HOUSING AUTHORITY OF THE COUNTY OF LAKE AUDITED FINANCIAL STATEMENTS. Grayslake, Illinois. September 30, Certified Public Accountant

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1 HOUSING AUTHORITY OF THE COUNTY OF LAKE AUDITED FINANCIAL STATEMENTS Grayslake, Illinois September 30, 2017 Goldie Roberts Certified Public Accountant 8518 S Kays Chapel Rd 870 Cinderella Court Fredericksburg, IN Decatur, GA

2 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois SEPTEMBER 30, 2017

3 TABLE OF CONTENTS Page Independent Auditor s Report 1 Management s Discussion and Analysis i FINANCIAL STATEMENTS Statement of Net Position 3 Statement of Revenues, Expenses and Changes in Fund Net Position 4 Statement of Cash Flows 5 Notes to Financial Statements 7 SUPPLEMENTAL FINANCIAL INFORMATION Combining Schedule of Program Net Position 19 Combining Schedule of Revenues, Expenses and Changes in Fund Net Position 20 Statement and Certification of Actual Capital Fund Grant Costs-Completed 21 Financial Data Schedule 22 Notes to Supplemental Financial Information 27 Schedule of Expenditures of Federal Awards 28 OTHER REPORTS Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 29 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance Required by Uniform Guidance 31 Schedule of Findings and Questioned Costs 33

4 Board of Commissioners Housing Authority of the County of Lake N. Route 45 Grayslake, IL Report on the Financial Statements Goldie Roberts Certified Public Accountant 8518 S Kays Chapel Rd. Fredericksburg, IN INDEPENDENT AUDITOR'S REPORT I have audited the accompanying financial statements of the Housing Authority of the County of Lake ( the Authority ) which comprise the Statement of Net Position as of September 30, 2017, and the related Statements of Revenues, Expenses and Changes in Fund Net Position, and Cash Flows for the year then ended, and the related Notes to the Financial Statements, which collectively comprise the Housing Authority of the County of Lake s financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America 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 I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Housing Authority of the County of Lake as of September 30, 2017, and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

5 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages i through iv be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. I have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to my inquiries, the financial statements, and other knowledge I obtained during my audit of the financial statements. I do not express an opinion or provide any assurance on the information because the limited procedures do not provide me with sufficient evidence to express an opinion or provide any assurance. Other Supplementary Information My audit was conducted for the purpose of forming an opinion on the Authority s financial statements as a whole. The accompanying Financial Data Schedule, Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principals and Audit Requirements for Federal Awards, and the other supplemental information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. In regard to, the Financial Data Schedule, Schedule of Expenditures of Federal Awards, and the other supplemental information as listed in the table of contents, such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the Financial Data Schedule, Schedule of Expenditures of Federal Awards, and the other supplemental information as listed in the table of contents is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, I have also issued my report dated March 23, 2018 on my consideration of the Housing Authority of the County of Lake s internal control over financial reporting and on my tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is solely to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Housing Authority of the County of Lake internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Housing Authority of the County of Lake s internal control over financial reporting and compliance. Fredericksburg, Indiana March 23, 2018 Certified Public Accountant 2

6 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois MANAGEMENT DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 The management of the Housing Authority of the County of Lake (PHA) offers this narrative overview and analysis of its audited financial statements for the fiscal year ended September 30, The goal is for the reader to better understand the PHA s financial activities and its overall financial position and to show whether current year revenues covered current year expenses and the extent to which the PHA has invested its capital assets. We encourage readers to consider the information presented here in conjunction with the PHA s financial statements. FINANCIAL HIGHLIGHTS: The assets of the PHA exceed its liabilities as of September 30, 2017 by $28,613,133 (net position). The PHA s net investment in capital assets as of September 30, 2017 was $19,131,670. The PHA s total revenue and contributions for the fiscal year end September 30, 2017 was $32,920,106. The PHA s total expenses for the fiscal year end September 30, 2017 was $32,424,228. Therefore, the PHA s revenues exceed its expenses by $495,878. OVERVIEW OF THE FINANCIAL STATEMENTS: The following financial statements are included in this report: Statement of Net Position - reports the PHA s current financial resources: its cash and other current assets, current and noncurrent liabilities and comparing those two elements, the resulting net position of the PHA. Statement of Revenue and Expenses and Change in Net Position - reports the PHA s various revenue and expenses. Statement of Cash Flows - reports cash inflows and outflows for the PHA s fiscal year. ANALYSIS OF FINANCIAL STATEMENTS: STATEMENT OF NET POSITION September 30, Dollar Change Percent Change Current assets $ 10,542,071 $9,869,375 $ 672, % Capital assets 19,131,670 19,218,717 (87,047) -0.5% Other assets 411, ,012 (72,832) -15.0% Total Assets $30,084,921 $29,572,104 $ 512, % Current liabilities $ 788,807 $ 696,750 $ 92, % Noncurrent liabilities 682, ,573 (97,592) -12.5% Total Liabilities $ 1,471,788 $ 1,477,323 $ (5,535) -0.4% Net Position Investment in capital assets $19,131,670 $19,218,717 $ (87,047) -0.5% Restricted 758, , , % Unrestricted 8,723,185 8,750,260 (27,075) -0.3% Total Net Position $28,613,133 $28,094,781 $ 518, % Net position may serve, over time, as a useful indicator of a government's financial position. As stated in the table on this page, assets exceeded liabilities by $28,613,133 at the close of the year ended September 30, 2017 up from $28,094,781 in i -

