PUNTA GORDA HOUSING AUTHORITY Punta Gorda, Florida REPORT ON AUDIT OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

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1 REPORT ON AUDIT OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED MARCH 31, 2016

2 TABLE OF CONTENTS PAGE Independent Auditor's Report on Basic Financial Statements and Supplemental Information Management's Discussion and Analysis (MD&A) I-VI Basic Financial Statements Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to Basic Financial Statements 7-21 Supplemental Information Combining Schedule of Net Position Combining Schedule of Revenues, Expenses and Changes in Net Position Combining Schedule of Net Position - Business Activities Combining Statement of Revenues, Expenses and Changes in Net Position - Business Activities Statement of Cash Flows-Business Activities Financial Data Schedule (FDS) Electronic Submission Schedule Certification of Actual Replacement Housing Factor Fund Grant Costs Schedule of Expenditures of Federal Awards 37 Single Audit Section Independent Auditor's Report On Internal Control Over Financial Reporting and On Compliance And Other Matters Based On An Audit of Basic Financial Statements Performed In Accordance With Government Auditing Standards... Independent Auditor's Report On Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Federal Program And On Internal Control Over Compliance In Accordance With 0MB Uniform Guidance... Schedule of Findings and Questioned Costs... Summary Schedule Of Prior Audit Findings

3 MALCOLM JOHNSON & COMPANY, P.A. CERTIFIED PUBLIC ACCOUNTANTS P.O. Box N. Highway DeBary, Florida Board of Commissioners Punta Gorda Housing Authority Phone (386) Fax (386) INDEPENDENT AUDITOR'S REPORT HUD, Miami Area Office Office of Public Housing 909 S. E. First Avenue, Room 500 Miami, Florida 3313 I Report on the Financial Statements We have audited the accompanying financial statements of the Punta Gorda Housing Authority ("the Authority") which include the statement of net position as of March 31, 2016, and the related statements of revenues, expenses and changes in net position, cash flows for the year then ended, and the related notes to the financial statements which collectively comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these basic 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 basic financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these basic 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 basic financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the basic financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the basic financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority's preparation and fair presentation of the basic financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, 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 basic financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of March 31, 2016, and the respective changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

4 Other Matters Required Supplementary Information Accounting Principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages i-vi be presented to supplement the basic financial statements. Such 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. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Supplementary Information Our audit was conducted for the purpose of forming an opinion on the Authority's basic 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 (Uniform Guidance), the Financial Data Schedule, and the other supplemental information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic 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 basic financial statements. The 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 statement themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information referred to above is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Governmental Auditing Standards In accordance with Governmental Auditing Standards, we have also issued our report dated October 5, 2016 on our consideration of the Authority's internal control over fmancial 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. DeBary, Florida October 5, 2016 Certified Public Accountants 2

5 MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2016 As management of the Punta Gorda Housing Authority ("the Authority"), we offer the readers of the Authority's basic financial statements this narrative overview and analysis of the financial activities for the fiscal year ended March 31, We encourage readers to consider the information presented here in conjunction with the basic financial statements. Financial Highlights This narrative includes all of the activities of the Punta Gorda Housing Authority. It does not include the activities of a related party, Gulf Breeze Apartments Partners, LTD. The Authority's net position as of March 31, 2016 was $25,120,559 as compared to net position of $24,351,311 at March 31, This represents an increase from the prior year of approximately $769,248. During the year, the Authority's total operating expenses were $4,303,485, an increase of $74,828 from 2015 expenses, mainly due to the increase housing assistance payments in the housing voucher program. For the fiscal year ended March 31, 2016, the Authority received $2,971,614 in HUD operating grants, $120,483 in net dwelling rents, $67,384 in other governmental grants, and $1,042,663 in other revenues. Non-operating revenues recognized in the current fiscal year include $5,185 of interest income and mortgage interest income of$254,427. Overview of Financial Statements The basic financial statements included in this annual report are those of a special-purpose government engaged in a business-type activity. The following statements are included: Statement of Net Position - reports the Authority's assets and liabilities at the end of the fiscal year and provides information about the nature and amounts of investment of resources and obligations to creditors. Statement of Revenue, Expenses and Change in Net Position - the results of activity over the course of the fiscal year. It details the costs associated with operating the Authority and how those costs were funded. Statement of Cash Flows - reports the Authority's cash flows both in and out from operating activities, capital and related financing activities and investing activities. It details the sources of the Authority's cash, what it was used for, and the change in cash over the course of the fiscal year. The basic financial statements also include notes that provide required disclosures and other information necessary to gather the full meaning of the material presented in the statements. The following analysis of entity wide net position, revenue, and expenses are detailed and provide a comprehensive portrayal of financial conditions and related trends. The analysis includes all assets and liabilities using the accrual basis of accounting.

