SAN FELIPE PUEBLO HOUSING AUTHORITY FINANCIAL STATEMENTS AND SCHEDULES WITH INDEPENDENT AUDITORS REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2016

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1 SAN FELIPE PUEBLO HOUSING AUTHORITY FINANCIAL STATEMENTS AND SCHEDULES WITH INDEPENDENT AUDITORS REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2016

2 TABLE OF CONTENTS DECEMBER 31, 2016 FINANCIAL SECTION Independent Auditors Report BASIC FINANCIAL STATEMENTS: Statement of Net Position... 3 Statement of Revenues, Expenses and Changes in Net Position... 4 Statement of Cash Flows... 5 NOTES TO FINANCIAL STATEMENTS SINGLE AUDIT SECTION Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards SUPPLEMENTARY INFORMATION AND SUPPORTING SCHEDULES COMPLIANCE Independent Auditors 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 Independent Auditors Report on Compliance for Each Major Program and On Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs EXIT CONFERENCE ii

3 Independent Auditors Report To the Executive Director and the Board of Commissioners San Felipe Pueblo Housing Authority San Felipe, New Mexico Report on Financial Statements We have audited the accompanying financial statements of the San Felipe Pueblo Housing Authority (the Authority), which comprise the statement of net position as of December 31, 2016, and the related statements of revenue, expenses and changes in net position and cash flows for the year then ended, and the related notes to the financial statements. 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our 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 we 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 auditors 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 entity 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 on the Authority s internal control. Accordingly, we 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. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the San Felipe Housing Authority as of December 31, 2016, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements present only the Housing Authority of the Pueblo de San Felipe. They do not purport to, and do not, present fairly the financial position of the Pueblo de San Felipe as of December 31, 2016, the changes in financial position, or, where applicable, its cash flows for the year ten ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is note modified with respect to this matter. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. 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. The 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 our opinion, the information 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, we have also issued our report dated June 16, 2017, on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 the Authority s internal control over financial reporting and compliance. Kubiak Melton & Associates, LLC Albuquerque, New Mexico June 15,

5 STATEMENT OF NET POSITION DECEMBER 31, 2016 ASSETS Current Assets: Cash and Cash Equivalents, Unrestricted $ 554,856 Accounts Receivable, Net 9,246 Prepaid Insurance 5,877 Total Current Assets 569,979 Noncurrent assets: Capital Assets, Net 39,033 Other Assets: Assets Held for Conveyance, Net of Accumulated Amortization 12,383,862 Total Other Assets 12,383,862 TOTAL ASSETS $ 12,992,874 LIABILITIES AND NET POSITION Current Liabilities: Vendors and Contractors Payable $ 440,374 Accrued Wages and Taxes Payable 19,969 Notes Payable, Current 220,019 Accrued Compensated Absences 40,134 Other Current Liabilities 636 Total Current Liabilities 721,132 Noncurrent Liabilities: Notes Payable, Long-term 9,641,448 Escrowed Trust Liabilities, Homebuyers 1,455,419 Total Noncurrent Liabilities 11,096,867 TOTAL LIABILITIES 11,817,999 NET POSITION Net Investment in Capital Assets 39,033 Restricted 11,817,423 Unrestricted (10,681,581) Total Net Position 1,174,875 TOTAL LIABILITIES AND NET POSITION $ 12,992,874 See Independent Auditors Report and Notes to Financial Statements 3

6 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION OPERATING REVENUES HUD Grants $ 2,412,288 Other Governmental Grants 1,036,449 Other Revenue 212,268 TOTAL OPERATING REVENUES 3,661,005 OPERATING EXPENSES Administrative 2,805,113 Utilities 150,442 Insurance 241,724 Rehabilitation and Construction Activities 2,667,047 Amortization of Housing Units 585,286 Depreciation 12,916 TOTAL OPERATING EXPENSES 6,462,528 OPERATING INCOME (LOSS) (2,801,523) NONOPERATING REVENUES (EXPENSES) Mortage Interest Revenue 158,877 Interest Expense (164,320) TOTAL NONOPERATING REVENUES (EXPENSES) (5,443) Transfers In 2,835,243 Transfers Out (2,838,644) Net Transfers (3,401) NET CHANGE IN NET POSITION (2,810,367) NET POSITION, BEGINNING OF YEAR 3,985,242 NET POSITION, END OF YEAR $ 1,174,875 See Independent Auditors Report and Notes to Financial Statements 4