7 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois MANAGEMENT DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) ANALYSIS OF FINANCIAL STATEMENTS (Continued): The increase in current assets is primarily due to an increase in cash due to the increase in HUD operating grants related to Section 8, exceeding HAP payments for the year. The decrease in capital assets is due to current year depreciation expense exceeding current year additions. The decrease in other assets is due to the predevelopment loan being paid back during the year. The PHA has also issued additional notes that are still currently being drawn down. Current liabilities increased due to increases to accounts payable due to year end timing. The noncurrent liabilities decrease is primarily due to decreases in the FSS liabilities due to payouts and forfeitures. The unrestricted net position was $8,723,185 as of September 30, This amount may be used to meet the PHA's ongoing obligations. The PHA had $758,278 of net position classified as restricted that is subject to external restrictions on how they may be used. The increase in restricted net position is due to increased funding levels for the year. At the end of the current fiscal year, the PHA is able to report positive balances in all categories of net position. The same situation held true for the prior fiscal year. STATEMENT OF REVENUE, EXPENSES, AND CHANGES IN NET POSITION September 30, Dollar Percent Change Change Revenue and Contributions Dwelling rental $ 1,561,776 $ 1,509,870 $ 51, % Operating grants 29,307,286 28,275,253 1,032, % Interest income 26,673 8,687 17, % Gain (Loss) on the sale of capital assets 3, , % Capital grants 536, ,055 (76,331) -12.5% Other operating revenue 1,483, , , % Total Revenue and Contributions 32,920,106 31,017,606 1,902, % Expenses Administration 3,675,687 3,262, , % Tenant services 379, ,858 69, % Utilities 301, ,987 18, % Maintenance and operations 1,589,196 1,741,642 (152,446) -8.8% Protective services 9,464 9,570 (106) -1.1% General expenses 543, ,363 (13,594) -2.4% Interest 2,242-2,242 Housing assistance payments 24,368,942 23,394, , % Depreciation 1,553,411 1,479,772 73, % Total Expenses 32,424,228 31,038,727 1,385, % Change in net position 495,878 (21,121) 516,999 Beginning net position 28,094,781 28,115,902 (21,121) Prior period adjustment 22, ,474 Ending net position $ 28,613,133 $ 28,094,781 $ 518,352 - ii -

8 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois MANAGEMENT DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) ANALYSIS OF FINANCIAL STATEMENTS (Continued): Total revenue and contributions increased by $1,902,500 mainly due to increased operating grant funding and increased other income. Rental income increased due to increased leasing and rents. Operating grants increased due to an increase in Section 8 funding. Capital grants decreased due to decreased draws related to capital asset activity. Finally, other operating revenue increased due to the receipt of a State of Illinois Grant and the receipt of ground lease revenue related to a tax credit project. Total expenses increased by $1,385,501 due to increases in administrative, tenant services, utilities, HAP and depreciation expenses. All other expense categories experience decreases. Administrative and tenant services expenses increased due to increased wages and benefit costs. Maintenance expenses decreased due to an lower contract costs related to landscaping costs and other miscellaneous contracts. Housing assistance payments increased due to increased funding for the program and increased leasing. Depreciation expense increased due to a large number of capital assets added during the year and starting depreciation. BUDGETARY HIGHLIGHTS The PHA adopts a consolidated annual operating budget for all programs. The budget for Low Rent Housing is adopted on the basis of accounting practices prescribed to by the U.S. Department of Housing and Urban Development. Program budgets for the Housing Assistance Payments (HAP) Funds are approved by the U.S. Department of Housing and Urban Development on a basis with the grant applications covering HAP Programs. CAPITAL ASSET ACTIVITY DURING THE YEAR: Capital Assets - The Housing Authority of the County of Lake s capital assets, as of September 30, 2017 amounts to $18,331,938 (net of accumulated depreciation). The capital assets include land, buildings, improvements, equipment, and construction in progress. CAPITAL ASSETS NET OF ACCUMULATED DEPRECIATION September 30, Dollar Change Land $ 5,194,566 $ 4,014,871 $ 1,179,695 Construction in progress 0 1,160,546 (1,160,546) Land improvements 5,375,694 5,261, ,511 Building and improvements 37,607,831 36,354,572 1,253,259 Equipment 1,400,005 1,355,095 44,910 49,578,096 48,146,267 1,431,829 Less:Accumulated depreciation 30,446,426 28,927,550 1,518,876 Total $ 19,131,670 $ 19,218,717 $ (87,047) - iii -

