NCHILB Meeting Minutes Page

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Minutes of the

North Carolina Home Inspector Licensure Board

March 13, 2015

The regular quarterly meeting of the North Carolina Home Inspector Licensure Board (HILB)

was held at 9:00 am, Friday, March 13, 2015 in Raleigh, North Carolina. [note: the January

regular meeting of the Board was rescheduled to be held February 27, 2015 in Asheville,

concurrent with the NCLHIA annual conference. The February meeting was then cancelled due

to a snow storm advisory and rescheduled for March 13, 2015]

The following members of the North Carolina Licensure Board were present:

Fred Herndon Tony Jarrett Arthur Hall Harold Upton

Marion Peeples Chris Noles Waverly Sawyer Joe Ramsey

Department of Insurance staff members Mike Hejduk, Jennifer Hollyfield, Phil Joyner, and Terri

Tart, were in attendance. Also in attendance from the Department of Insurance, Qualification

Assurance Section, were Kathy Williams and Rodney Daughtry, Customer Service

Representative. Board Attorney Denise Stanford was in attendance. Attorney Dan Johnson, NC

DOJ attended a portion of the meeting as noted in the minutes.

Chairman Herndon welcomed the following visitors: Eric Coates, President of the North

Carolina Licensed Home Inspector Association (NCLHIA), Jim Lovell with LBA Haynes

Strand, PLLC, auditor and Wilson Fausel.

Moment of Silence

Chairman Fred Herndon requested and observed a moment of silence for the loss of Richard

Pontello (Education Sponsor and Home Inspector) and Don Houser (Instructor at Wake Tech and

Home Inspector)

Agenda

Chairman Herndon presided over the meeting. After welcoming the visitors in attendance he

turned the meeting over to Vice-Chair Tony Jarrett to remind all board members of the State

Government Ethics Act provisions to avoid conflicts of interest, the appearance of conflicts of

interest, and the potential for conflicts of interest. Jarrett reminded members of the Board who

are licensed home inspectors that they have the potential for a conflict of interest because they

serve on the Board that licenses them.

Approval of October 10, 2014 Minutes

Marion Peeples made a motion to approve the minutes as written. Tony Jarrett seconded the

motion. The minutes were approved by voice vote unanimously.

Staff Reports-Director

Director Hejduk reported on the current fiscal year and Board priorities and deferred to

subsequent reports by the appropriate committees for status. Hejduk stated the Board priorities

included the need to take action on the Board-developed update course for 2015. Hejduk stated

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that exam development and administration is another area we will have work to do in the coming

year. Hejduk stated the New Licensee Report Audits are behind.

Hejduk stated that the Active HI chart [see below] showed more licensees expired (or elected not

to renew) September 30, 2014 than September 30, 2013.

Hejduk stated this may affect our projections for how many licensees and revenues we will be

able to count on in the next fiscal year. Hejduk stated that he had gotten some emails from

inspectors stating that they were retiring. The Pre-licensing Program is contributing to the

increasing number of new licensees. Hejduk stated that Terri Tart would report the numbers of

people taking the exam.

Hejduk reviewed the Action Item List and stated that the Military Service member item is

included in the Application Evaluation Committee tab in the board member notebooks. The

Office of State Auditor’s Report did not find significant deficiencies with the NCHILB. Hejduk

stated the Board did not have an independent financial audit in prior years. Hejduk stated that

when the 93B annual report for oversight agencies due October 31st is submitted he will include

the draft audit report along with the BD701 budget document. The auditor completed the three

years FY 2011, 2012, and 2013. The auditor was waiting for the closeout of the year to report on

FY 2014. Hejduk asked Denise Stanford, board attorney, if she had heard from the Engineering

Board regarding previous correspondence. Stanford stated she has not received a reply. Hejduk

gave an update that the review of rules required by Session Law 2013-413 is not due until 2017

and stated that Jennifer Hollyfield will report on the Consumer Survey Report during her staff

report. Hejduk reported for Budget Execution/Preparation that we have a contract for the auditor

and one for a contract inspector in Charlotte.

Director Hejduk turned the staff report over to Terri Tart, License Administrator. Tart reported

currently they are 1101 active home inspectors. Tart stated there were 50 applications approved.

Tart stated 50 individuals signed up to take the exam and 40 were present. The passing rate this

exam turned out to be good with 33 passing and 7 failing the exam. Tart stated that she

rescheduled 10 to take the exam. 5 attended the exam review. There are 28 individuals signed

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up to take the April 16th exam at this time. Tart stated that she had issued 28 new licensees.