6 Overview of Financial Statements (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2016 (Continued) Accrual accounting is similar to the accounting used by most private sector companies. Accrual accounting recognizes revenue and expenses when earned regardless of when cash is received or paid. Our analysis presents the Authority's net position, which can be thought of as the difference between what the Authority owns (assets) to what the Authority owes (liabilities). The net position analysis will allow the reader to measure the health or financial position of the Authority. Over time, significant changes in the Authority's net position are an indicator of whether its financial health is improving or deteriorating. To fully assess the financial health of any Authority, the reader must also consider other non-financial factors such as changes in family composition, fluctuations in the local economy, HUD mandated program administrative changes, and the physical condition of the Authority's capital assets. At fiscal year ended 2016, total assets were $28,414,726; total current assets were $4,315,694. Total liabilities were $3,294,167; total current liabilities were $179,608. Current liabilities are liabilities that are expected to come due within a one year period. Net Position - The difference between an organization's assets and its liabilities equals its net position. There are three components of net position: Net investment in capital assets - Capital assets, net of accumulated depreciation and reduced by debt attributable to the acquisition of those assets, Restricted - net position whose use is subject to constraints imposed by law or agreement, Unrestricted - net position not invested in capital assets or subject to restrictions. ll

7 Condensed Financial Information Assets, Liabilities and Net Position: Puuta Gorda, Florida MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2016 (Continued) Change ASSETS Current Assets $ 2,336,503 $ 2,492, % Restricted Assets 1,979,191 2,888, % Capital Assets 7,988,414 6,309, % Other assets 16,110,618 16,003, % Total Assets 28,414,726 27,693, % LIABILITIES Current Liabilities 179, , % Long-term Liabilities 3,114,559 3,128, % Total Liabilities 3,294,167 3,341, % Net Position Invested in capital assets, net 4,943,415 3,234, % Restricted net position 1,886,676 2,802, % Unrestricted net position 18,290,468 18,314, % Total Net Positon 25,120,559 24,351, % Total Liabilities and Net Position $ 28,414,726 $ 27,693, % Assets increased mainly due to the increase in accrued interest receivable and net capital assets. Current liabilities decreased from the prior year largely due to accrued expenses. Total non-current liabilities decreased due to the reduction of bonds payable. Total Net Position increased by $769,248. Ill

8 Condensed Financial Information (Continued) Revenue, Expenses and Changes in Net Position: MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2016 (Continued) Change Operating Revenue Tenant revenue $ 120,483 $ 106, % HUD grants 2,971,614 2,623, % Other Government Grants 67, , % Other Revenue 1,042, , % Total Operating Revenue Operating Expenses 4,202,144 3,837, ¾ Administrative 578, , % Utilities 45,571 20, % Ordinary maintenance and operation 105,800 94, % General expenses 643, , % Insurance 33,479 32, % Tenant Services 105, , % Housing assistance payments 2,741,790 2,929, % Depreciation expense 49,367 49, % Total Operating Expenses 4,303,485 4,228, ¾ Operating Income (loss) Non-operating Revenne (Expenses) (101,341) (391,024) ¾ Interest expense (164,719) (165,638) -0.55% Investment income - unrestricted 5,185 2, % Mortgage interest income 254, , % Fraud Recovery 8,917 12, % Total Non-operating Revenue 103, , ¾ Change in net position Capital contribntions Transfers from (to) other programs 2, ,080 89,699 (207,690) ¾ 0.00¾ 0.00¾ Net Position, beginning of year 24,351,311 24,559, ¾ Net Position, end of year $ 25,120,559 $ 24,351, ¾ Overall, operating revenue increased by 9.5% mainly due to increases in other government grants and other revenue. An increase in operating expenses of I.77% was mainly due to increases in administrative, maintenance, and general expenses. IV