7 STATEMENT OF CASH FLOWS Cash Flows from Operating Activities Receipts From Customers and Grants $ 3,448,737 Cash received from other income 212,268 Payments to Employees (2,805,113) Payments for Operating Expenses (1,517,938) Net cash provided by (used in) operating activities (662,046) Cash Flows from Capital and Related Financing Activities Interest Paid on Capital Debt (164,320) Net cash provided by (used in) Capital and Related Financing Activities (164,320) Cash Flows from Investing Activities Mortgage Interest Revenue 158,877 Other (3,401) Net cash provided by (used in) Investing Activities 155,476 Net Increase in Cash and Cash Equivalents (670,890) Cash and Cash Equivalents, Beginning 1,225,746 Cash and Cash Equivalents, End $ 554,856 Reconciliation of income from operations to net cash provided by operating activities Change in Net Position $ (2,810,367) Adjustments to reconcile income from operations to net cash provided by operating activities Depreciation Expense 12,916 Amortization Expense 585,286 Changes in assets and liabilities Accounts Receivable (529,281) Prepaid and Other Assets 25,879 Assets held for conveyance (391,212) Accounts Payable 300,900 Accrued Wages and Taxes Payable 1,494 Accrued Compensated Absences 5,830 Other Current Liabilities 186 Escrow Trust Liabilities 425,764 Notes Payable 1,710,559 Net cash provided (used) by operating activities $ (662,046) See Independent Auditors Report and Notes to Financial Statements 5

8 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION Organization San Felipe Pueblo Housing Authority (TDHE), ("the Authority") is a public body corporate and politic pursuant to the Laws of the State of New Mexico which was organized to provide affordable housing for income qualified individuals in accordance with the rules and regulations prescribed by the U.S. Department of Housing and Urban Development (HUD) and Native American Housing Assistance and Self-Determination Act (NAHASDA). Reporting Entity The financial statements comply with the provisions of GASB statement No. 61, The Financial Reporting Entity: Omnibus, in that the financial statements include all the Authority s activities and functions for which the Authority is financially accountable. Determination of financial accountability includes, among other factors, appointment of a voting majority of the component s governing body and (1) ability to impose its will over the component unit or (2) the possibility that the component unit will provide a financial benefit to, or impose a financial burden on, the Authority. Based on the preceding criteria, the accompanying financial statements do not include the financial activities of any entity other than the Authority. The basic financial statements of the San Felipe Pueblo Housing Authority (TDHE) include Homeownership Indian Housing and NAHASDA funding in support of these housing programs through affordable housing. Basis of Presentation and Accounting In accordance with uniform financial reporting standards for HUD housing programs, the basic financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). Based upon compelling reasons offered by HUD, the Authority reports its basic financial statements as a special purpose government engaged solely in business-type activities, which is similar to the governmental proprietary fund type (enterprise fund), which uses the accrual basis of accounting and the flow of economic resources measurement focus. Revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred. Pursuant to GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, certain accounting and financial reporting guidance is applied in the preparation of the basic financial statements, unless those pronouncements conflict with or contradict GASB pronouncements. Measurement Focus, Basis of Accounting The Authority is reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred regardless of when the related cash flow takes place. See Independent Auditors Report and Notes to Financial Statements 6