9 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois MANAGEMENT DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) The total increase in the PHA's capital assets for the current fiscal year was $1,431,829. Actual expenditures to purchase equipment and construct capital assets amounted to over $1,466,999 for the year. Major additions were related to lighting projects in AMPs 2 and 3 and the COCC, unit turnaround projects in various properties, boiler project in AMP 2, and a siding/window project in AMP 3. DEBT ACTIVITY DURING THE YEAR Noncurrent liabilities at September 30, 2017, consist of the following: Due Within Total 09/30/16 Addition Deletions 09/30/17 One Year Due Family self-sufficiency escrow $ 621,919 $ 294,784 $ 433,707 $ 482,996 $ 0 $ 482,996 Accrued compensated absences 0 43, ,893 5,106 48,999 Accrued compensated absences 158, , , , ,696 Total $ 780,573 $ 294,784 $ 436,269 $ 639,088 $ 184,604 $ 823,692 The component unit blended also has a note payable to the PHA in the amount of 43,893 due at December 31, FUTURE EVENTS (NEW BUSINESS) As part of a $37 million mixed-financing project, Housing Authority of the County of Lake is redeveloping its Marion Jones Townhomes development, replacing 125 low-income family units with a 50-unit senior building and 186 separate family units. The finished development will also include a community building with a computer laboratory, fitness center, recreation area, and activity space for children. CONTACTING THE AUTHORITY S FINANCIAL MANAGEMENT The financial report is designed to provide a general overview of the PHA s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Executive Director, Mr. David A. Northern, North US Highway 45, Grayslake, IL, iv -

10 FINANCIAL STATEMENTS

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15 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 NOTE 1 Summary of Significant Accounting Policies and Organization: The financial statements of the HOUSING AUTHORITY OF THE COUNTY OF LAKE ("the Authority") have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to special purpose governments engaged in business type activities. The Government Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. Organization The Housing Authority of the County of Lake is a public body corporate and politic pursuant to the Laws of the State of Illinois, which was, organized to provide low rent housing for qualified individuals in accordance with the rules and regulations prescribed by the U.S. Department of Housing and Urban Development (HUD) and other Federal Agencies. Reporting Entity - The entity is a public corporation, legally separate, fiscally independent, and governed by the Board of Commissioners. As required by generally accepted accounting principles, these financial statements present the financial position and results of operations of the Housing Authority of the County of Lake, a primary government. Although it is legally separate from the Housing Authority of the County of Lake, the Aim North, LLC is reported as if it were part of the primary government because its sole purpose is to work in conjunction with the Authority to assist with providing housing for low and moderate income individuals. The criteria for inclusion as a component unit, include manifestation of oversight responsibility including financial accountability, appointment of a voting majority, imposition of will, financial benefit to or burden on a primary organization, financial accountability as a result of fiscal dependency, potential for dual inclusion, and organizations included in the reporting entity although the primary organization is not financially accountable. Accordingly the Aim North, LLC financial information has been blended with the Housing Authority of the County of Lake. There are no other component units to be included herewith, but this report does include all programs which are controlled by the entity s governing body. Aim North, LLC did not have material activity this year. 7