9 Puuta Gorda, Florida MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2016 (Continued) Capital Assets The Authority's net investment in capital assets as of March 31, 2016, was $4,943,415 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, furniture & equipment, and mortgage receivables. The total increase in the Authority's capital assets for the current year was $1,679,178. Punta Gorda Housing Authority's Capital Assets Primary Government Land $ 5,445,835 $ 5,444,261 Buildings and improvements 1,743,997 1,743,997 Construction in progress 1,637,272 0 Furniture and equipment ,971,656 7,332,810 Depreciation ( 983,242) (1,023,574) Total $ 7,288,414 $6,302,236 Additional information on the Authority's capital assets can be found in financial notes of this report. Long Term Debt In 2009, the Authority issued $14,000,000 in Series A & B Multifamily Housing Revenue Bonds. The proceeds of the Bonds were loaned to the Partnership to fund the construction and purchase of equipment for a related party, the Gulf Breeze Apartments project. Bonds payable: Series A Revenue Bonds Series B Revenue Bonds $2,545,000 $2,575,000 Total Bonds Payable 2,545,000 2,575,000 Note payable 500, Long-Term Debt $ 3,045,000 $ 3,075,000 During 2016, the Gulf Breeze Apartments Project paid down the mortgage receivable owed to the Authority and the proceeds were used to pay down the bond payable. Additional information on the Authority's long-term debt can be found in the financial notes of this report. V

10 MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2016 (Continued) Related Party The year ended December 31, 2015, was the sixth full year of operations for the Gulf Breeze Apartments Partners, LTD. This entity is a related party to the Authority. It has been determined that it is not a component unit of the Authority. In July 2015 construction began on 120 replacement affordable units due to Hurricane Charley. The Mixed- Finance development will be composed of Public Housing, Projected Based Vouchers, and Market Rate units. The senior designated complex will offer a number of amenities such as a Computer Center, Library, Health Clinic, and Community Room. The anticipated completion date is the spring of Program Accounting Many of the programs maintained by the Authority are required by the Department of Housing and Urban Development. Others are segregated to enhance accountability and control. Authority's Programs Low Rent Public Housing (CFDA #14.850) Housing Choice Voucher (Section 8) (CFDA #14.871) Capital Fund Program (CFDA #14.872) Economic Factors Significant economic factors affecting the Authority are as follows: Federal funding of the Department of Housing and Urban Development, Local labor supply and demand, which can affect salary and wage rates, Local inflationary, reversionary and employment trends, which can affect resident incomes and therefore the amount ofrental income, Inflationary pressure on utility rates, supplies and other costs. Hurricane related damages and hurricane impact upon the rental market. Contacting the Authority's Financial Management Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Executive Director, Punta Gorda Housing Authority, 340 Gulf Breeze Avenue, Punta Gorda, Florida, vi

11 STATEMENT OF NET POSITION MARCH 31, 2016 ASSETS Current assets Cash and cash equivalents, unrestricted Cash and cash equivalents, restricted Accrued interest receivable Accounts receivable, net of allowance Due from other governments Prepaid insurance Noncurrent assets Total current assets Other assets Notes and mortgages receivable Accrued interest receivable Total other assets Capital assets Not being depreciated Depreciable, net Total capital assets, net Other noncurrent assets Total assets Assets held for conveyance Total other noncurrent assets Total noncurrent assets Deferred outflow of resources Total assets and deferred outflow of resources LIABILITIES Current liabilities Vendors and contractors payable Accrued wages/taxes payable Accrued compensated absences Accrued interest payable Due to other governments Resident security deposits Notes and bonds payable Total current liabilities Noncurrent liabilities Notes and bonds payable Accrued compensated absences Other accrued liabilities FSS Total noncurrent liabilities Total liabilities Deferred inflow of resources Total liabilities and deferred inflow of resources NET POSITION Net investment in capital assets Restricted Unrestricted Total net position $ 2,236,016 1,979,191 76,492 3, ,453 4,315,694 15,098, ,669 15,659,250 7,083, ,307 7,988, , ,368 24,099,032 28,414,726 28,414,726 7,785 16,360 23,946 86,604 6,113 8,800 30, ,608 3,015,000 15,844 83,715 3,114,559 3,294,167 3,294,167 4,943,415 1,886,676 18,290,468 $ 25,120,559 The accompanying notes are an integral part of these basic financial statements. 3