A total of 28 applicants went through the Pre-licensing Program. Tart stated that 14 applicants

were General Contractors and 8 with other experience. One individual had a Level I in all four

trades. One applicant was an Architect. Tart stated that 7 applicants came from other states.

Tart reported that there were 799 licensees on inactive status. The phone call volume has

increased. There are a lot of individuals interested in the home inspection profession.

Director Hejduk turned the staff report over to Jennifer Hollyfield, Education Coordinator.

Hollyfield reported that she had 37 online and classroom continuing education courses that were

submitted. Hollyfield stated that 23 courses have been approved. Hollyfield reported that she

had 14 new online courses that were submitted by InterNACHI Ben Gromicko. Mr. Gromicko

was denied online pre-licensing approval because the courses did not have a monitoring of time

devoted to each lesson with automatic program shutdown. Mr. Gromicko has a monitoring

system in the online courses now. The total to approve is up to 16 now. Hollyfield had a request

for the Education Committee.

Hollyfield stated that she had a phone call from David Hahn an applicant wanting to be an

update Instructor. He was denied last year because he submitted a video of him teaching and it

was only 30 minutes in length. The board rule states that the video must be 45 minutes to 60

minutes. Hollyfield asked the Education Committee for a motion today to approve Hahn as an

update instructor. The Education Committee asked if a new video had to be submitted and

Hollyfield replied no not yet. Education Committee Chairman Marion Peeples made a motion to

approve Hahn conditioned upon submission of a new video for staff approval. Butch Upton

seconded the motion. Chairman Fred Herndon called the question for staff approval of a new

video. The motion was approved by voice vote unanimously

Chairman Herndon turned the staff report over to Phil Joyner, Investigator. Joyner stated that the

committee had processed 21 complaints. The committee met on March 12th with an additional

11 complaints. Joyner stated that Peeples will go over the 11 complaints during the Investigation

Review Committee report.

Director Hejduk introduced additional staff within the Qualification Assurance Section. Hejduk

first introduced the new customer service representative Rodney Daughtry. Hejduk asked

Daughtry to explain how this position will help filter the calls that come in. Daughtry explained

that he will handle most of the routine license application, login and renewal questions instead of

Terri Tart. For example, there have been some PDF files made up for Daughtry to respond to

questions such as to “How do I become a home inspector?” “How do I get my Pyro license?”

that he will email to callers. Peeples questioned Daughtry on how many calls he is getting on a

daily basis? Daughtry stated he has been tracking calls on a monthly basis. Tony Jarrett asked

Daughtry what other calls do you get for this board? Daughtry stated that he gets calls about

getting locked out of the system or password questions. Hejduk introduced Kathy Williams and

explained that she handles exam question challenges and pass/fail rates for the NC Code

Officials Qualifications Board.

Hejduk stated that board appointment terms for Fred Herndon and Joseph Ramsey are scheduled

to expire July 1, 2015. Hejduk stated that online training is available for board members on the

web page intended to fulfill the requirements of NC Gen. Stat. § 93B-5.

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Hejduk summarized several recent initiatives that stem from the legislature. Hejduk distributed

copies of the “NCGEAR Report to the Joint Legislative Commission on Government

Operations” to the board members. Hejduk stated, this report could be viewed as how well all

the agencies or any individual licensing agency is doing its job. The Program Evaluation

Division report concluded that since the NCHILB is staffed by the Department of Insurance, a

state agency, that the NCHILB is not being viewed as an independent Occupational Licensing

Agency (OLA). Independent OLAs are meeting in May and all board members are invited to

attend. The meeting agenda includes a number of different issues affecting licensing boards.

The following issues were raised by the PED study. Should the state consolidate boards?

Should some boards be eliminated? Are some boards not viable?

The NCGEAR Report was commissioned by the Governor and contracted with Deloitte

consulting firm. The report stated that there are ways to improve efficiency in state government.

