Commonwealth Development Authority expenses exceeded revenues by $891,000 in FY05, according to an independent financial audit conducted by Deloitte. Revenues increased $12.0 mil from $10.5 mil in the previous year, while expenses remained flat at $12.9 mil. Among its expense items, CDA charged $1.5 mil to “bad debts” in FY 2005. This charge increases CDA’s total allowance for doubtful accounts to $86.5 mil. Of $118.1 mil in loans and interest receivable at September 30, 2005, only $31.6 mil is considered collectible based on loan quality, loss experience and other economic factors.

 Financial Highlights

• On a combined basis, total CDA operating revenues increased from $10.5 million in FY 2004 to $12.0 million in FY 2005. Significant increases in the HOME Investment Partnership Program and Community Block Development Grants (CBDG) contributed the bulk of the overall revenue increase. These grants totaled $3.3 million in FY 2005, triple the $1.0 million received in the previous year. Offsetting these increases, however, were significantly lower revenues realized from loan interest and fees. This revenue item decreased by $791,000 between FY 2004 and 2005, from $5.2 million to $4.4 million. CDA management, acknowledging the continuing downward trend in loan performance and portfolio, noted in its Management Discussion and Analysis, that CDA’s potential
  loss on loans and accrued interest is the agency’s “biggest financial concern.”

• As expected, specified expense items related to the Home Investment Partnership Program and CBDG grants increased in FY 2005 with increases in grant activity and revenues. These grant expense items alone totaled $2.4 million in FY 2005, up $1.5 million from $0.9 million in FY 2004. Another major increase among expenses resulted from the recording of a $743,424 provision for foreclosed real estate; none was recorded in the previous year. This provision reflects the decrease in the original value of foreclosed properties, relative to current market value. Offsetting the increases in certain expense items in FY 2005 were decreases in other expenses, most notable of which was a $3.8 million decrease in provisions for doubtful accounts, dropping from $5.3 million to $1.5 million.

On a combined basis, total expenses (which includes interest expense and non operating items) and transfers out for capital development projects remained relatively flat at $12.9 million in FYs 2004 and 2005.

• CDA, as required by generally accepted accounting principles, records as an expense a provision for doubtful accounts (commonly referred to as a “bad debt” expense) when it believes that collection on loans is unlikely. In FY 2005, $1.5 million was charged to “bad debts” and of this amount, $1.3 million related to loans at the Development Corporation Division. Including the FY 2005 charge, CDA’s total allowance for doubtful accounts increased to $86.5 million as of September 30, 2005. Given CDA’s total loans and interest receivable of $118.1 million as of the FY 2005, CDA management estimates that only $31.6 million of its loan and interest receivables is collectible based on analyses of its loan portfolio quality, loan loss experience, and economic conditions that may affect the borrowers’ ability to pay.

In FY 2005 CDA implemented stringent policies in its loan servicing portfolio; namely, to actively pursue loans that are nonperforming while proceeding with litigation on those that are delinquent.

• On a combined basis, CDA’s expenses (inclusive of interest expense and other non-operating items) and transfers out for capital development projects, exceeded revenues by $891,000.

• Audit findings are reportable items considered material by the auditors. Findings document situations where established policy, procedures or standards have not been followed. Such deviations may lead to losses for the CNMI or misstatements in its financial reports. Findings, if they remain uncorrected, can ultimately lead to qualifications in the Opinion of the auditors. For FYs 2004 and 2005, there were four reported findings. Due to a finding relating to Federal Grants, $13,406 has been reported as questioned costs for FY 2004 which remained unresolved in FY 2005.

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Download/view CDA Audited Financial Statements FY 2005

Download/view CDA Internal Controls & Compliance FY 2005