12 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED MARCH 31, 2016 Operating revenues Rental revenue $ 120,483 HUD grants 2,971,614 Other governmental grants 67,384 Other revenue 1,042,663 Total operating revenues 4,202,144 Operating expenses Administrative 578,714 Tenant services 105,573 Utilities 45,571 Ordinary maintenance & operation 105,800 Insurance 33,479 General expenses 643,191 Housing assistance payments 2,741,790 Depreciation 49,367 Total operating expenses 4,303,485 Operating income (loss) (101,341) Nonoperating revenues (expenses) Interest revenue, unrestricted 5,185 Mortgage interest revenue 254,427 Interest expense (164,719) Fraud recovery 8,917 Total nonoperating revenues 103,810 Income (loss) be ore contributions 2,469 Capital contributions 677,080 Increase (decrease) in net position 679,549 Net position, beginning of year 24,441,010 Net position, end of year $ 25,120,559 The accompanying notes are an integral part of these basic financial statements. 4

13 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2016 Cash Flows From Operating Activities Receipts from dwelling rentals $ 110,053 Operating grants 3,054,261 Receipts from fees (24,20 I) Other receipts 1,058,658 Payments to employees and suppliers (1,513,853) Payments to landlords and resident benefits (2,853,262) Net cash provided (used) by operating activities (168,344) Cash Flows From Capital and Related Financing Activities Capital contributions 677,080 Purchases of capital assets (1,638,846) Principal paid on capital debt (30,000) Interest paid on capital debt (158, I 78) Net cash provided (used) by capital and related financing activities (1,149,944) Cash Flows From Investing Activities Proceeds from homebuyer note activity - net 30,000 Interest 260,961 Net cash provided (used) by investing activities 290,961 Net increase (decrease) in cash and cash equivalents (1,027,327) Balance - beginning of the year 5,242,534 Balance - end of the year $ 4,215,207 Reconciliation of Cash Flows to Statement of Net Position Cash and cash equivalents, unrestricted $ 2,236,016 Cash and cash equivalents, restricted 1,979,191 $ 4,215,207 There are no non-cash transactions. 5

14 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2016 (Continued) Reconciliation of Net Operating Income (Loss) to Net Cash Provided (Used) By Operating Activities Operating income/(loss) $ (101,341) Adjustments to reconcile net operating income (loss) to net cash provided (used) by operating activities: Depreciation elimination Decrease in accounts receivable Decrease in due to/from other governments Decrease in prepaid expenses Increase in other assets Decrease in security deposits Decrease in accounts payable Increase in accrued wages Increase in compensated absences Decrease in accrued liabilities Increase in unearned revenue Other revenue and expense reported as nonoperating 49,367 18,861 16,903 2,036 (137,119) (2,190) (17,891) 1, (24,036) 16,355 8,917 $ (168,344) The accompanying notes are an integral part of these basic financial statements. 6