16 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) NOTE 1 Summary of Significant Accounting Policies and Organization: (Continued) Lake County Housing Authority IL056 September 30, 2017 Condensed Statement of Net Position LCHA AIM North NFP 2017 Total Current assets $ 10,457,125 $ 84,946 $ 10,542,071 Other assets 411, ,180 Capital assets 19,131, ,131,670 Total assets $ 29,999,975 $ 84,946 $ 30,084,921 Current liabilities $ 779,639 $ 9,168 $ 788,807 Non current liabilities 639,088 43, ,981 Total liabilities $ 1,418,727 $ 53,061 $ 1,471,788 Investment in capital assets $ 19,131,670 $ - $ 19,131,670 Restricted 758, ,278 Unrestricted 8,691,300 31,885 8,723,185 Total Net Position $ 28,581,248 $ 31,885 $ 28,613,133 Condensed Statement of Revenues, Expenses and Changes in Net Position LCHA AIM North NFP F2017 Total Operating revenues $ 2,669,159 $ 38,231 $ 2,707,390 Operating expense (30,841,985) (26,590) (30,868,575) Depreciation expense (1,553,411) 0 (1,553,411) Nonoperating revenue 29,675,980 (2,230) 29,673,750 Capital contributions 536, ,724 Change in net position 486,467 9, ,878 Net Position, beginning of year 28,094, ,094,781 Prior Period Adjustment 0 22,474 22,474 Net Position, end of year $ 28,581,248 $ 31,885 $ 28,613,133 Condensed Statement of Cash Flows LCHA AIM North NFP F2017 Total Net Cash Used by Operating Activities $ (27,899,918) $ 11,519 $ (27,888,399) Net Cash From Noncapital Financing Activities 29,645, ,645,392 Net Cash Flows Used by Capital and Related Financing Activities (46,754) 73,427 26,673 Net Cash From Investing Activities (878,932) 0 (878,932) Net Decrease in Cash and Cash Equivalents 819,788 84, ,734 Cash - Beginning of year 9,409, ,409,808 Cash - End of year $ 10,229,596 $ 84,946 $ 10,314,542 8

17 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 Summary of Significant Accounting Policies and Organization: (Continued) Activities of the Housing Authority For FY 2017, the Housing Authority had units in management and was administering other programs as listed below: Management Shiloh Tower 60 Beach Haven Tower 99 Scattered Sites 161 Kuester Manor 25 Hawley Manor 50 Millview Manor 25 Orchard Manor 25 Warren Manor 50 TOTAL LOW INCOME PUBLIC HOUSING 495 Lower Income Housing Assistance Program Section 8 Housing Choice Vouchers 3,076 TOTAL SECTION 8 3,076 Other Rental Programs Business Activities 13 TOTAL OTHER RENTAL PROGRAMS 13 TOTAL ALL PROGRAMS 3,584 Other Programs Public Housing Capital Fund Program and PIH Family Self-Sufficiency Housing Community Development Basis of Presentation and Accounting: In accordance with uniform financial reporting standards for HUD housing programs, the financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) as applicable to special purpose governments engaged only in business type activities. Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. Accordingly, all assets, deferred outflow of resources, liabilities, and deferred inflow of resources are included in the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Fund Net Position present increases (revenues) and decreases (expenses) in net position. Under the Accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. This special purpose government engaged in activities similar to business activities uses an enterprise fund to account for those operations that are financed and operated in a manner similar to private business, or where the Board has decided that the determination of revenues earned, costs incurred, and/or net income is necessary for management accountability. The intent of the governing body is that the costs (expenses including depreciation) of providing services to the general public on a continuing basis be financed or recovered primarily through user charges. 9

18 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 Summary of Significant Accounting Policies and Organization: (Continued) Generally accepted accounting principles for state and local governments requires that resources be classified for accounting and reporting purposes into the following net position categories: Investment in Capital Assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, Construction or improvement of those assets. Restricted: Net position whose use by the Authority is subject to externally imposed stipulations that can be fulfilled by actions of the Authority pursuant to those stipulations or that expire by the passage of time. Such assets include assets restricted for capital acquisitions and debt service. Unrestricted: Net position that are not subject to externally imposed stipulations. Unrestricted net position may be designated for specific purposes by action of management or the Authority Board or may otherwise be limited by contractual agreements with outside parties. Budgets - Budgets are prepared on an annual basis for each major operating program and are used as a management tool throughout the accounting cycle. The capital fund budgets are adopted on a project length basis. Budgets are not, however, legally adopted nor legally required for financial statement presentation. Cash Equivalents - Cash equivalents consist principally of checking accounts, savings accounts and certificates of deposit. These are stated at fair value. Certificates of deposit that are redeemable immediately with little or no penalty are considered cash equivalents. Interprogram Receivables and Payables - Interprogram receivables/payables are all current, and are the result of the use of the Administrative Account Program as the common paymaster for shared costs of the Authority. Cash settlements are made periodically, and all interprogram balances net zero. Offsetting due to/due from balances is eliminated for the financial statement presentation. Investments - Investments are recorded at fair value. Investment instruments consist only of items specifically approved for public housing agencies by HUD. Investments are either insured or collateralized using the dedicated method. Under the dedicated method of collateralization, all deposits and investments over the federal depository insurance coverage are collateralized with securities held by the Authority s agent through the State of Illinois s Collateralization Program. It is the Authority s policy that all funds on deposit are collateralized in accordance with both HUD requirements and requirements of the State of Illinois. Inventories - Inventories (consisting of materials and supplies) are valued at cost using the first in, first out (FIFO) method. If inventory falls below cost due to damage, deterioration or obsolescence, the Authority establishes an allowance for obsolete inventory. In accordance with the consumption method, inventory is expensed when items are actually placed in service. Prepaid Items - Payments made to vendors for goods or services that will benefit periods beyond the fiscal year end are recorded as prepaid items. 10