9 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (continued) Summary of Other Authority Programs The accompanying basic financial statements consist of the activities of the housing programs subsidized by HUD and Authority owned entities. a) Indian Community Development Block Grant (ICDBG): The Authority (subrecipient) entered into an agreement with the San Felipe Pueblo Tribe (recipient) to implement and administer projects designed to address the community development needs of low and moderate-income residents of the San Felipe Pueblo Tribe under an Indian Community Development Block Grant. b) Title VI: The HUD Title VI Loan Guarantee Program allows the borrower to leverage IHBG funds to finance current affordable housing actives by pledging current and future IHBG funds as security for repayment of the guarantee loan without impairing their ability to meet section 203(B) of NAHASDA. The Loan is a guarantee in which HUD agrees to guarantee the payment of 80% of the principal of the interest and principal of the note. c) Mortgage Finance Authority (MFA): THE HUD HOME Investment Partnerships Program has allocated funding to the State of New Mexico under the HOME Program, which is administered by the New Mexico Mortgage Finance Authority (MFA). SFPHA contracts with the MFA for HOME funds to provide repairs/renovations for low-moderate level income families. d) Homeownership Mortgage Program: SFPHA and the San Felipe Pueblo have created and implemented a San Felipe Pueblo Homeownership Mortgage Program. SFPHA and the Pueblo have agreed to provide loans to develop, construct, or acquire homes and related infrastructure on the Pueblo. Loans are for a term of 30 years with a 4% interest rate, which SFPHA keeps 1% of the loan for administrative and maintenance purposes. 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 basic financial statement presentation. Cash and Cash Equivalents For purposes of the Statement of Cash Flows, the Authority considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased and non-negotiable certificates of deposit to be cash equivalents. Interprogram Receivables and Payables lnterprogram receivables/payables, when present, are all current, and are the result of the use of the Public Housing Program as the common paymaster for shared costs of the Authority. See Independent Auditors Report and Notes to Financial Statements 7

10 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (continued) Cash settlements are made periodically, and all interprogram balances net zero. Offsetting due to/due from balances is eliminated for the basic financial statement presentation. Investments Investments, when present, 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 in the Authority's name. 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 New Mexico. Inventories The Authority maintains no inventory of expendable items. All supplies are expensed when purchased. Supplies on hand are minimal. The Authority's administration believes that the benefits of maintaining an inventory would be less in value than the cost of maintaining such a system. Prepaid Items Payments made to vendors for goods or services that will benefit periods beyond the fiscal year end are recorded as prepaid items. 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 basic 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 basic financial statements and reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying amount of the Authority's financial instruments at December 31, 2016 including cash, investments, accounts receivable, and accounts payable closely approximates fair value. Capital Assets Book Value: All purchased fixed assets are valued at cost when historical records are available. When no historical records are available, fixed assets are valued at estimated historical cost. Land values were derived from development closeout documentation. Donated fixed 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 expenditures of preparing an asset for use are capitalized when they meet or exceed the capitalization threshold. See Independent Auditors Report and Notes to Financial Statements 8

11 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (continued) Depreciation: The cost of leasehold improvements and equipment is depreciated over the estimated useful lives of the related assets on a composite basis using the straight-line method. Depreciation commences on modernization and development additions in the month following completion. The useful lives of buildings and equipment for purposes of computing depreciation are as follows: Leashold Improvements 7 years Equipment and Vehicles 5 Years Maintenance and repairs expenditures are charged to operations when incurred. Betterments in excess of $5,000 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. Accrued Compensated Absences Compensated absences are those absences for which employees will be paid, such as vacation and sick leave computed in accordance with GASB Statement No. 16. 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. Vacation leave is paid only upon termination. The Authority does not pay for sick leave. Employees have a use it or lose it policy. Deferred Outflows / Inflows of Resources GASB 63 amended previous guidance on deferred revenue in the government-wide financial statements to include deferred outflows, which is the consumption of net position by the government which is applicable to a future reporting period and deferred inflow of resources, which is acquisition of net position by the government which is applicable to a future reporting period. The Authority has no deferred outflow or inflow of resources at December 31, 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. NAHASDA Contribution Contracts NAHASDA Contribution contracts provide that HUD shall have the authority to audit and examine the records of Indian housing authorities. Accordingly, final determination of the Authority's financing and contribution status for the NAHASDA Contribution Contracts is the responsibility of HUD based upon financial reports submitted by the Authority. See Independent Auditors Report and Notes to Financial Statements 9