15 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 A - Summary of Significant Accounting Policies and Organization: 1. Organization: Punta Gorda Housing Authority ("the Authority") is a public body corporate and politic pursuant to the Laws of the State of Florida which was organized to provide low rent housing for qualified individuals in accordance with the rules and regulations prescribed by the U.S. Department of Housing and Urban Development (HUD) and other federal agencies. 2. Reporting Entity: In determining how to define the reporting entity, management has considered all potential component units. The decision to include a component unit in the reporting entity was made by applying the criteria set forth in Section 2100 and 2600 of the Codification of Governmental Accounting and Financial Reporting Standards and Statement No. 14, (amended) of the Governmental Accounting Standards Board: The Financial Reporting Entity. These criteria include manifestation of oversight responsibility including financial accountability, appointment of a voting majority, imposition of will, financial benefit to or burden on a primary organization, financial accountability as a result of fiscal dependency, potential for dual inclusion, and organizations included in the reporting entity although the primary organization is not financially accountable. Based upon the application of these criteria, the reporting entity has the following component units. Blended Component Units (Business Activities): Gulf Breeze Apartments Partners, LLC was formed in July of 2006 as a Florida limited liability corporation. It is a co-general partner (.0049% interest) of Gulf Breeze Apartments Partners, Ltd., the owners of a mixed-use affordable housing development in. The Punta Gorda Housing Authority is the sole managing member of the corporation. Gulf Breeze Apartments Developers LLC was formed in July of 2006 as a Florida limited liability corporation. The Corporation was created for the development of a mixed-use affordable housing development project (Gulf Breeze Apartments). Punta Gorda Developers, LLC is the sole managing member of the corporation. Punta Gorda Developers LLC was formed in July of 2006 as a Florida limited liability corporation. The Corporation was created for the development of Gulf Breeze, an affordable housing development. The Punta Gorda Housing Authority is the sole managing member of the corporation. There was no activity in FY Punta Gorda Development Corporation is a related non-profit Florida Corporation, which was established in August 2004 as an instrumentality of the Authority for the purpose of providing and developing affordable housing opportunities for low to moderate income persons located, but not limited to the City of. The Board of Directors of the corporation is the same board members of the Authority. There was no activity in FY Summary of HUD and Other Authority Programs: The accompanying basic financial statements consist of the activities of the housing programs subsidized by HUD and Authority owned entities. A summary of each of these programs is provided below. 7

16 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) A - Summary of Significant Accounting Policies and Organization: (Continued) 3. Summary of HUD and Other Authority Programs: (Continued) Annual Contributions Contracts: Low Rent Public Housing: This type of housing consists of apartments and single-family dwellings owned and operated by the Authority. Funding is provided by tenant rent payments and subsidies provided by HUD. Modernization and Development: Substantially all additions to land, buildings, and equipment are accomplished through the Capital Fund Program. These programs add to, replace or materially upgrade deteriorated po,tions of the Authority's housing units. Funding is provided through programs Housing Choice Vouchers: This is a housing program wherein low rent tenants lease housing units directly from private landlords rather than through the Authority. The Authority contracts with private landlords to make assistance payments for the difference between the approved contract rent and the actual rent paid by the low rent tenants. 4. 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. Generally accepted accounting principles for state and local governments requires that resources be classified for accounting and reporting purposes into the following three net position categories: Net Investment in Capital Assets - Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted - Net position whose use by the Authority is subject to externally imposed stipulations that can be fulfilled by actions of the Authority pursuant to those stipulations or they expire by the passage of time. Such assets include assets restricted for capital acquisitions and debt service. Unrestricted - Net position that is not subject to externally imposed stipulations. Unrestricted net position may be designated for specific purposes by action of management or the Authority Board or may otherwise be limited by contractual agreements with outside parties. 8

17 Puuta Gorda, Florida NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) A - Summary of Significant Accounting Policies and Organization: (Continued) 5. 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. 6. 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. There were no noncash investing, capital and financing activities during the year. 7. Interprogram Receivables and Payables: Interprogram 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. Cash settlements are made periodically, and all interprogram balances net zero. Offsetting due to/due from balances are eliminated for the basic financial statement presentation. 8. 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 Florida. 9. 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. 10. Prepaid Items: Payments made to vendors for goods or services that will benefit periods beyond the fiscal year end are recorded as prepaid items. 11. 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. 12. Fair Value of Financial Instruments: The carrying amount of the Authority's financial instruments at March 31, 20I6 including cash, investments, accounts receivable, and accounts payable closely approximates fair value. 9

18 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) A - Summary of Significant Accounting Policies and Organization: (Continued) 13. Capital Assets: a. 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. b. Depreciation: The cost of buildings 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 year following completion. The useful lives of buildings and equipment for purposes of computing depreciation are as follows: Buildings Building modernization Furniture and equipment 40 years 15 years 5-7 years c. Maintenance and Repairs Expenditures: Maintenance and repairs expenditures are charged to operations when incurred. Betterments in excess of $2,500 are capitalized. When buildings and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. d. Impairment of Long-Lived Assets: The Authority has been and is currently involved in various demolition activities in conjunction with its modernization and development programs. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Authority has at March , recognized in the accompanying basic financial statements the impact of the demolition activities. Under the provisions of the statement, long-lived assets are to be reviewed for impairment. Application for measurement of long-lived assets should be at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. The Authority has determined that there has been no impairment of long-lived assets during the year March 31,

