THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA REPORT ON EXAMINATION OF FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA YEAR ENDED SEPTEMBER 30, 2011

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1 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA REPORT ON EXAMINATION OF FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA YEAR ENDED SEPTEMBER 30, 2011

2 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA TABLE OF CONTENTS Independent Auditors' Report Management's Discussion and Analysis FINANCIAL STATEMENTS: Statement of Net Assets Statement of Revenue, Expenses and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements SUPPLEMENTARY DATA: Schedule of Assets, Liabilities and Net Assets by Program Schedule of Revenue, Expenses and Changes in Net Assets by Program Schedule of Expenditures of Federal Awards Financial Data Schedule SCHEDULE OF FINDINGS AND QUESTIONED COST

3 YEAGER & BOYD, L.L.C. CERTIFIED PUBLIC ACCOUNTANTS 5501 HIGHWAY 280 BIRMINGHAM, ALABAMA (205) (800) FAX (205) Board of Commissioners The Housing Authority of the City of Lanett Lanett, Alabama INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the Housing Authority of the City of Lanett, Alabama as of and for the year ended September 30, 2011, as listed in the table of contents. These financial statements are the responsibility of the Authority's management. Our responsibility is the express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the Authority as of September 30, 2011, and changes in net assets and its cash flows, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued. our report dated June 21, 2012 on our consideration of the Authority's internal control over financial reporting and 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit

4 Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 7 through 14 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. Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the Authority's basic financial statements. The accompanying Financial Data Schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements. Further, other supplementary data as listed in the table of contents is presented for Department of Housing and Urban Development information and is not a required part of the financial statements. The accompanying schedule of expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments and Non-Profit Organizations", and is not a required part of the basic financial statements. The Financial Data Schedule, supplementary data and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Birmingham, Alabama June 21,2012 Yeager & Boyd -2-

5 THE HOUSING AUTHORITY OF THE CITY OF LANETI LANETI, ALABAMA REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATIERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Commissioners The Housing Authority of the City of Lanett Lanett, Alabama We have audited the financial statements of the Authority as of and for the year ended September 30, 2011, which collectively comprise the Authority's basic financial statements and have issued our report thereon dated June 21, 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Authority's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control over financial reporting. 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 perfonning their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Authority's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of the 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 the internal control that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. -3-

6 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free of 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 an instance of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying Schedule of Findings and Questioned Costs as Finding The Authority's response to the finding identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the Authority's response and, accordingly, we express no opinion on it. This report is intended solely for the information of the Board of Commissioners, management and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. Birmingham, Alabama June 21,

7 THE HOUSING AUTHORITY OF THE CITY OF LANETT LANETT, ALABAMA INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Commissioners The Housing Authority of the City of Lanett Lanett, Alabama Compliance We have audited the Authority's compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each the Authority's major federal programs for the year ended September 30, The Authority's major programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Authority's management. Our responsibility is to express an opinion on the Authority's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Authority's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Authority's compliance with those requirements. In our opinion, the 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, However, the results of our auditing procedures disclosed an instance of noncompliance with those requirements, which is required to be reported in accordance with OMB Circular A-133 and which is described in the accompanying schedule of findings and questioned costs as Finding Internal Control Over Compliance The management of the Authority is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Authority's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, 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 the Authority's internal control over compliance. -5-

8 A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our Consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. The Authority's response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the Authority's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, the Board of Commissioners, and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. Birmingham, Alabama June 21,

