ASSOCIATION OF VILLAGE COUNCIL PRESIDENTS REGIONAL HOUSING AUTHORITY Bethel, Alaska

Transcription

1 ASSOCIATION OF VILLAGE COUNCIL PRESIDENTS REGIONAL HOUSING AUTHORITY Basic Financial Statements, Supplemental Information, and Compliance Reports September 30, 2016 NEWHOUSE & VOGLER Certified Public Accountants

2 Exhibit Page INDEPENDENT AUDITOR S REPORT BASIC FINANCIAL STATEMENTS Primary Government and Discreetly Presented Component Unit: Statement of Net Position... A-1 4 Statement of Revenues, Expenditures, and Changes in Net Assets... B-1 5 Statement of Cash Flows... C-1 6 Notes to Basic Financial Statements FEDERAL SINGLE AUDIT REPORTS Schedule of Expenditures of Federal Financial Awards Notes to the Schedule of Expenditures of Federal Awards 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 Report on Compliance for Each Major Program and on Internal Control Over Compliance as Required by OMB Circular A Summary of Auditor s Results and Schedule of Findings and Questioned Costs Status of Prior Year Audit Findings STATE COMPLIANCE REPORTS Schedule of State Financial Assistance Report on Compliance for Each Major State Program and Report on Internal Control over Compliance Required by the State of Alaska Audit Guide and Compliance Supplement for State Single Audits State Schedule of Findings and Questioned Costs Status of Prior Audit Findings... 31

3 Newhouse & Vogler Certified Public Accountants 237 E. Fireweed Lane, Suite 200 Anchorage, Alaska (907) (907) Fax Independent Auditor's Report Board of Commissioners Association of Village Council Presidents Regional Housing Authority Ladies and Gentlemen: Report on the Financial Statements We have audited the financial statements and of Association of Village Council Presidents Regional Housing Authority, and discretely presented component units as of and for the year ended September 30, 2016, and the notes to the financial statements, which collectively comprise Association of Village Council Presidents Regional Housing Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Association of Village Council Presidents Regional Housing Authority s 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 Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Hooper Bay Limited Partnership, which represents 4 percent, 2 percent, and 4 percent, respectively of the assets, net position and revenues of Association of Village Council Presidents Regional Housing Authority. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Hooper Bay Limited Partnership is based solely on the report of the other auditors. 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. 1

4 Board of Commissioners Association of Village Council Presidents Regional Housing Authority 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 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 of the entity 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 that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, and discretely presented component units of Association of Village Council Presidents Regional Housing Authority, as of September 30, 2016, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Management has omitted the management s discussion and analysis and budgetary comparison information that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. 2

5 Board of Commissioners Association of Village Council Presidents Regional Housing Authority Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Association of Village Council Presidents Regional Housing Authority s basic financial statements. The schedule of expenditures of federal awards, as required by Uniform Guidance and the Schedule of State Financial Assistance required by the State of Alaska Audit Guild and Compliance Supplement for State Single Audits are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards and schedule of state financial assistance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards and schedule of state awards are fairly stated, in all material respects, in relation to the basic 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 29, 2017 on our consideration of Association of Village Council Presidents Regional Housing 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 Association of Village Council Presidents Regional Housing Authority s internal control over financial reporting and compliance. Anchorage, AK June 29,