NC Gear proposes immediate elimination of occupational licensing requirements that do not

provide value to North Carolina citizens. Eliminated licenses could include opticians,

locksmiths, natural hair stylists, landscape contractors, soil scientists, and others. Within the

fiscal year, the Office of State Budget and Management (OSBM) would conduct a full review of

occupational licenses and licensing boards to identify additional licensing requirements that

could be eliminated, consolidated, or deregulated. The report cites two efforts tried in some

agencies that have helped in small ways: Reorganization through Reduction (RTR) or Reduction

in Force (RIF). The Three-to-Two effort in the Department of Environment and Natural

Resources has resulted in elimination of 35.25 newly vacant positions, saving $2.2 million and

providing $300,000 in salary increases to employees, including direct raises averaging $7,545

(including benefits) to 29 employees and $80,810 reserved for range revisions.

Hejduk stated that NCDOI/OSFM reorganization of staff is consistent with other agencies

around the state. A specific recommendation of NCGEAR is to have a permanent staff that

would have a team to develop and implement new ideas and a team to evaluate the initiatives

already underway. The report stated the Office of State Budget and Management (OSBM)

would continue to be an appropriate home for this group as it incorporates reforms into budget

recommendations. The NCGEAR report included the suggestion that any commission more than

five years old, not explicitly mentioned in the state constitution, should have its mission

reviewed for relevance; its activities and outcomes reviewed against its mission.

Committee Reports

Application Committee

Waverly Sawyer reported the committee met on January 30, 2015 to review three (3)

applications citing equivalent experience. The committee approved two (2) applications.

The committee requested additional information on one (1). The committee also met on

March 12, 2015. Waverly Sawyer reported that three (3) applications were reviewed.

The committee approved two applications, one was denied and one was previously

denied and a notice of hearing recommended.

Examination Committee

Chris Noles reported the committee did not meet. Noles stated that he and Hejduk will

meet with the committee next quarter to discuss new exam questions.

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Finance Committee Joseph Ramsey reported that the Board will have a revenue reduction in FY 2015-2016

revenues due to a reduction in the Continuing Education (CE) hours from sixteen to

twelve hours. Ramsey thanked staff for serving 1,100 licensees. Current FY 2014-2015

Revenue year to date is $293,115; Expenditures are $185,130 with a fund balance of

$623,119. Estimates are that there will be $73,000.00 available to credit to the fund

balance by June 30, 2015, the end of the fiscal year. The budget is improving based on

licensee count. The challenges are the audit expenses for three years, the lease of the

office space, the increase in investigations, hiring a contract investigator and technology

improvements. But on a positive note salary share that will realize some expenditure

savings for the board. The committee looked at the number of licensees and how much

revenue would be generated under three (3) different scenarios ranging from worst case

to best case. If there were 1,050 licensees the Board would lose $50,000. The breakeven

point is around 1,363 licensees for a total budget of approximately $300,000. Ramsey

made a motion to adjust the $7,500.00 up to $10,000.00 to purchase new exam scanner

equipment and LXR-test software. The motion was seconded by Marion Peeples.

Ramsey amended the motion. Chairman Herndon asked if there was any discussion.

There was some discussion and Ramsey withdrew the motion as amended. Ramsey then

made a new motion to report back to the Board in July on how much it will cost to

upgrade the scanner equipment and the comparative cost benefits of computer based

testing. The motion was seconded by Butch Upton. The motion was approved by voice

vote unanimously

Jim Lovell, auditor, was then called on to update the board on the results of his audit to

date. Lovell distributed copies of a draft document entitle “Financial Statements June 30,

2013,2012,2011” (Attachment A) Lovell stated that in accordance with standards of

practice for auditors he was required to question the members of the board as to whether

anyone of them have any knowledge of fraud? Board members responded “No.” Lovell

then invited questions and stated he would make a final report at a future board meeting.

He then thanked the board and departed.

At approximately 11:10 am Dan Johnson, NC Dept. of Justice attorney arrived and Chairman

Herndon requested a change to the agenda for the board to go into closed session citing NC Gen.

Stat. § 143-318.11(a)(6). The closed session ended at 12:10 pm and the board reconvened at

12:15 pm.

Legislative Committee

Tony Jarrett stated the committee did not meet but he wanted to remark on the decision of

the Supreme Court about the Dental Board having no statutory authority to be sending

out cease’ and desist letters to individuals who were practicing dental whitening without

a state dental license.

Education Committee

Peeples stated the committee met on March 12, 2015. The committee members have

taken the task to review the responses to the Standards of Practice licensee survey. The

committee will provide a report at the July meeting. The committee also approved one

Pre-licensing Field Trainer. Peeples stated he would like to schedule another committee

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meeting on or about April 10, 2015 to finalize the update course and that sponsors would

have their portion complete to present at the July meeting.