19 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) NOTE 1 Summary of Significant Accounting Policies and Organization: (Continued) Restricted Assets - Certain assets may be classified as restricted assets on the balance sheet because their use is restricted by contracts or agreements with outside third parties and lending institutions. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Capital Assets: A. Book Value - All purchased capital assets are valued at cost when historical records are available. When no historical records are available, capital assets are valued at estimated historical cost. Land values were derived from development closeout documentation. Donated capital assets are recorded at their fair value at the time they are received. Donor imposed restrictions are deemed to expire as the asset depreciates. All normal expenses of preparing an asset for use are capitalized when they meet or exceed the capitalization threshold. B. Depreciation - The cost of buildings and equipment is depreciated over the estimated useful lives of the related assets using the straight-line method. Depreciation commences on modernization and development additions in the year following completion. The useful lives of buildings and equipment for purposes of computing depreciation are as follows: Buildings & Improvements Furniture, Equipment & Machinery years 3-7 years C. Maintenance and Repairs Expenditures - Maintenance and repairs expenditures are charged to operations when incurred. Betterments in excess of $1,500 are capitalized. When buildings and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Compensated Absences - Compensated absences are those absences for which employees will be paid, such as vacation and sick leave computed in accordance with GASB Standards. A liability for compensated absences that is attributable to services already rendered and that are not contingent on a specific event that is outside the control of the Authority and its employees, is accrued as employees earn the rights to the benefits. Compensated absences that relate to future services or that are contingent on a specific event that is outside the control of the Authority and its employees are accounted for in the period in which such services are rendered or in which such events take place. 11

20 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) NOTE 1 Summary of Significant Accounting Policies and Organization: (Continued) Litigation Losses - The Authority recognizes estimated losses related to litigation in the period in which the occasion giving rise to the loss occurred, the loss is probable and the loss is reasonably estimable. Annual Contribution Contracts - Annual Contribution Contracts provide that HUD shall have the Authority to audit and examine the records of public housing authorities. Accordingly, final determination of the Authority s financing and contribution status for the Annual Contribution Contracts is the responsibility of HUD based upon financial reports submitted by the Authority. Risk Management - The Authority is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority carries commercial insurance for all property and equipment, employee health and accident insurance, general liability, fire and extended coverage, fidelity bond, automobile, and Director and Officers liability. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. Additionally, there have been no significant reductions in insurance coverage from the prior year. The Authority also participates in a public entity risk pool (Assisted Housing Risk Management Association). Settled claims resulting from these risks have not exceeded risk pool coverage in any of the past three fiscal years. Rights and responsibilities of the Authority and the pool are contained within the pool agreement and the scope of coverage documents. Operating Revenues and Expenses - Operating revenues and expenses generally result from providing and producing goods and/or services in connection with providing low income housing programs. Operating expenses include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Restricted Assets - When both restricted (if any) and unrestricted resources are available for use, it is the Authorities policy to use unrestricted resources first, then restricted, as they are needed. Leasing Activities (as Lessor) - The Authority is the Lessor of dwelling units mainly to low-income residents. The rents under the leases are determined generally by the resident's income as adjusted for eligible deductions regulated by HUD, although the resident may opt for a flat rent. Leases may be cancelled by the lessee at any time. The Authority may cancel the lease only for cause. Revenues associated with these leases are recorded in the financial statements and schedules as "Rental Revenue". Rental Revenue per dwelling unit generally remains consistent from year to year, but is affected by general economic conditions, which impact personal income such as local job availability. 12