12 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (continued) 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 workers' compensation and employee health and accident insurance. 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. Use of Restricted Assets It is the Authority's policy to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted Net Position are available. Operating Revenues and Expenses The principal operating revenues of the Authority's enterprise fund are charges to customers for rents and services. Operating expenses for the Authority's enterprise fund include the cost of providing housing and services, administrative expenses and depreciation on capital assets. Revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Federal and State Income Taxes The Pueblo is treated as a sovereign nation and its commercial operations are exempt from all income taxation imposed by the federal government, any state, or any political subdivision thereof. Accordingly, there are no provisions for federal or state income taxes in the accompanying financial statements. NOTE 2 CASH AND CASH EQUIVALENTS The carrying amounts of the Authority's cash deposits were $554,856 at December 31, Bank balances before reconciling items were $630,902 at that date, the total amount of which was collateralized or insured with securities held by an unaffiliated banking institution in the Authority's name. 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. See Independent Auditors Report and Notes to Financial Statements 10

13 NOTES TO THE FINANCIAL STATEMENTS NOTE 2 CASH AND CASH EQUIVALENTS (continued) Custodial Credit Risk for deposits is the risk that in the event of the bank failure, the Authority s deposits may not be returned to it. The Authority does not have a deposit policy for custodial credit. As of December 31, 2016, the bank deposits were insured and collateralized as such: US BANK BANK OF AMERICA Deposits $ 415,750 $ 215,152 FDIC Coverage (250,000) (215,152) Total Uninsured Public Funds 165,750 - Collateralized by securities held by pledged institutions or by its trust department or agent in other than the Authority's name 7,113,441 - Over (Under) collateralized $ 6,947,691 $ - NOTE 3 ACCOUNTS RECEIVABLE Lease Payment Receivables (net of allowance for doubtful accounts of $0) $ 9,091 Other 155 Total $ 9,246 NOTE 4 ASSETS HELD FOR CONVEYANCE, NET Assets Held for Conveyance are all of our homes that are under a Lease Purchase Agreement or Mortgage Agreement or Note. All homes have a 30 year mortgage or Purchase Agreement. During this time, all homes are under the Authority s management. Homeowners must comply with terms during this time. For example, homeowners have to have an annual home inspection and make payments monthly. Once the home is paid in full, the homeowners are given a quick claim deed and are taken out of our Assets Held for Conveyance. At December 31, 2016 Assets Held for Conveyance is $12,383,862 net of $1,731,570 accumulated amortization. NOTE 5 HOMEOWNERSHIP PROGRAM The Authority has entered into Lease Purchase Agreements with Homeownership Participants. Participants must be eligible under NAHASDA income guidelines and be San Felipe Pueblo Tribal Members. All payments are deposited into a Program Income account, which the Authority utilizes for repairs, maintenance and administrative expenses. A homebuyer account is credited with the principal amount of each required monthly payment. At December 31, 2016, the balances in the accounts aggregated $1,455,419 noted on the statement of net position under the title: Escrow Trust Liabilities - Homebuyers. See Independent Auditors Report and Notes to Financial Statements 11

14 NOTE 6 CAPITAL ASSETS SAN FELIPE PUEBLO HOUSING AUTHORITY NOTES TO THE FINANCIAL STATEMENTS A summary of changes in capital assets is as follows: Balance 12/31/2015 Additions Deletions Balance 12/31/2016 Capital Assets being Depreciated Vehicles $ 117,866 $ 34,500 $ - $ 152,366 Less: Accumulated Depreciation (100,417) (12,916) - (113,333) Capital Assets, Net $ 17,449 $ 21,584 $ - $ 39,033 Depreciation expense for the year ended December 31, 2016 was $12,916. NOTE 7 LONG-TERM DEBT During February of 2016, San Felipe Pueblo, a related party, loaned the Authority $10,000,000. The purpose of this loan was for the Housing Authority to pay off the mortgages held with banking institutions and also provide the Authority with some capital to build more houses for the Tribal Members. The term of this note is, 30 years at three percent (3%) interest. Monthly debt payments will be $42,160. The total loan payouts to two banking institutions in February of 2016 was $8,057,627. The property is subject to a security interest in the Authority s leasehold interest in the Black Mesa Subdivision and all improvements thereon. The homebuyers make monthly mortgage payments to the Housing Authority, and in turn the Housing Authority remits the money to San Felipe Pueblo to reduce the debt. Schedule of Changes in Noncurrent Liabilities: Balance 12/31/2015 Additions Deletions Balance 12/31/2016 Amount Due within One Year Notes Payable $ 8,077,328 $ 10,000,000 $ 8,215,861 $ 9,861,467 $ 220,019 Monthly Equity Pmt. Accounts 1,029, ,764-1,455,419 - $ 9,106,983 $ 10,425,764 $ 8,215,861 $ 11,316,886 $ 220,019 See Independent Auditors Report and Notes to Financial Statements 12