6 Exhibit A-1 Primary Government and Discreetly Presented Component Unit Statement of Net Position September 30, 2016 Primary Component Health Total Reporting Government Unit Fund Entity Assets Current assets: Cash $ 3,423, , ,510 4,074,789 Cash equivalents 2,790, ,267 2,940,506 Accounts receivables, net: Participants 261,242 83, ,061 Grant 12, ,559 Other 511, ,481 Intercompany 237, ,679 Prepaid expenses 630, ,110 Total current assets 7,866, , ,777 8,752,185 Restricted assets: Restricted cash - 764, , , ,612 Noncurrent assets: Loans receivable 255, ,445 Investments 16,891, ,891,872 17,147, ,147,317 Fixed assets: Land, nondepreciable improvements, and construction in progress 194,222,315 27, ,249,315 Other capital assets, net of accumulated depreciation 31,694,071 10,207,696-41,901,767 Total capital assets 225,916,386 10,234, ,151,082 Other assets Other assets, at cost, net of accumulated amortization 1,700, ,700,559 Total other assets 1,700, ,700,559 $ 252,630,483 11,416, , ,515,755 Liabilities, Fund Equity, and Other Credits Liabilities: Current liabilities: Accounts payable $ 311,653 55, ,667 Accounts payable - intercompany - 237, ,679 Accrued payroll liabilities 683,372 7, ,162 Accrued interest - 2,495-2,495 Refundable advances 18,947, ,947,840 Reserve for warranty 61, ,309 Trust and deposit liabilities 1,809,015 9,547-1,818,562 Current portion of long-term debt 629, ,413-1,111,778 Total current liabilities 22,442, ,938-23,237,492 Long-term debt 4,367,377 5,287,786-9,655,163 Total liabilities 26,809,931 6,082,724-32,892,655 Net position: Invested in capital assets, net of related debt 220,919,644 4,464, ,384,141 Unreserved - undesignated 4,900, , ,777 6,238,959 Total net position 225,820,552 5,333, , ,623,100 $ 252,630,483 11,416, , ,515,755 4 See accompanying notes to the financial statements.

7 Exhibit B-1 Primary Government and Discreetly Presented Component Unit Statement of Revenues, Expenses, and Changes in Net Position Year Ended September 30, 2016 Primary Component Health Total Reporting Government Unit Fund Entity Operating revenues: Operating subsidy and federal grant revenue $ 15,367, ,367,973 State grant revenue 1,787, ,787,008 Dwelling rental and administration fees 1,335, ,074-1,515,522 Tenant assistance payments - 664, ,953 Forgiveness of operating deficit loans - 228, ,075 Section 1602 grant income - 468, ,982 Contribution income - - 1,665,465 1,665,465 Other income 1,232,507 12,074-1,244,581 Total operating revenues 19,722,936 1,554,158 1,665,465 22,942,559 Operating expenses: Salaries and benefits 8,454, ,923-8,681,763 Travel and training 820, ,738 Stipends 21, ,400 Utilities 1,003, ,611-1,471,260 Vehicle expense 55, ,961 Materials and supplies 4,204,867 31,680-4,236,547 Professional fees 1,405,114 99,244-1,504,358 Administrative , ,213 Tribal assistance 286, ,614 Insurance 1,151,556 89, ,660 2,150,275 Dues & subscriptions 92, ,071 Postage and freight 219,529 1, ,838 Equipment rental 48, ,083 Interest expense 334, , ,327 Depreciation and amortization 1,888, ,040-2,443,607 Bad debt 961,450 4, ,391 Other 378,903 18, ,359 Land 42, ,000 Capital outlays (4,959,195) - - (4,959,195) Total operating expenses 16,410,216 1,594,521 1,340,873 19,345,610 Total operating earnings (loss) 3,312,720 (40,363) 324,592 3,596,949 Nonoperating revenues and expenses: Loss on conveyances (9,883,732) - - (9,883,732) Interest and investment revenues - 62, ,213 Total nonoperating (expenses) revenues (9,883,732) 62, (9,821,519) Change in net position (6,571,012) 21, ,801 (6,224,570) Net position at September 30, ,391,564 5,290, , ,825,806 Prior period adjustment - 21,864-21,864 Net position, restated 232,391,564 5,312, , ,847,670 Net position at September 30, 2016 $ 225,820,552 5,333, , ,623,100 The accompanying notes are an integral part of these financial statements. 5