21 HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) NOTE 2 Deposits, Cash and Cash Equivalents, and Investments: 1. HUD Deposit Restrictions HUD requires Authorities to invest excess HUD program funds in obligations of the United States, certificates of deposit or any other federally insured instruments. HUD also requires that deposits of HUD program funds be fully insured or collateralized at all times. Acceptable security includes FDIC/FSLIC insurance and the market value of securities purchased and pledged to the political subdivision. Pursuant to HUD restrictions, obligations of the United States are allowed as security for deposits. Obligations furnished as security must be held by the Authority or with an unaffiliated bank or trust company for the account of the Authority. 2. Risk Disclosures A. Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the Authority s investment policy limits the Authority s investment portfolio to maturities not to exceed two years at time of purchase. At September 30, 2017, the Authority s deposits and investments were not limited and all of which are either available on demand or have maturities of less than two years. B. Credit Risk - This is a risk that a security or a portfolio will lose some or all of its value due to a real or perceived change in the ability of the issuer to repay its debt. The Authority s investment policy is that none of its total portfolio may be invested in securities of any single issuer, other than the US Government, its agencies and instrumentalities. C. Custodial Credit Risk: - This is the risk that in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investment or collateral securities that are held by the counterparty. All of the Authority s investments in securities are held in the name of the Authority. The Authority s custodial agreement policy prohibits counterparties holding securities not in the Authority s name. The carrying amounts of the Authority s cash deposits were $10,314,542 at September 30, The bank balance is $10,394,886. Bank and investment balances were collateralized or insured with securities held by an unaffiliated banking institution in the Authority s name. Deposits consist of the following: Checking accounts $ 9,747,908 Money Market Accounts 11,123 Certificates of Deposit 555,511 Total $ 10,314,542 13

22 NOTE 3 - Accounts Receivable: HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Accounts receivables at September 30, 2017 consist of the following: HUD $ 13,419 Tenant Receivables, Net of Allowance for Doubtful Accounts of $8,692 85,711 Fraud Recovery, Net of Allowance for Doubtful Accounts of $496,972 9,294 Accounts Receivable Miscellaneous 10,521 Notes, Loans, Mortgage Receivables - Current 6,015 Total $ 124,960 NOTE 4 - Prepaid Expenses: Prepaid Expenses at September 30, 2017 consist of the following: NOTE 5 - Inventory: Prepaid insurance and other prepaid assets $ 70,664 Inventory at September 30, 2017, consist of the following: Inventory, Net of Allowance of $1,679 $ 31,905 NOTE 6 - Capital Assets: A summary of changes in capital assets is as follows: Beginning Ending Balance Balance 09/30/16 Increases Decreases Transfers 09/30/17_ Capital assets, not being depreciated: Land $ 4,014,871 $ 5,000 $ 0 $1,174,695 $ 5,194,566 Construction in Progress 1,160, (1,160,546) 0 Total Capital Assets, Not being depreciated 5,175,417 5, ,149 5,194,566 Capital Assets, being depreciated: Buildings & Improvements 41,615, , ,160,546 42,983,525 Furniture, Equipment & Machinery 1,355,095 80,079 ( 35,169) 0 1,400,005 Total Capital Assets, being depreciated 42,970, ,303 ( 35,169) 1,160,546 44,383,530 14

23 NOTE 6 - Capital Assets: (Continued) HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Less Accumulated Depreciation for: Buildings & Improvements (28,827,088) (1,475,197) 0 0 (30,302,285) Furniture, Equipment and Machinery ( 100,462) ( 78,214) 34,535 0 ( 144,141) Total Accumulated Depreciation: (28,927,550) (1,553,411) 34,535 0 (30,446,426) Total Capital Assets, being depreciated, net 14,043,300 (1,266,108) ( 633) 1,160,546 13,937,104 Capital Assets, Net $19,218,717 $(1,261,108) $( 633) $1,174,695 $19,131,670 Depreciation expense for the year was: $ 1,553,411 NOTE 7 - Accounts Payable: Accounts payable at September 30, 2017 consist of the following: Vendors Accounts Payable $ 161,897 NOTE 8 Accrued Liabilities: Accrued liabilities at September 30, 2017 consist of the following: Accounts Payable Other Governments $ 123,600 Compensated Absences Current 184,604 Accrued Wages 80,700 Other Accrued Liabilities 5,106 Accrued Interest 1,247 Total $ 395,257 NOTE 9 - Unearned Revenue: Unearned Revenue at September 30, 2017, consists of the following: Tenant Prepaid Rents $ 35,670 NOTE 10 Mortgage Payable: The Corporation has a mortgage through Aim North Development Corporation. The mortgage bears interest at 4.25%, with annual payments of $7,410 including principal and interest and matures June 1, The mortgage is secured by real estate. Borrowings were $74,100 at May 24, Scheduled principal payments on the mortgage payable are as follows: Principal repayment for the next five years is as follows: 15