Investigation Review Committee

Marion Peeples stated the Investigation Review Committee (IRC) had met several times

since December to handle the backlog of complaints. The committee made the following

recommendations to the board for final determination and disposition of the complaints.

Notice of Hearing

Peeples made a motion to set a hearing date on licensee Don Agel (License #2861).

Butch Upton seconded the motion. The motion passed unanimously. The hearing date is

set for July 9, 2015 at 9:00 am the Thursday before the next regular board meeting.

Consent Agreement

Peeples stated that in the matter of consent agreements the IRC and the investigative staff

have presented a consent agreement to Reynolds (Licensee #128) in the matter of

complaint #577. The terms of the consent agreement have been set and agreed on. The

paper work has been signed. Peeples made a motion to accept the terms of the consent

agreement. Joseph Ramsey seconded the motion. The motion passed unanimously.

Dismiss with Letter of Caution

Peeples made a motion to accept the IRCs decision to dismiss the following nine (9)

complaints with letters of caution to the licensee. The motion was seconded by Tony

Jarrett. The motion passed unanimously.

1. 565 Griggs #34

2. 573 Neyland #2874

3. 583 Zehnder #1626

4. 585 Gabryszak #3158

5. 595 Law #2833

6. 596 Pressley #1879

7. 600 Murphy #1495

8. 604 Baucom #2531

9. 605 Lowe #1602

Dismiss

Peeples made a motion to dismiss the following fourteen (14) complaints stating that all

of these complaints lack sufficient evidence to move forward with the investigation.

Chris Noles seconded the motion. The motion passed unanimously.

1. 571 Price #1130

2. 574 Ussery #3188

3. 578 Brittain #3262

4. 584 Tarrant #449

5. 586 Turner #1162

6. 587 Morris #2829

7. 589 Lobsinger #2624

8. 592 Henriksen #213

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9. 598 Cherry #293

10. 599 Montgomery #121

11. 601 Scott #599

12. 602 Swanson #2733

13. 603 Brown #2313

14. 608 Wilson #182

Unlicensed Activity

Peeples stated that in the matter of complaint 607 CQC Home out of Durham, N.C.

Peeples made a motion for the Board to direct counsel to issue a letter to cease operating

without a license. The motion was seconded by Waverly Sawyer. The motion passed

unanimously.

Peeples stated that in the matter of complaint 590 Denton #1052 consent agreement has

been proposed to the licensee it has been negotiated but is still in process. In the matter

of complaint 572 Herman #321 that the consent agreement will be modified and will be

revisited by the committee

Herndon asked Peeples if the number of complaints was increasing corresponding to the

number of inspectors increasing. Peeples stated that the Board had not met since a new

format had been adopted for investigations. Peeples stated that the Complaint

Investigation Report was somewhat obscure and burdensome on staff and attorney

Stanford had proposed a new one page format similar to a status memo that would serve

as the basis for discussion of cases in committee. Herndon asked Phil Joyner, staff

investigator, if he thought the new format would make a difference in time to process

cases. Joyner stated, yes, as seen by the number of complaints processed at this meeting.

Herndon directed that a review and update of the job position description be undertaken

and that the IRC meet to define expectations. Review of other position descriptions

would be by the Personnel Committee.

Standards of Practice / Rules & Interpretations Committee

Butch Upton stated the word “mold” has been discussed on several occasions. Home

Inspectors are not responsible for reporting on mold. However inspectors need to do

more to protect themselves in regards to mold found in the home after the inspection.

Herndon asked Tony Jarrett if the real estate industry would value consistency on this

issue. Jarrett stated that he was not aware of mold as a state or regional issue and had not

heard any feedback on the issue. Herndon recommended to Upton to take up this issue

with his committee and then bring it back to the Board. Upton stated that the license

survey had been sent out. There were 252 responses on mold out of 269. From the

survey 60% to 65% of inspectors are reporting on mold in their reports. Upton

questioned why the Board rescinded the Mold Interpretation. Peeples stated that perhaps

mold might be addressed by board Recommended Language. Upton asked counsel to

contact the Dept. of Health and Human Services (DHHS) industrial hygienist in regards

to mold certification and/or mold related issues. Herndon stated that maybe we need to

reach out to DHHS to see how we can educate the general public on this issue. After

much discussion, including whether some sort of professional services disclosure form

similar to those used by Realtors® might be considered, Upton stated he would take this

issue back to the committee for further discussion and report back to the Board. Herndon

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suggested that a future board four hour CE update course might address mold. Director

Hejduk suggested existing consumer guidance by EPA on mold be reviewed. Upton

stated that thermal seals and payments at closing where two other items commented on

by licensees in the survey. Jarrett stated that agents answer is to always replace windows

with defective thermal seals. Peeples stated that payment at closing appeared to be a

potential conflict of interest for home inspectors and asked if the practice should be

prohibited. Upton stated his franchise says don’t defer payment to closing. Jarrett stated

that such a position might impact the consumer experience on financing. The committee

will discuss these two items and will bring back a recommendation to the board.