8 Exhibit C-1 Primary Government and Discreetly Presented Component Unit Statement of Cash Flows Year Ended September 30, 2016 Primary Component Health Total Reporting Government Unit Fund Entity Cash flows from operating activities: Receipts from granting agencies $ 18,853, ,074-19,033,457 Receipts from tenants 972, ,874-1,584,374 Receipts from others 1,179, ,562 1,665,674 2,947,639 Cash paid for interest (334,240) (125,554) - (459,794) Payments to employees (8,636,469) (223,882) - (8,860,351) Payments to vendors (4,801,563) (657,640) (1,340,873) (6,800,076) Net cash flows from operating activities 7,233,014 (112,566) 324,801 7,445,249 Cash flows from capital and related financing activities: Collection of home loans 11, ,269 General Partner Operating Deficit Loans - 228, ,075 Payments on principal of debt and line of credit (333,048) (35,543) - (368,591) Total cash flows from capital and related financing activities (321,779) 192,532 - (129,247) Cash flows from investing activities: Acquisition and construction of capital assets (4,997,290) - - (4,997,290) Purchases of investments (35,188,820) - - (35,188,820) Proceeds from sale of investments 35,319, ,319,744 Purchases from interest - - (209) (209) Increase in restricted assets - (681) - (681) Increase (Decrease) in trusts and deposits (236,522) 7,503 - (229,019) Net cash flows from investing activities (5,102,888) 6,822 (209) (5,096,275) Net change in cash 1,808,347 86, ,592 2,219,727 Cash at beginning of year 1,615, ,021 (6,082) 1,855,062 Cash at end of year $ 3,423, , ,510 4,074,789 Reconciliation of change in net position to net cash provided by activities: Change in net position $ (6,571,012) 21, ,801 (6,224,570) Adjustments to reconcile change in net position to net cash provided by operating activities: Depreciation 1,888, ,040-2,443,607 Loss on conveyances 9,883, ,883,732 Bad Debt 961,450 4, ,391 Adjustment to capital assets - 28,484-28,484 Unrealized gains on investments (53,104) - - (53,104) (Increase) decrease in current assets: Receivable - Participant (362,948) (53,079) - (416,027) Receivable - Grant 1,010, ,010,146 Receivable - Other 37, ,389 Receivable - Intercompany (93,826) - - (93,826) Prepaid expenses 63, ,565 Increase (decrease) in current liabilities: Accounts payable 12,153 49,890-62,043 Accrued payroll liabilities (160,229) 3,041 - (157,188) Accrued interest - (25,467) - (25,467) Refundable advances 688, ,256 Reserve for warranty (71,125) - - (71,125) Non-Cash Activities Forgiveness of operating deficit loans - (228,075) - (228,075) Section 1602 grant income - (468,982) - (468,982) Net cash flows from operating activities $ 7,233,014 (112,566) 324,801 7,445,249 The accompanying notes are an integral part of these financial statements. 6

9 Notes to Basic Financial Statement September 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The Association of Village Council Presidents Regional Housing Authority (the Authority) was established to administer low-income home ownership and low-rent housing programs funded by the Department of Housing and Urban Development (HUD). The programs are governed by terms of the Native American Housing Assistance and Self-determination Act. The Authority is not included in any other governmental reporting entity, and the Authority s Board of Commissioners has decision-making authority, responsibility to significantly influence operations, and primary accountability for fiscal matters. The Authority does exercise oversight responsibility over another entity. The Native American Housing Assistance and Self-determination Act of 1996 (NAHASDA) became effective on October 1, The purpose of this law is to: (1) streamline the process of providing housing assistance to Native Americans; (2) facilitate, where possible, the development of private housing finance mechanisms; and (3) promote economic self-sufficiency and self-determination among Native Americans. Accordingly, it eliminates many compliance requirements under the U.S. Housing Act of 1937, as amended, as well as associated regulations, handbooks, and guidebooks that provided guidance in the past. While permitting the tribal entity greater latitude in establishing policies and procedures, it also created additional reporting and administrative requirements. Under NAHASDA, block grants are awarded directly to tribal entities, and the amount of the block grant is determined by the number of current assisted stock and unmet housing needs within the village. Tribes may designate the Authority to be the tribally designated housing entity (TDHE). Block grants are awarded only after an Indian Housing Plan (IHP) has been submitted. The purpose of an IHP is to demonstrate that the TDHE has made or will make adequate provision to comply with objectives and stewardship requirements of NAHASDA funds. The IHP is composed of a 5- year plan and a 1-year plan. Based upon agreements with a majority of villages in the region and expected funding levels for NAHASDA, the Authority does not expect that revenues received directly or indirectly from HUD will decline substantially within the next few years. Component Unit The AVCP Development Corporation (the Corporation) is a component unit of the Authority. The Corporation was formed as an Alaska not-for-profit corporation and has been determined as a taxexempt entity by the Internal Revenue Service under Internal Revenue Code 501(c)(3). The Board of Commissioners of the Housing Authority also presides as Board of Directors of the Corporation. The Corporation owns Ayalpik Apartments, Lulu Herron Senior Citizen Apartments and is a limited partner in Hooper Bay Limited Partnership (Partnership). Partnership is between general partner AVCP RHA with 0.01% and limited partner AVCP DC with 99.99%. The Authority provides administrative services to Ayalpik Apartments and the Partnership through a management agreement and is reimbursed through a monthly management fee determined from gross rents of the apartments. Under the agreement, the general partner is to be paid monthly management fees totaling 6% of gross rent. 7