24 NOTE 10 Mortgage Payable: (Continued) HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Fiscal Year Principal Interest Total 2018 $ 5,130 $ 2,280 $ 7, ,645 1,764 7, ,891 1,519 7, ,146 1,264 7, , , ,797 1,148 20,945 Total $ 49,023 $ 8,972 $ 57,995 NOTE 11 - Noncurrent Liabilities: Noncurrent liabilities at September 30, 2017, consist of the following: Due Within Total 09/30/16 Addition Deletions 09/30/17 One Year Due _ Family selfsufficiency escrow $ 621,919 $ 294,784 $ 433,707 $ 482,996 $ 0 $ 482,996 Component Unit - loan payable 0 43, ,893 5,130 49,023 Accrued compensated absences 158, , , , ,696 Total $ 780,573 $ 338,677 $ 436,269 $ 682,981 $ 189,734 $ 872,715 NOTE 12 - Federal Operating Grants: HUD contributed the following operating subsidies approved in the operating budgets under the Annual Contributions Contracts: Low Rent Public Housing $ 1,818,929 Public Housing Capital Fund Program 42,000 Housing Counseling Program 21,006 Housing Choice Vouchers 27,196,831 PIH FSS Grant 228,520 Total $ 29,307,286 NOTE 13 Capital Contributions: The Authority receives capital grants from HUD for capital fund program improvements. Capital contributions for the fiscal year ended September 30, 2017 were $536,

25 NOTE 14 - Commitments and Contingencies: HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Litigation: At September 30, 2017, the Authority was involved in an immaterial lawsuit. At the present time the attorney s cannot determine the likelihood of a favorable or unfavorable outcome or an amount of the potential loss, if any. Examinations: The Authority is subject to possible examinations made by federal and state authorities who determine compliance with terms, conditions, laws, and regulations governing other grants given to the Authority in the current and prior years. There were no such examinations during the year ended September 30, Grant Disallowances: Amounts received or receivable from HUD are subject to audit and adjustment by HUD. Any disallowed claims, including amounts already collected, may constitute a liability of the Authority. The amounts, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the Authority expects such amounts, if any, to be immaterial. Construction Projects: There are certain major construction projects in progress at September 30, These include modernizing rental units at the project sites. These projects are being funded by HUD. Funds are requested periodically as the cost is incurred. The Authority had outstanding construction commitments of $83,350 at the year ended September 30, NOTE 15 - Conduit Type Debt: Debt related to the original acquisition and early modernization of the public housing developments is funded, guaranteed and serviced by HUD. There is no debt or pledge of faith and credit on part of the Authority. Accordingly, this debt has not been recorded in the financial statements of the Housing Authority. Additionally, HUD no longer provides debt service information to the Authority. NOTE 16 - Economic Dependency: The Authority receives approximately 95% of its revenues from the U.S. Department of Housing and Urban Development (HUD). If the amount of revenues received from HUD falls below critical levels, the Authority s operations could be adversely affected. NOTE 17 - Pension Plan: The Housing Authority has an employee defined contribution pension plan with AXA Equitable. A defined contribution pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual accounts are to be determined instead of specifying the amount of benefits the individual is to receive. The Housing Authority is required to contribute 19.7 percent of an employee s salary. The Housing Authority's actual contribution was $536,063 for the year ended September 30, Employees can contribute up to the maximum annually, as established by the IRS. During fiscal year 2017, employee contributions were $0. 17

26 NOTE 17 - Pension Plan: (Continued) HOUSING AUTHORITY OF THE COUNTY OF LAKE Grayslake, Illinois NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Non-vested Housing authority contributions are forfeited upon termination of employment. Such forfeitures are used to cover a portion of the pension plan's required contributions. For the year ended September 30, 2017, forfeitures reduced the Housing Authority's pension expense by $119,465. Basis of Accounting The financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Valuation of Investments Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Mortgages are valued on the basis of future principal and interest payments, and are discounted at prevailing interest rates for similar instruments. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair value. A separate financial report has been published for the Housing Renewal and Local Agency Retirement Plan and may be obtained by writing to APB Financial Group, Ltd, American Pension Benefits, 115 VIP Drive Suite 120, Wexford, PA 15090, NOTE 18 Subsequent Events: Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the balance sheet date require disclosure in the accompanying notes. Management has evaluated the activity of the Authority through March 23, 2018 (the date the financial statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements. NOTE 19 Prior Period Adjustment/Correction of an Error: The Component unit prior year expenses have been recordered to conform to the current year presentation in the amount of $22,474. The component unit had expenses that were incurred at September 30,