15 NOTES TO THE FINANCIAL STATEMENTS NOTE 7 LONG-TERM DEBT (continued) Future Minimum Payments required under the loan agreement are as follows: Year Ending December 31, Principal Interest Total , ,905 $ 505, , , , , , , , , , , , , ,358,028 1,171,596 2,529, ,577, ,116 2,529, ,832, ,164 2,529, ,128, ,008 2,529, ,795,772 79,476 1,875,248 Total $ 9,861,467 $ 4,661,899 $ 14,523,366 NOTE 8 DEFINED CONTRIBUTION PENSION PLAN The Authority provides pension benefits for all its full-time employees through a defined contribution plan entitled "San Felipe Pueblo Housing Authority (TDHE) 401(K) Plan". The plan is administered by Lord Abbott. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The Board of Commissioners for the Authority is authorized to establish and amend plan benefits. Employees are eligible to participate from the date of employment. The Authority contributes up to 5% of the employee's base salary each month, while the employee contributes up to 5%. The Authority's contributions for each employee (and interest allocated to the employee's account) are fully vested after five years of continuous service, or until age 65, whichever is first. Authority contributions for, and interest forfeited by, employees who leave employment before vesting are used to reduce the Authority's current-period contribution requirement. The Authority's total payroll covered by the pension plan in fiscal year 2016 was $350,240. The Authority and the employees made the required contributions amounting to $17,512 and $17,154 respectively. NOTE 9 ECONOMIC DEPENDENCY The Authority receives approximately 63% of its revenues from HUD. If the amount of revenues received from HUD falls below critical levels, the Authority's reserves could be adversely affected. NOTE 10 COMMITMENTS The Authority is engaged in a modernization program funded by HUD. In this regard, the Authority has not entered into rehabilitation type contracts for fiscal year See Independent Auditors Report and Notes to Financial Statements 13

16 NOTES TO THE FINANCIAL STATEMENTS NOTE 11 LEASING ACTIVITIES (AS LESSOR) The Authority is the lessor of dwelling units mainly to low-moderate income residents. The payments under the leases are determined generally by the resident s income as adjusted for eligible deductions regulated by HUD, although the resident may opt out for a flat payment. Leases may be cancelled by the Lessee with proper notice at any time. The Authority may cancel the lease only for cause/default in payments or misuse or abuse of the unit. NOTE 12 RELATED PARTIES Related party transactions for the year ended December 31, 2016, are as follows: In the normal course of business, the Authority provides assistance to individuals including their employees. In the Authority s Policy of Eligibility and Admissions, it requires: Any employee receiving assistance must be disclosed publically on the Pueblo and send a copy to the Regional Office to avoid any conflict. All transactions are conducted at arm s length with the same terms offered to any eligible participant at that time. The Pueblo is considered a related party to the Authority. Specific transactions entered into during 2016 are described in Note 7. NOTE 13 SUBSEQUENT EVENTS Management has evaluated events through June 15, 2017, the date the financial statements were available to be issued. See Independent Auditors Report and Notes to Financial Statements 14

17 SINGLE AUDIT SECTION

18 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal Grantor Federal Pass Pass-Through Agency CFDA Through Federal Program Title Number Entity Grant Number Expenditures U.S. Department of Housing and Urban Development: Indian Housing Block Grant Cluster Indian Housing Block Grant - NAHASDA N/A 55IH $ 554,490 Title VI - Loan Grant Program N/A 55IH ,048 Indian Community Development Block Grant * N/A B14SR ,831 Indian Community Development Block Grant * N/A B15MR ,550 HOME Investment Partnership - MFA State of NM SFP-HOR ,262 HOME Investment Partnership - MFA State of NM SFP-HOR ,221 Total U.S. Department of Housing and Urban Development: 2,684,402 Total Federal Awards Expended $ 2,684,402 * - Denotes major program 16