10 Notes to Basic Financial Statement, continued NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Component Unit, continued During 2015 and 2014, the Housing Authority has elected not to receive management fees. Management of Lulu Herron has been contracted to North Star management firm. Ayalpik Apartments was constructed through use of an insured mortgage from Alaska State Housing Authority and U.S. Department of Housing and Urban Development. The Partnership was formed in September 14, 2008, for the purpose of owning and operating a 19-unit multifamily housing project in Hooper Bay, Alaska for residents with low or moderate income, it began operating in April Lulu Herron Senior Citizen Complex was constructed by the Authority on behalf of the Corporation that received funding from various grants and a subsidized mortgage note from U.S. Department of Agriculture. The purpose of the Corporation is to provide low-income, elderly, or developmentally disabled individuals with both affordable and assisted housing in Bethel, Alaska. As the Corporation is organized as a not-for-profit, its financial statements are prepared using generally accepted accounting principles as related to not-for-profit organizations. As such, the financial statements are prepared using the accrual method of accounting. Measurement Focus, Basis of Accounting, and Basis of Presentation The financial statements of the Authority are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Authority s reporting entity applies all relevant GASB pronouncements and applicable Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, unless they conflict with GASB pronouncements. The Authority s reporting entity does not apply FASB pronouncements or APB opinions issued after November 30, The Authority uses the enterprise model for financial reporting purposes where the focus is on measuring economic resources utilizing the full accrual basis of accounting wherein revenues are recognized when earned and expenses when incurred. All of the Authority s programs are accounted for as one business-type activity for reporting purposes. This financial statement presentation provides an indication of the financial performances of the Authority as a whole. Enterprise designations are used to account for activities (a) which are financed with debt that is solely secured by a pledge of net revenues from fees and charges of the activity; (b) which are governed by laws or regulations that require that the activity s costs of providing services be recovered with fees and charges, rather than taxes or similar revenues; or (c) that the pricing policies of the activity establish fees and charges designed to recover its costs. Operating revenues and expenses are distinguished from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with affordable housing activities of the Authority. Principal operating revenues of the Authority are NAHASDA grant revenues, State and other federal grants, rental income, and other income from operations. Operating expenses of the Authority included standard categories of operating expenses, including salaries and benefits, professional services, etc. Non-operating items include interest revenue, gain/loss on conveyance, and gain/loss on disposal of fixed assets. 8