9 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA MANAGEMENT'S DISCUSSION & ANALYSIS FISCAL YEAR ENDED SEPTEMBER 30, 2011 The management of the Housing Authority of the City of Lanett offers the readers of the financial statements this narrative overview and analysis of the Authority's financial activities for the year ended September 30, This discussion and analysis is designed to assist the reader in focusing on significant financial issues, provide an overview of the Authority's financial activity, identify changes in the Authority's financial position, and identify individual fund issues or concerns. Readers should consider the information presented here in conjunction with the Authority's financial statements to obtain a full understanding of its financial position. FINANCIAL HIGHLIGHTS: The assets of the Authority exceeded its liabilities at the close of the most recent fiscal year by $13,177,881 (net assets) as opposed to $12,818,982 for the prior fiscal year. The Authority's cash and investments balance as of September 30, 2011 was $2,110,919 representing an increase of$37,347 from September 30,2010. The Authority had total revenues of $2,841,674 and total expenses of $2,482,775 for the year ended September 30, The Authority expended $946,352 of capital grant funds for capital improvements through the Capital Fund and Capital Fund- Recovery Act Funded Programs. REQUIRED FINANCIAL STATEMENTS The Financial Statements of the Authority report information using accounting methods similar to those used by private sector companies (Enterprise Fund). The Statement ofnet Assets (Balance Sheet) includes all of the Authority's assets and liabilities and provides information about the amounts and investments in assets and the obligations to Authority creditors. It also provides a basis of assessing the liquidity and financial flexibility of the Authority. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial health of the Authority is improving or deteriorating. - 7-

10 The current year's revenues, expenses, and changes in net assets are accounted for in the Statement of Revenues, Expenses and Changes in Net Assets. This statement measures the success of the Authority's operations over the past fiscal year. The Statement of Cash Flows is to provide information about the Authority's cash receipts and disbursements during the reporting period. The statement reports net changes in cash resulting from operations. FINANCIAL ANALYSIS OF THE AUTHORITY The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets report information about the Authority's activities and are summarized in the following sections. To begin our analysis, a summary of the Authority's Statement of Net Assets is presented in Table I. The Houisng Authority of the City of Lanett Combined Statement of Net Assets TABLE I Total Change %Change Current Assets & Restricted Assets 2,218,131 2,169,796 48, % Capital & Other Assets 12,847,930 12,609, , % Total Assets 15,066,061 14,779, , '/o Current Liabilities 219, ,977 38, % Noncurrent Liabilities 1,668,437 1,779,669 (111,232) -6.25% Total Liabilities 1,888,180 1,960,646 (72,466) -3.70% Invested in Capital Assets Net of Related Debt 11,082,930 10,744, , % Restricted Net Assets 134, ,576 (4,983) -3.57% Unrestricted Net Assets 1,960,358 1, , % Total Net Assets 13,177,881 12,818, , % Total Liabilities & Net Assets 15,066,061 14,779, , % - 8 -

11 As illustrated in the Combined Statement of Net Assets, the overall Net Assets of the Authority increased by $358,899. Net Assets Invested in Capital Assets increased by $338,098, due to the cost of capital additions exceeding depreciation expense. Restricted Net Assets (Trustee Funds) decreased and Unrestricted Net Assets increased by $20,801 as a result of operations. While the Statement of Net Assets shows the change in financial position, the Statement of Revenues, Expenses, and Changes in Net Assets breaks down revenues and expenses further. Table II, which follows, provides a combined statement of these changes. The Houisng Authority of the City of Lanett Combined Statement of Revenues, Expenses and Change in Net Assets TABLE II Total Change Tenant Revenue 570, ,566 (26,337) Grant Funding 2,169,358 1,663, ,704 Other Income 102, ,041 1,046 Total Revenue 2,841,674 2,361, ,413 Administration 489, ,496 22,894 Tenant Services 66,638 57,626 9,012 Utilities 418, ,950 (48,588) Maintenance 395, ,783 20,536 General Expense 155, ,066 23,750 Interest Expense 88,902 86,464 2,438 Extraordinary Maintenance 2,936 (2,936) Loss on Disposal of Capital Assets 299, ,129 Depreciation 569, ,568 5,651 Total Expenses 2,482,775 2,150, ,886 Change in Net Assets 358, , ,527 Beginning Net Assets ,982 12,608, ,372 Ending Net Assets 13,177,881 12,818, ,899 %Change -4.41% 30.40% 1.04% 20.35% 4.91% 15.64% % 5.48% 17.98% 2.82% % % 1.00% 15.43% 70.60% L67% 2.80% -9- '