19 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTE 1 GENERAL The accompanying schedule of expenditures of federal awards presents the federal financial assistance programs of the Housing Authority. The Housing Authority s reporting entity is defined in Note 1 to the Housing Authority s financial statements. NOTE 2 BASIS OF ACCOUNTING The accompanying Schedule of Expenditures of Federal Awards is presented using the accrual basis of accounting, which is described in Note 1 to the Housing Authority s financial statements. NOTE 3 RECONCILIATION OF SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS TO FINANCIAL STATEMENTS The following is a reconciliation of the expenditures reported on the Schedule of Expenditures of Federal Awards to the expenditures reported in the financial statements for the Housing Authority: Expenditures reported in the schedule of expenditures of federal awards $ 2,684,402 Expenditures funded by other sources 3,778,126 Total Operating Expenses $ 6,462,528 NOTE 4 SUB-RECIPIENTS The Authority did not provide any federal awards to sub-recipients during the year. NOTE 5 INDIRECT COST RATE The expenditures reported on the Schedule do not include indirect costs. The Authority has elected not to use the 10% de minimis indirect cost rate. 17

20 INDEPENDENT AUDITOR S 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 To the Executive Director and the Board of Commissioners San Felipe Pueblo Housing Authority San Felipe, New Mexico We have audited, in accordance with the 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, the financial statements of the San Felipe Pueblo Housing Authority (Authority), which comprise the statement of net position as of December 31, 2016, and the related statements of revenues, expenses and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated June 15, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of s internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 18

21 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, 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 or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Kubiak Melton & Associates, LLC Albuquerque, New Mexico June 15,

22 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Executive Director and the Board of Commissioners San Felipe Pueblo Housing Authority San Felipe, New Mexico Report on Compliance for Each Major Federal Program We have audited the San Felipe Pueblo Housing Authority s (the Authority ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Authority s major federal programs for the year ended December 31, The Authority s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Authority s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Authority s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Authority s compliance. 20

23 Opinion on Each Major Federal Program In our opinion, the Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Other Matters The Authority s responses to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Authority s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Authority s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Authority s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. 21 Kubiak Melton & Associates Albuquerque, New Mexico June 15, 2017

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Section I Summary of Auditor s Results Financial Statements Type of auditors report issued:... Unmodified Internal control over financial reporting: Material weaknesses identified?... No Significant deficiencies identified?... No Noncompliance material to financial statements noted?... No Federal Awards Internal control over major programs: Material weaknesses identified?... No Significant deficiencies identified?... No Type of auditors report issued on compliance for major programs:... Unmodified Any audit findings disclosed that are required to be reported in accordance with section of OMB Uniform Guidance Subpart F... No Identification of major programs: Dollar threshold used to distinguish between type A and type B programs: $750,000. Auditee qualified as a low-risk auditee under the requirements set forth by section of OMB Uniform Guidance Subpart F: Yes 22

25 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Identification of Major Programs: CFDA Number Name of Federal Program or Cluster Indian Community Development Block Grant Section II Financial Statement Findings There were no financial statement findings for the year ended December 31, Section III Federal Award Findings and Questions Costs There were no federal award findings and questions costs for the year ended December 31, Status of Prior Year Findings There were no prior year findings. 23

26 EXIT CONFERENCE DECEMBER 31, 2016 The contents of this report were discussed at an exit conference held June 15, The firm of Kubiak Melton & Associates, LLC was represented by Daniel O. Trujillo, CPA, CFE, CGFM, CGMA. The San Felipe Housing Authority, was represented by: Anthony Candelaria, Chairperson of BOC Isaac Perez, Executive Director Brenda Rico, Finance Director Jenna Duran, Accounting Technician Randy Tenorio, Projects Manager Brennan Valencia, Assistant Projects Manager Danielle Valencia, Programs Manager The audited financial statements of the San Felipe Pueblo Housing Authority were prepared from the original books and records provided by and with the assistance of the management of the Authority and Kubiak Melton & Associates, LLC. 24