RESERVE FUND
June 30,2003
NOTE C--RESERVE FOR LOSSES
As of June 30, 2003, approximately $32 million of outstanding financial obligations was insured by the
Fund. The Fund has accrued a reserve for losses of approximately $51,000 as of June 30, 2003, to cover
potential losses from the outstanding financial obligations insured by the Fund. Through June 30, 2003,
there have been no Oklahoma Credit Enhancement Reserve Fund General Obligation Bonds issued since
it is the intention of the Authority to utilize existing assets to meet obligations arising from losses
reserved by the Fund at June 30, 2003.
7
Cole & Reed, P.c.
Cf?~!!?~~
Independent Auditors' Report on Compliance and on Internal Control
Over Financial Reporting Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards
531 Couch Drive, Suite 200
Oklahoma City, OK 73102-2251
(405) 239-7961
FAX (405) 235-0042
The Board of Directors
The Oklahoma Credit Enhancement Reserve Fund
We have audited the financial statements of the Oklahoma Credit Enhancement Reserve Fund (the
"Fund") as of and for the year ended June 30, 2003, and have issued our report thereon dated September
8,2003. We conducted our audit in accordance with auditing standards generally accepted in the United
States and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States.
Compliance
As part of obtaining reasonable assurance about whether the Fund's financial statements are free of
material misstatements, we performed tests of its compliance with certain provisions of laws and
regulations, noncompliance with which could have a direct and material effect on the determination of
financial statement amounts. 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 that are required to be reported under Government Auditing
Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Fund's internal control over financial reporting
in order to determine our auditing procedures for the purpose of expressing our opinion on the financial
statements and not to provide assurance on internal control over financial reporting. Our consideration of
internal control over financial reporting would not necessarily disclose all matters in internal control over
financial reporting that might be material weaknesses. A material weakness is a condition in which the
design or operation of one or more internal control components does not reduce to a relatively low level
the risk that misstatements in amounts that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving the internal control over financial
reporting and its operation that we consider to be material weaknesses.
This report is intended solely for the information and use of management and the Board of Directors and
is not intended to be and should not be used by anyone other than these specified parties.
Oklahoma City, Oklahoma
September 8, 2003
8
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