11 Notes to Basic Financial Statement, continued NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Measurement Focus, Basis of Accounting, and Basis of Presentation, continued When both restricted and unrestricted resources are available for use, it is the Authority s policy to use restricted resources first, then unrestricted resources as needed. Assets, Liabilities, and Equity Deposits and Investments - The Authority s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of 3 months or less from the date of acquisition. Receivables - Tenant account receivables are presented net of the allowance for doubtful accounts of $806,094. All other receivables are considered fully collectible. Prepaid Items - Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. Deposits are made up of 1 years worth of insurance on housing units and held by Amerind Risk Management Corporation in the Authority s name as its member reserve account. Fixed Assets - The Authority s property, plant, equipment, and infrastructure with useful lives of more than 1 year are stated at historical cost and comprehensively reported in the financial statements. The Authority does not have any infrastructure asset recorded. Donated assets are stated at fair value on the date donated. The Authority generally capitalizes assets with a cost of $5,000 or more as purchase and construction outlays occur. Costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Capital assets are depreciated using the straight-line method. When capital assets are disposed, the cost and applicable accumulated depreciation are removed from the respective accounts, and the resulting gain or loss is recorded in operations. Estimated useful lives in years for depreciable assets are as follows: Buildings 25 Vehicles/equipment 3-5 Fund Equity - Net assets of the Authority are reported in one of two classifications. These classifications are invested in capital assets and unrestricted net assets. 9

12 Notes to Basic Financial Statement, continued NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Mutual Help Housing Units From the beginning of the Authority s inception, the Authority began building homeownership units under HUD s new Mutual Help Housing Program. At September 30, 2007, the Authority still held title to Mutual Help units. The units are leased to homebuyers for a period not to exceed 25 years. At the end of the lease, title is transferred to the homebuyer. Terms of the lease are governed by the Mutual Help Occupancy Agreement (MHOA) between the homebuyer and the Housing Authority. HUD s Office of Native American Programs (ONAP) issued accounting guidance on May 23, 2003, stating, The lease-to-own arrangement between the homebuyer and TDHE (the Authority) can best be described as a layaway program. In response to the question of how units should be valued on TDHE s financial books, the guidance stated, Housing units are maintained on financial books until the unit is conveyed to the homebuyer. The value of housing units would be the lower of cost or market. The MHOA would establish the unit s purchase price or market price. The Mutual Help housing units are considered a noncurrent restricted asset due to the fact that units are not available to help finance the Authority s operations in the short term and cannot be mortgaged, sold, or disposed of in any manner that would violate terms of the MHOA. Use of Estimates Preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect amounts reported in these financial statements. Accordingly, actual results could differ from those estimates. 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. Revenues The Authority administers federal grants and contracts which are generally of a cost-reimbursement type. The grants and contracts include provisions for advances and billings for costs on a reimbursable basis. Revenues and receivables are generally recorded when reimbursable expenditures are incurred to the extent of the grant or contract amount. Amounts receivable from funding agencies at year end include amounts relating to expenditures incurred prior to year-end but not reimbursed until after year end. Advances from funding agencies are considered liquidated when the expenditure is recorded. 10

13 Notes to Basic Financial Statement, continued NOTE 2 - CASH AND INVESTMENTS At September 30, 2016, the Authority s carrying amount of deposits was $6,213,709 and the bank balance was $6,165,512. All of the bank balance was covered by federal depository insurance or collateralized by government and agency obligations and general obligation bonds of a Municipality. The collateral is held in the Authority s name at a financial institution. At September 30, 2016, the Health Fund s carrying amount of deposits was a $468,777 and the bank balance was $468,777. All of the bank balance was covered by federal depository insurance. At September 30, 2016, the Component unit s carrying amount of deposits was $332,809, and the bank balance was $357,054. All of the bank balance was covered by federal depository insurance. The Board of Commissioners authorized the Authority to invest in obligations of the United States, State of Alaska and its political subdivisions, savings accounts, certificates of deposits, and other legal security instruments. At September 30, 2016, AVCP had the following investments Unrealized Fair Value Cost Gain (Loss) Debt instrument securities mature as follows: 2016 $ 16,098,057 16,087,537 10,520 Thereafter 793, ,007 (11,192) $ 16,891,872 16,892,544 (672) Interest Rate Risk. AVCP s investment policy does not limit investment maturities as a means of managing its exposure to fair value losses arising from changing interest rates. Credit Risk. AVCP must invest funds in accordance with the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA) Section Foreign Currency Risk. AVCP has no funds invested in foreign currency, and therefore has no associated risk. Concentration of Credit Risk. AVCP places no limit on the amount it may invest in any one issue. The agencies in which AVCP may invest are outlined in its Investment Policy. 11