Personnel Committee

Chairman Herndon stated he had no report at this time.

Advisory Committee / New Licensee Report Reviews Chairman Herndon stated the committee did not meet.

Public Comments

Eric Coates, President of the North Carolina Licensed Home Inspector Association

(NCLHIA) had no comments.

Unfinished Business

Director Hejduk stated that the PED study was done and the final report was issued

December 17, 2014. Technically the NCHILB was not included within the scope of the

report because we have the association with the Department of Insurance. Hejduk stated that

we should not have a blind eye to that. They were some items in their report that are

applicable in regards to processing complaints and having transparency on that. We are

conforming well to some of the things like other state agencies. Performance management is

the term that they use basically getting the best for the consumer.

New Business

Chairman Fred Herndon asked whether the board will hold an April meeting. Since there

was no discussion, Herndon stated that the board will not hold an April meeting. Terri Tart

stated that she would contact the Secretary of State to notice the cancellation.

Board counsel Stanford asked Chairman Herndon when he wanted the hearing date set for

the expired license of Elmo Yancey. Herndon stated he wanted it set for July 10, 2015 at

9:00 am.

Adjournment

Marion Peeples made a motion to adjourn the meeting. The motion was seconded by Chris

Noles. The motion passed.

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Respectfully submitted,

Christian Noles, P.E.

Secretary

Note: This meeting has been recorded on CD. Anyone desiring copies should contact the NC

Department of Insurance, Engineering Division, Qualification Assurance Section, for

reproduction costs.

ATTACHMENT A

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DRAFT

NORTH CAROLINA HOME INSPECTOR LICENSURE BOARD

Financial Statements

June 30, 2013, 2012 and 2011

ATTACHMENT A

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Home Inspector Licensing Board

Table of Contents

DRAFT Page

Independent Auditors' Report ........................................................................................................................................ 1

Financial Statements:

Statements of Financial Position ............................................................................................................................ 2

Statements of Activities and Changes in Net Assets .............................................................................................. 3

Statements of Cash Flows ..................................................................................................................................... 4

Notes to Financial Statements ............................................................................................................................... 5

ATTACHMENT A

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NORTH CAROLINA HOME INSPECTOR LICENSURE

BOARD Statements of Financial Position June

30, 2013, 2012 and 2011

DRAFT

ASSETS

Current assets:

2013 2012 2011

Cash and cash equivalents $ 504,851 $ 528,55

0

$ 612,24

5 Total current assets 504,851 528,550 612,245

Total assets

$ 504,851 $ 528,55

0

$ 612,24

5

LIABILITIES AND NET ASSETS

Liabilities:

Accounts payable $ 286 $ 340 $ 1,24

7 Total liabilities 286 340 1,247

Net Assets

Unrestricted:

Undesignated 504,565 528,210 610,998

Total unrestricted net assets 504,565 528,210 610,998

Total liabilities and net assets $ 504,851 $ 528,55

0

$ 612,24

5

The accompanying notes to financial statements are an integral part of these statements. 2

ATTACHMENT A

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NORTH CAROLINA HOME INSPECTOR LICENSURE BOARD

Statements of Activities and Changes in Net Assets

For the Years Ended June 30, 2013, 2012 and 2011

DRAFT

Revenues

Year Ended June 30, 2013 2012 2011

Certification fees $ 189,670 $ 189,426 $ 209,290

Continuing education fees 85,210 71,171 63,022

Other 25 125 80

Total public support and revenues 274,905 260,722 272,392

Expenses:

Salaries and benefits 240,502 262,734 257,161

Repairs and maintenance 8,774 28,326 49,541

Rent 36,746 29,839 25,000

Travel and meals 4,050 6,526 8,481

Communication 2,720 8,183 9,915

Other 5,758 7,902 4,481

Total Expenses 298,550 343,510 354,579

Change in Net Assets (23,645) (82,788) (82,187)