19 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) A - Summary of Significant Accounting Policies and Organization: (Continued) 14. 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. All permanent employees are eligible for leave benefits in varying amounts up to specified maximums depending on tenure with the Authority. Unused vacation leave in excess of 120 hours will be forfeited. Employees with less than twelve months of continuous employment will receive a pro-rata lump-sum payment for vacation time upon separation. Employees with five years or less of continuous employment forfeit all accrued sick leave upon separation. Employees with more than five years of continuous employment receive a lump-sum payment upon termination of accrued sick leave equal to one half (1/2) of unused sick leave not to exceed $12,000. In accordance with the provisions of GASB Statement No. 16, "Accounting for Compensated Absences," vacation and sick pay is accrued when incurred and reported as a liability. 15. 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. 16. Annual Contribution Contracts: Annual Contribution contracts provide that HUD shall have the authority to audit and exanrine the records of public housing authorities. Accordingly, fmal determination of the Authority's financing and contribution status for the Annual Contribution Contracts is the responsibility of HUD based upon financial reports submitted by the Authority. 17. Risk Management: The Authority is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority carries commercial insurance for all risks of loss, including workers' compensation and employee health and accident insurance, general liability, fire and extended coverage, fidelity bond, automobile, and Director and Officers liability. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. Additionally, there have been no significant reductions in insurance coverage from the prior year. 18. 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 positions are available. 19. 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. 11

20 Puuta Gorda, Florida NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) B - Deposits and Investments: 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. There were no noncash investing, capital and financing activities during the year. 1. HUD Deposit and Investment Restrictions HUD requires authorities to invest excess HUD program funds in obligations of the United States, certificates of deposit or any other federally insured instruments. HUD also requires that deposits of HUD program funds be fully insured or collateralized at all times. Acceptable security includes FDIC/FSLIC insurance and the market value of securities purchased and pledged to the political subdivision. Pursuant to HUD restrictions, obligations of the United States are allowed as security for deposits. Obligations furnished as security must be held by the Authority or with an unaffiliated bank or trust company for the account of the Authority. 2. Risk Disclosures a. Interest Rate Risk: As a means of limiting its exposure to fair value losses arising from rising interest rates, the Authority's investment policy limits the Authority's investment portfolio to maturities not to exceed two years at time of purchase. At March 31, 2016, the Authority's deposits and investments were not limited and all of which are either available on demand or have maturities of less than two years. b. Credit Risk: This is risk that a security or a portfolio will lose some or all of its value due to a real or perceived change in the ability of the issuer to repay its debt. The Authority's investment policy is that none of its total portfolio may be invested in securities of any single issuer, other than the U.S. Government, its agencies and instrumentalities. c. Custodial Credit Risk: This is the risk that in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investments or collateral securities that are held by the counterparty. All of the Authority's investments in securities are held in the name of the Authority. The Authority's custodial agreement policy prohibits counterparties holding securities not in the Authority's name. The carrying amounts of the Authority's cash deposits were $4,215,207 at March 31, Bank balances before reconciling items were $4,220,934 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. 12