14 Notes to Basic Financial Statement, continued NOTE 2 - CASH AND INVESTMENTS, continued At September 30, 2016, the Authority held the following investments, shown as a percentage of the total: Fair Value Percentage Federal Home Loan Mortgage Company $ 556,331 3% Federal Home Loan Bank 200,427 1% U.S Treasury Notes 2,990,422 18% Certificates of Deposit 12,696,269 75% Other investments 448,423 3% $ 16,891, % The Authority s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by ASC No The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset s or a liability s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fairs value hierarchy are as follows: Level 1 Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves. Level 3 Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Corporation s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. 12

15 Notes to Basic Financial Statement, continued NOTE 2 - CASH AND INVESTMENTS, continued The following table provides information as of September 30, 2016 about the Authority s financial assets and liabilities measured at fair value on a recurring basis: Assets at fair value Level 1 Level 2 Level 3 Total Investments $ 16,891, ,891,872 NOTE 3 - CHANGES IN FIXED ASSETS Following are changes in capital assets of the Authority: October 1, September 30, 2015 Additions Deletions 2016 Primary government: Capital assets not being depreciated: Land and homes $ 197,587,035 1,133,505 (9,556,877) 189,163,663 Construction in progress 1,559,817 4,959,195 (1,460,360) 5,058,652 Total capital assets not being depreciated 199,146,852 6,092,700 (11,017,237) 194,222,315 Capital assets being depreciated - Buildings 44,784, ,784,828 Vehicles and equipment 910,613 38, ,708 27,020,721 38,095-45,733,536 Less accumulated depreciation (12,242,996) (1,796,469) - (14,039,465) Total capital assets being depreciated, net 33,452,445 (1,758,374) - 31,694,071 Primary government capital assets, net $ 232,599,297 4,334,326 (11,017,237) 225,916,386 13

16 Notes to Basic Financial Statement, continued NOTE 3 - CHANGES IN FIXED ASSETS, continued October 1, September 30, 2015 Additions Deletions 2016 Component unit: Capital assets not being depreciated: Land $ 27, ,000 Capital assets being depreciated: Buildings 16,721, ,721,573 Vehicles and equipment 344,174 3, ,268 17,065,747 3,094-17,068,841 Less accumulated depreciation (6,306,760) (554,385) - (6,861,145) Total capital assets being depreciated, net 10,758,987 (551,291) - 10,207,696 Component unit capital assets, net $ 10,785,987 (551,291) - 10,234,696 NOTE 4 OTHER ASSETS Following are changes in other assets of the Authority: October 1, September 30, 2015 Additions Deletions 2016 Component unit: Financial fees $ 43,195 - (31,578) 11,617 Tax credit fees 10, ,000 53,195 - (31,578) 21,617 Less accumulated amortization (20,403) (655) - (21,058) Component unit other assets, net $ 32,792 (655) (31,578)

17 Notes to Basic Financial Statement, continued NOTE 5 - ACCOUNTS RECEIVABLES Receivables were as follows as of September 30, 2016: Balance Allowance Net Participants 806,094 (544,852) 261,242 Grants 12,559-12,559 Other 1,524,835 (1,013,354) 511,481 Intercompany 237, ,679 Total receivables $ 2,581,167 (1,558,206) 1,022,961 NOTE 6 - PENSION PLAN The Authority has a defined contribution plan covering substantially all full-time employees. Lincoln Financial Group is the plan administrator. Contributions, which are limited to 10 percent of eligible employee salaries, were $242,693 for the year ended September 30, NOTE 7 - 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. These risks are covered by commercial insurance purchased from independent third parties. There was no significant reduction in coverage during the year. NOTE 8 - ECONOMIC DEPENDENCY The Authority receives approximately 77 percent of its revenues from HUD. If the amount of revenues received from HUD falls below critical levels, the Authority s operating results could be adversely affected. NOTE 9 - CONTINGENT LIABILITIES Under terms of State and federal grants, periodic audits may be performed by funding agencies, and certain costs may be questioned as not being appropriate expenditures under terms of the grants. Such audits could require reimbursement to grantor agencies. In addition, the authority is currently under investigation from the office of the Inspector General, concerning it procurement procedures. Management believes the outcome of the matters discussed in the preceding paragraph will not have a material adverse effect on the financial position of the Authority. Accordingly, no provision for losses has been recorded. 15