12 Table III provides the reader with a Statement of Revenues, Expenses and Changes in Net Assets by Program. The Houisng Authority of the City of Lanett Combined Statement of Revenues, Expenses and Change in Net Assets- By Program Fiscal Year Ended September 30,2011 TABLE III Low Rent Public Housing Capital Fund ARRA Total Tenant Revenue 570, ,229 Grant Funding 1,010, , ,917 2,169,358 Other Income 102, ,087 Total Revenue 1,682, , ,917 2,841,674 Administration 469,619 19, ,390 Tenant Services 57,038 9,600 66,638 Utilities 418, ,362 Maintenance 395, ,319 General Expense 155, ,816 Interest 5,627 83,275 88,902 Loss on Disposal of Capital Assets 299, ,129 Depreciation 569, ,219 Total Expenses 2,370, ,646 2,482,775 Change in Net Assets (687,453) 472, , ,899 Beginning Net Assets 12,205, ,617 12,818,982 Transfer of Equity/ Adjustments 100, ,917 (573,917) Ending Net Assets 11,617,912 1,559,969 13,177,

13 REVENUES In reviewing the Statement of Revenues, Expenses, and Changes in Net Assets, you will find that 76% of the Authority's revenues are derived from grants from the Department of Housing and Urban Development. The Authority received revenue from tenants for dwelling rental charges and miscellaneous charges amounting to 20% of total revenue. Other Revenue including Interest from Investments comprised the remaining 4%. Compared to the Fiscal Year Ended September 30, 2010, revenues increased $480,413 (20.35%). The primary reason for the increase is due to an increase in HUD grant funding. Tenant revenue and other income incurred slight changes this year Revenue I!ITenantRevenue Grant Fundmg other Income Tenant Revenue Tenant Revenue decreased from $596,566 to $570,229, a decrease of $26,337 (4.41%). Program Grants/Subsidies - Grant Revenue increased $505,074 due primarily to an increase in capital grant funding through the Capital Fund Program Grant Funding mlow Rent Public Housing Capital Fund OARRA

14 EXPENSES The Housing Authority of the City of Lanett experienced an increase in expenses for the current year from $2,150,889 to $2,482,775, or $331,886 (15.43%). The highlights of the expenses for the current year are as follows: 2011Expenses Administration I Tenant Services DUtilities OMaintenance I General Expense Ill interest I Loss on Disposal of Capital Assets C Depreciation Administrative - Administrative costs include all non-maintenance and non-resident service personnel costs (including benefits and accrued leave), legal costs, auditing costs, travel and training costs, and other administrative costs such as supplies, telephone expense, etc. Compared to 2010, administrative costs increased by $22,894 (4.91%), resulting primarily from increases in personnel and related costs. Tenant Services - Tenant Services costs include all costs incurred by the Authority to provide social services to the residents. Compared to 2010, tenant services costs increased by $9,012 (15.64%). Utilities- The total utilities expense for the Authority decreased by $48,588 (10.41%) due to decreased usage. Maintenance and Extraordinary Maintenance - Maintenance costs are all costs incurred by the Authority to maintain the public housing units in a safe and sanitary manner. Costs include personnel costs, materials used to maintain the units, contracts for waste management and telephone/radio service, etc. The Maintenance Expense for the Authority increased by $20,536 (5.48%). General Expenses - General Expenses include insurance costs (property, auto, liability, workers' compensation, public officials' liability, lead based paint insurance, etc.), and collection losses. The costs increased by $23,750 (17.98%) as a result of increased bad debt expense