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33 Housing Authority of the County of Lake, IL. (IL056) GRAYSLAKE, IL Entity Wide Balance Sheet Summary Submission Type: Audited/Single Audit Fiscal Year End: 09/30/2017 Project Total PIH Family Self-Sufficiency Program Housing Counseling Assistance Program Housing Choice Vouchers 6.2 Component Unit - Blended 1 Business Activities COCC Subtotal ELIM Total 111 Cash - Unrestricted $1,386,033 $3,569,699 $77,708 $3,482,285 $325,890 $8,841,615 $8,841, Cash - Restricted - Modernization and Development 113 Cash - Other Restricted $39,417 $1,201,857 $1,241,274 $1,241, Cash - Tenant Security Deposits $172,604 $18,249 $190,853 $190, Cash - Restricted for Payment of Current Liabilities $35,017 $5,130 $653 $40,800 $40, Total Cash $1,633,071 $0 $0 $4,771,556 $82,838 $3,501,187 $325,890 $10,314,542 $0 $10,314, Accounts Receivable - PHA Projects $8,302 $8,302 $8, Accounts Receivable - HUD Other Projects $2,705 $2,412 $5,117 $5, Accounts Receivable - Other Government 125 Accounts Receivable - Miscellaneous $2,210 $460 $4,207 $3,644 $10,521 $10, Accounts Receivable - Tenants $82,577 $12,657 $95,234 $95, Allowance for Doubtful Accounts -Tenants -$8,257 -$1,266 -$9,523 -$9, Allowance for Doubtful Accounts - Other $0 $0 $0 $0 $0 $0 $0 $0 127 Notes, Loans, & Mortgages Receivable - Current $5,545 $5,545 $5, Fraud Recovery $10,328 $488,352 $498,680 $498, Allowance for Doubtful Accounts - Fraud -$1,034 -$488,352 -$489,386 -$489, Accrued Interest Receivable $470 $470 $ Total Receivables, Net of Allowances for Doubtful Accounts $86,319 $2,412 $0 $10,512 $460 $21,613 $3,644 $124,960 $0 $124, Investments - Unrestricted 132 Investments - Restricted 135 Investments - Restricted for Payment of Current Liability 142 Prepaid Expenses and Other Assets $30,617 $689 $17,554 $1,648 $8,780 $11,376 $70,664 $70, Inventories $30,030 $3,554 $33,584 $33, Allowance for Obsolete Inventories -$1,501 -$178 -$1,679 -$1, Inter Program Due From $2,078 $2,078 -$2,078 $0 145 Assets Held for Sale 150 Total Current Assets $1,778,536 $4,490 $689 $4,799,622 $84,946 $3,531,580 $344,286 $10,544,149 -$2,078 $10,542, Land $4,677,241 $517,325 $5,194,566 $5,194, Buildings $38,291,377 $2,505,656 $2,186,492 $42,983,525 $42,983, Furniture, Equipment & Machinery - Dwellings $69,945 $15,073 $85,018 $85, Furniture, Equipment & Machinery - Administration $697,489 $283,255 $334,243 $1,314,987 $1,314, Leasehold Improvements 166 Accumulated Depreciation -$27,807,795 -$236,846 -$999,882 -$1,401,903 -$30,446,426 -$30,446, Construction in Progress 168 Infrastructure 160 Total Capital Assets, Net of Accumulated Depreciation $15,928,257 $0 $0 $46,409 $0 $2,038,172 $1,118,832 $19,131,670 $0 $19,131, Notes, Loans and Mortgages Receivable - Non-Current $411,180 $411,180 $411, Notes, Loans, & Mortgages Receivable - Non Current - Past Due 173 Grants Receivable - Non Current 174 Other Assets 176 Investments in Joint Ventures 180 Total Non-Current Assets $15,928,257 $0 $0 $46,409 $0 $2,449,352 $1,118,832 $19,542,850 $0 $19,542, Deferred Outflow of Resources 290 Total Assets and Deferred Outflow of Resources $17,706,793 $4,490 $689 $4,846,031 $84,946 $5,980,932 $1,463,118 $30,086,999 -$2,078 $30,084,921