21 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) B - Deposits and Investments: (Continued) 2. Risk Disclosures (Continued d. Investment Credit Risk: The Authority's investment policy limits investments to those allowed by the U.S. Department of HUD. These investment limitations are described in Note A. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Authority has no formal policy limiting investments based on credit rating, but discloses any such credit risk associated with their investments by reporting the credit quality ratings of investments in debt securities as determined by nationally recognized statistical rating organizations - rating agencies - as of the year end. Unless there is information to the contrary, obligations of the U.S. government or obligations explicitly guaranteed by the U.S. government are not considered to have credit risk and do not require disclosure of credit quality. e. Concentration of Investment Credit Risk: Exposure to concentration of credit risk is considered to exist when investments in any one issuer represent a significant percent of total investments of the Authority. Investments issued or explicitly guaranteed by HUD-approved instruments are excluded from this consideration. C - Accounts Receivable: Dwelling rents (net of allowance for doubtful accounts of$-o-) Other Total $ 705 2,462 $ D - Due From Other Governments: Other Public Housing Agencies E - Notes and Mortgages Receivable: The Authority has agreed to loan the Gulf Breeze Apartments Partners, LTD (Tax Credit Partnership) up to $12,150,000, comprised of $10,500,000 of CFP disaster grant funds, $1,015,461 in insurance proceeds, and $634,539 of SHIP funds. The loan matures on October 30, 2042, and bears interest at 1.4% per annum, which is due annually commencing on May 1, The mortgage note is secured by a mortgage on the Partnership's leasehold interest in the Project. The balance of the mortgage receivable as of March 31, 2016 was $12,053,581. Long-Term Accrued interest receivable was $560,669 at March 31, The Authority has notes receivable of $500,000 and $2,575,000 from the Partnership. Current Accrued interest receivable was $36,971 and $39,521 respectively, totaling $76,492 at March 31, See Note I for the terms of these agreements. 13

22 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) F - Land, Buildings and Equipment: Balance March 31, 2015 Additions Deletions Balance March 31, 2016 Not being depreciated: Land $5,444,261 $ 1,574 $ $5,445,835 Construction in progress 1,637,272 1,637,272 Total not being depreciated 5,444,261 1,638,846 7,083,107 Depreciable: Buildings & improvements 1,743,997 1,743,997 Accumulated depreciation {879,022) (49,367) 89,699 (838,690) Net buildings & improvements 864,975 (49,367) 89, ,307 Equipment 144, ,552 Accumulated depreciation (144,552) (144,552) Net equipment Net depreciable assets 864,975 (49,367) 89, ,307 TOTAL $6,309,236 $1,589,479 $ 89,699 $7,988,414 G- Assets held for Conveyance: As of March 31, 2016, the Authority is holding land (the Marion Street Property) at a cost of $451,368 for sale or future development. Current market conditions are not conducive for either sale or development. H - Due to Other Governments: Payment in Lieu of Taxes $ 6.1 J3 I - Non-Current Liabilities: Revenue Bonds: Punta Gorda Housing Authority Multifamily Housing Revenue Bonds-Series 2007 A (Gulf Breeze Apartments) On October 3I, 2007, the Authority issued the Punta Gorda Housing Authority Multifamily Housing Revenue Bonds-Series 2007 A (the "Series A Bonds') in the aggregate principal amount of $8,290,000 in order to finance a loan to be made to Gulf Breeze Apartments Partners, LTD. (the "Partnership"). The proceeds of the Series A Bonds were loaned to the Partnership to finance the construction and equipping the Gulf Breeze Apartments Project (the "Project") which is located in Punta Gorda and will be occupied by persons or families of low and moderate income. 14

23 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) I - Non-Current Liabilities: (Continued) Revenue Bonds: (Continued) The loan to the Tax Credit Partnership is secured by a mortgage on the Project and has been assigned by the Authority to the trustee of the Series A Bonds to secure the bonds. The Series A Bond is allocated in two parts, the first matured on July 1, 2010 for $5,590,000 with an interest rate of 5.00% and the second matures on January I, 2045 for $2,700,000 with an interest rate of6.13%. The $5,590,000 which matured on July 1, 2010 was paid by the Authority during fiscal year ended March 31, The remaining $2,700,000 due on January 1, 2045 is subject to mandatory redemption in part by the operation of a sinking fund. The Authority will redeem on the applicable sinking fund payment date a principal amount of the Series A Bonds in the amount of each maturity determined from the table below: As of March 31, 2016, the annual requirements for debt retirement are as follows: March 31, Princieal Interest Total 2017 $ 30,000 $ 157,419 $ 187, , , , , , , , ,750 l 90, , , , , , , , , , , ,874 1,100, , , , ,000 73, ,802 2,545,000 3,044,655 $ 5,589,655 Less: Current 30,000 Long-Term $ 2,515,000 As a requirement of issuing the revenue bonds, loaning the funds to the Partnership and the collateralized loan agreements the Authority entered into a "Land Use Restriction Agreement" with the Bonds' Trustee and the Partnership. The agreement restricts the use of the Project as rental housing for low income tenants as described in the agreement for a period of fifteen years. 15