Net Assets, Beginning of Year 528,210 610,998 693,185

Net Assets, End of Year $ 504,565 $ 528,210 $ 610,998

The accompanying notes to the financial statements are an integral part of these statements. 3

ATTACHMENT A

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North Carolina Home

Statements

For the Years Ended

inspection Licensure

Board of Cash Flows

June 30, 2013, 2012 and 2011

DRAFT 2013 2012 2011

Cash flows from operating activities: Change in net assets $ (23,645) $ (82,788) $ (82,187)

Adjustments to reconcile change in net assets to

net cash used by operating activities:

Cash provided (used) by changes in:

Accounts payable (54) (907) (9,448)

Net Cash Used by Operating Activities (23,699) (83,695) (91,635)

Cash Flows from Investing Activities: - - -

Cash Flows from Financing Activities: - - -

Net decrease in cash and cash equivalents (23,699) (83,695) (91,635)

Cash and cash equivalents, beginning of year 528,550 612,245 703,880

Cash and Cash Equivalents, End of Year $ 504,851 $ 528,550 $ 612,245

The accompanying notes to financial statements are an integral part of these statements 4

ATTACHMENT A

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NORTH CAROLINA HOME INSPECTOR LICENSURE BOARD Notes to Financial Statements June 30, 2013, 2012 and 2011

DRAFT NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NCHILB

Nature of the Organization: The North Carolina Home Inspector Licensure Board (“NCHILB”) is chartered to safeguard the public health, safety, and welfare of the citizens of North Carolina. The NCHILB protects the public from being harmed by unqualified persons by regulating the use of the title “Licensed Home Inspector” and by providing for licensure and regulation of those who perform home inspections for compensation.

Basis of Accounting: The accompanying financial statements of the NCHILB have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States as applicable to governmental organizations.

Net Assets:

Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of government imposed restrictions. Accordingly, net assets of the NCHILB and changes are classified and reported as follows:

Unrestricted Net Assets — Net assets that are not subject to state-imposed stipulations.

Temporarily Restricted Net Assets — Net assets subject to state-imposed stipulations that may or will be met either by the action of the NCHILB and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions.

Permanently Restricted Net Assets — Some net assets may be stipulated to be permanent by state-imposed requirements. However, none have been as of June 30, 2013, 2012 and 2011.

Restricted and Unrestricted Revenue and Support: The NCHILB receives its revenues from two main sources: certification fees and continuing education. Revenue is recognized upon receipt of the fees.

Cash and Cash Equivalents: Cash and cash equivalents include certificates of deposit and short-term investments with original maturity dates of three months or less. Cash and cash equivalents are carried at cost which approximates fair value. Cash is held by the state of North Carolina and is co-mingled with other funds. See Note 3.

Income Taxes: The NCHILB is a board acting as part of the state government of North Carolina. It is exempt from income tax.

Retirement Plan: Employees of NCHILB participate in the State of North Carolina retirement plan. Contributions to the plan were $23,607, $26,470, and $21,175 for the years ended June 30, 2013, 2012, and 2011, respectively.

These accompanying notes to financial statements are an integral part of these statements. 5

ATTACHMENT A

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NORTH CAROLINA HOME INSPECTOR LICENSURE BOARD Notes to Financial Statements June 30, 2013, 2012 and 2011

DRAFT NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NCHILB (Continued)

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for depreciation. Actual results could differ from those estimates.

Subsequent Events: The NCHILB has evaluated events and transactions that occurred between June 30, 2013 and October XX, 2014, which is the date the financial statements were available to be issued, for possible recognition or disclosure in the financial statements.

NOTE 2 — COMMITMENTS AND CONTINGENCIES

The NCHILB has entered into an operating lease for office space. Rental expenses for the years ended June 30, 2013, 2012, and 2011 were $36,746, $29,839, and $25,000, respectively.

Future minimum payments for the non-cancelable operating lease described above are as follows:

Fiscal Year-End 2014 $36,750 2015 36,750

$73,500

NOTE 3 — CASH HELD BY STATE OF NORTH CAROLINA

The entire cash balance of NCHILB resides in an account held by the state government of North Carolina and is co-mingled with other state funds. Since cash is co-mingled, the opinion to these financial statements has a scope limitation paragraph disclaiming the opinion for the cash balance.

These accompanying notes to financial statements are an integral part of these statements. 6