18 Notes to Basic Financial Statement, continued NOTE 10 LONG-TERM DEBT The Authority has a long-term note from First National Bank to finance construction of the Authority s office. The Authority s component unit, the Corporation, has two long-term notes that have been recorded and are presented on the combined balance sheet. A summary of the notes follows: 7 percent mortgage payable to First National Bank with monthly payments of $10,356; matures in $ 3,296, percent loan payable to First National Bank with ; matures in ,700,000 9 percent mortgage payable to GMAC with monthly payments of $2,472; maturity date, June 1, , percent mortgage payable to U.S. Department of Agriculture (USDA); matures in ,357,847 0 percent loan payable to Alaska Housing Finance Corporation; matures in ,858,775 Total long-term debt 10,766,941 Less current portion (1,111,778) Long-term debt excluding current portion $ 9,655,163 The following is a summary of changes in long-term debt for the year ended September 30, 2016: October 1, September 30, Amounts Due 2015 Additions Deductions 2016 Within 1 year Notes payable $ 9,812,416 1,792,098 (837,573) 10,766,941 (1,111,778) The Authority entered into an agreement with the Native Village of Quinhagak (NVK) to assume NVK s Title VI loan of $1,792,098. The loan was transferred and refinanced during 2016 and is due in The Authority has determined to amortize the expense over the life of the loan, matching annual expenses to the principal payments. Current year principal payments equaled $92,098, with total reported amortization expense equaling $92,

19 Notes to Basic Financial Statement, continued NOTE 10 LONG-TERM DEBT, Continued The mortgage note payable to United States Department of Agriculture (USDA) is payable in 30 years but is being amortized over 50 years. As such, at the end of 30 years, the Corporation will have a balloon payment of approximately $1,126,857. As the loan is being used to provide housing for low-income, elderly individuals, the Corporation qualifies for an interest subsidy from USDA. Each loan payment is offset by $5,013 per month that is used to pay interest costs. The Corporation received $60,156 in interest subsidy for fiscal year ended September 30, The Partnership entered into a loan agreement with Alaska Housing Finance Corporation (AHFC) to receive $7,034,729 in funds from section 1602 program. The loan is at a 0% interest and is due in 15 years. Under the agreement, there are no payments required unless a recapture event occurs. Beginning on the date the property is place in service and continuing each year on the anniversary date, the principal amount outstanding shall be reduced by $468,982, which is 1/15 of the principal amount due. Each year, beginning 2010 the forgiveness of these funds shall be reported as a grant income. The note is secured by a deed of trust on all property and improvements. During 2016 $468,982 was forgiven. At December 31, 2016, the balance of the section 1602 loan was 3,845,344. The future minimum loan payments and debt forgiveness are as follow: 2017 $ 1,111, ,153, ,164, ,242, ,055,696 Thereafter 5,039,711 $ 10,766,941 NOTE 11 STATEMENT OF CASH FLOWS, SUPPLEMENTAL INFORMATION The Authority made cash payments during fiscal year 2016 of $334,240 and $125,554 for interest on debt held by the Authority and its component unit respectively. The Authority acquired $1,792,098 in debt from the Native Village of Quinhagak, by means of a non-cash transfer. The Authority s component unit recognized debt forgiveness of $468,982 for its loan agreement held with AHFC. 17