24 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) I - Non-Current Liabilities: (Continued) Revenue Bonds: (Continued) Note Payable: On February 27, 2009, the Authority (through its affiliate Gulf Breeze Apartments Partners, LLC) borrowed $500,000 from a bank. The loan calls for no payments of principal and interest until it matures on Februaty I, The proceeds of the loan were then loaned to the Partnership by the Authority under a separate Mirror Promissoty Note which accrues interest at 1.4% per annum and matures on February I, The loan is secured by a Fourth Priority Leasehold Mortgage and Security Agreement on the Project. J- Schedule of Changes in Noncurrent Liabilities: Balance at March 31, 2015 Year Ended March 31, 2016 March 31, 2016 Noncurrent Portion Current Portion Additions Payments Current Portion Noncurrent Portion Notes and bonds payable $ 3,045,000 $ 30,000 $ $ (30,000) $ 30,000 $ 3,015,000 Accrued compensated absences 8,870 23,886 17,443 (10,409) 23,946 15,844 FSS 74,334 9,381 83,715 $ 3,128,204 $ 53,886 $ 26,824 $ (40,409) $ 53,946 $ 3,ll4,559 K- Annual Contributions by Federal Agencies: Annual Contributions Contract - Pursuant to the Annual Contributions Contract, HUD contributes an operating subsidy approved in the operating budget under the Annual Contributions Contract. HUD operating subsidy contributions for the year ended March 31, 2016 were $359,237. HUD also contributed additional funds for modernization and operations in the amount of $777,074 for the year ended March 31, Annual Contributions Contract - The Section 8 Housing Choice Voucher program provides for housing assistance payments to private owners of residential units on behalf of eligible low or vety low-income families. The program payments cover the difference between the maximum rental on a dwelling unit and the amount of rent contribution by a participating family. HUD also funds related administrative expenses. HUD contributions for the year ended March 31, 2016 were $2,976,

25 NOTES TO BASIC FINANCIAL STATEMENTS MARCH 31, 2016 (Continued) L- Defined Contribution Pension Plan: The Authority provides pension benefits for all its full-time employees through a defined contribution plan. The plan is administered by Mutual of America. 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 after one year of employment unless they have had prior experience with any other Housing Authority. The Authority contributes 13% of the employee's base salary each month. 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 in fiscal year 2016 was $431,746. The Authority's and employee's contributions were calculated using $389,057. The Authority made the required contributions amounting to $49,199. M - Deferred Annuity Plan - The Authority sponsors a deferred annuity plan for all full-time employees. The plan is funded entirely by participating employee contributions. Assets in the plan are those of the participants and not the Authority. Employee contributions totaled $35,938 for the year ended March 31, Other Post Employment Benefits (OPEB): In relation to its employee benefit programs, the Authority does not provide any Other Post Employment Benefits, as outlined under GASB 45. N - Economic Dependency: The Authority receives approximately 84% 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. 0 - Contingencies: The Authority is subject to possible examinations made by Federal and State Authorities who determine compliance with terms, conditions, laws and regulations governing other grants given to the Authority in the current and prior years. There were no such examinations for the year ended March 31,2016. P - Current Vulnerability Due to Certain Concentrations: The Authority's operations are concentrated in the multifamily real estate market. In addition, the Authority operates in a heavily regulated environment. The operations of the Authority are subject to the administrative directives, rules and regulations of federal, state, and local regulatory agencies, including, but not limited to HUD. Such administrative directive, rules, and regulations are subject to change by an act of Congress, or an administrative change mandated by HUD. These changes may occur with little notice or inadequate funding to pay for the related cost including the additional administrative burden to comply with the new regulations. Q - Leasing Activities (as Lessor): The Authority is the Lessor of dwelling units mainly to low-income residents. The rents under the leases are determined generally by the resident's income as adjusted for eligible deductions regulated by HUD, although the resident may opt for a flat rent. Leases may be cancelled by the lessee at any time. The Authority may cancel the lease only for cause. 17