20 Notes to Basic Financial Statement, continued NOTE 12 HEALTH INSURANCE PLAN On July 1, 2008, the Authority began a self-insurance health plan. Each participating employee is charged $1,300 a year as a health insurance premium. This amount is paid for by the Authority and is set up in payroll; contributions come from grant funds and are included as fringe benefits. Contributions to the plan for the year ending September 30, 2016 were $1,665,465. To manage the plan, the Authority established a third party administrator (TPA), Meritain Health, LLC, who provides such services as: claims examinations, eligibility verification, coordination of benefits, referral of claims and claim payments. NOTE 13 NEW ACCOUNTING PRONOUNCEMENTS The Governmental Accounting Standards Board has passed several new accounting standards with upcoming implementation dates. Management has not fully evaluated the potential effects of these statements, but believes that none of the new accounting pronouncements will have a material impact on the financial statements of the Authority. NOTE 14 SUBSEQUENT EVENTS In preparing these financial statements, the Authority has evaluated events and transactions for potential recognition or disclosure through June 29, 2017, the date the financial statements were available to be issued. 18

21 FEDERAL SINGLE AUDIT REPORTS

22 Schedule of Federal Financial Assistance Year Ended September 30, 2016 Period Total of Grant CFDA Grant Federal Grant Title Award Number Number Award Expenditures U.S. Department of Housing and Urban Development (HUD): NAHASDA (14)* IH $ 16,450,429 5,012,268 NAHASDA (15)* IH ,464,727 10,355,705 Total NAHASDA 30,915,156 15,367,973 $ 30,915,156 15,367,973 * Denotes a major program 19

23 Notes to the Schedule of Expenditures of Federal Awards September 30, 2016 NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of the Authority under programs of the federal government for the year ended September 30, The information in this Schedule is presented in accordance with the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Authority, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Authority. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the schedule of expenditures of federal awards are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. NOTE 3 FEDERAL INDIRECT RATE The Authority did not use the 10% de minimis indirect cost rate. 20

24 Newhouse & Vogler Certified Public Accountants 237 E. Fireweed Lane, Suite 200 Anchorage, Alaska (907) (907) Fax 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 Auditor s Report Board of Commissioners Association of Village Council Presidents Regional Housing Authority Ladies and Gentlemen: We have audited, 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, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Association of Village Council Presidents Regional Housing Authority as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise Association of Village Council Presidents Regional Housing Authority s basic financial statements, and have issued our report thereon dated June 29, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Association of Village Council Presidents Regional Housing 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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Association of Village Council Presidents Regional Housing Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of Association of Village Council Presidents Regional Housing 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 over financial reporting 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 financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 21

25 Board of Commissioners Association of Village Council Presidents Regional Housing Authority Compliance and Other Matters As part of obtaining reasonable assurance about whether Association of Village Council Presidents Regional Housing 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. We noted certain matters that we have reported to management of Association of Village Council Presidents Housing Authority in a separate letter dated June 29, 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Anchorage, AK June 29,

26 Newhouse & Vogler Certified Public Accountants 237 E. Fireweed Lane, Suite 200 Anchorage, Alaska (907) (907) Fax Report on Compliance for each Major Federal Program and Report on Internal Control over Compliance Required by Uniform Guidance Independent Auditor s Report Board of Commissioners Association of Village Council Presidents Regional Housing Authority Ladies and Gentlemen: Report on Compliance for its Major Federal Program We have audited Association of Village Council Presidents Regional Housing Authority s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended September 30, Association of Village Council Presidents Regional Housing Authority s major federal programs are identified in the summary of auditor s 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 Association of Village Council Presidents Housing Authority s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our compliance audit 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 Title 2 U.S. Code of Federal Regulation Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and Uniform Guidance that we plan and perform the compliance 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 Association of Village Council Presidents Housing 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 Association of Village Council Presidents Housing Authority s compliance. 23

27 Board of Commissioners Association of Village Council Presidents Regional Housing Authority Opinion on its Major Federal Program In our opinion, Association of Village Council Presidents Regional Housing Authority complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, Report on Internal Control over Compliance Management of Association of Village Council Presidents Housing 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 Association of Village Council Presidents Housing Authority s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program as a basis for designing 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 OMB Circular A-133, 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 Association of Village Council Presidents Housing 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 a 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 over compliances that might be deficiencies, significant deficiencies, or material weaknesses. 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 Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Anchorage, AK June 29,