15 Interest Expense - Interest expense consists of interest paid on long-term debt using Capital Fund Program funding. Depreciation - Because the costs of all capitalized additions are spread over the estimated useful life of an asset, the estimated current year costs of capitalized items is recorded as depreciation. Depreciation expense for the current year increased by $5,651 (1.00%) as a result of more capital assets being placed into service. CAPITAL ASSETS At the end of fiscal year 2010 the Authority had $12,575,079 invested in Capital Assets, net of depreciation. As of September 30, 2011, the Authority's net capital assets increased by $240,771 to $12,815,850 due to cost of capital additions exceeding depreciation expense. The following table illustrates the Capital Asset values for 2010 and The Houisng Authority of the City of Lanett Combined Statement of Capital Assets TABLE IV Total Change %Change Land Buildings & Improvements Equipment Construction in Progress Accumulated Depreciation 471,375 19,951,280 1,192,704 1,559,969 23,175,328 (10,359,478) 471,375 19,946,690 4,590 2,068,779 (876,075) 613, ,352 23,100,461 74,867 (10,525,382) 165, % 0.02% % % 0.32% -1.58% Total Capital Assets 12,815,850 12,575, , % DEBT OUTSTANDING As of year-end, the Authority had $1,765,000 in debt outstanding compared to $1,865,000 as of September 30,2010, a decrease of$100,000. This debt is Bond Issue obligations which were issued through the Public Finance Corporation. These proceeds are being used for renovation and construction projects. Outstanding Debt, at Year End Long Term Debt Capital Projects Revenue Bonds $1,765,000 $1,865,000 Total Long Term Debt $ $1,

16 ECONOMIC FACTORS AND EVENTS AFFECTING OPERATIONS: Certain economic factors may affect the financial position of the Authority in subsequent fiscal years. Four of these factors are listed below. The Department of Housing and Urban Development has historically underestimated the subsidy needs of public housing authorities. HUD has recently implemented the Calendar Year Shift for operating subsidy payments. However, there continues to be the annual problem of the operating subsidy being funded at significantly less than eligibility. Budget deficits and :ftmding for the Departments of Defense and Homeland Security will possibly result in reduced appropriations for domestic program spending. Health care and other insurance costs are expected to increase dramatically over the next several years. CONCLUSION: Overall, the Housing Authority of the City of Lanett increased its healthy net asset position. The management is committed to staying abreast of regulations and appropriations as well as maintaining an ongoing analysis of all budgets and expenses to ensure that the Authority continues to operate at the highest standards established by the Real Estate Assessment Center and the Department of Housing and Urban Development. FINANCIAL CONTACT Questions concerning any of the information provided in this Management's Discussion & Analysis should be addressed to: Anita Billingslea Executive Director Housing Authority of the City of Lanett 506 1st Street Lanett, AL

17 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 ASSETS Enterprise Fund Current Assets Cash and Cash Equivalents Tenants Accounts Receivable (Allowance for Doubtful Accounts) Accounts Receivable - HUD Accounts Receivable - Other Accrued Interest Receivable Investments Prepaid Insurance Inventory net of Allowances Total Current Assets $ 554,386 27,714 (17,094) 36, ,030 1,421,940 14,480 36,745 2,083,538 Restricted Assets Cash Bond Fund Total Restricted Assets 134, ,593 Capital Assets Land Buildings Furniture & Equipment Construction in Process (Less): Accumulated Depreciation Net Capital Assets 471,375 19,951,280 1,192,704 1,559,969 23,175,328 (1 0,359,478) 12,815,850 Other Non-current Assets Bond Issuance Fee Net of Amortization Total Noncurrent Assets Total Assets 32,080 32,080 $ 15,066,061 See the accompanying notes to financial statements

18 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 LIABILITIES AND NET ASSETS Enterprise Fund Current Liabilities Accounts Payable Accrued Wages and Payroll Taxes Accrued Compensated Absences Accrued Interest Payable Accrued Pilot Deferred Revenue Resident Security Deposits Current Maturities of Long Term Debt Total Current Liabilities $ 36,513 2,317 2,109 19,587 13,561 4,731 35, , ,743 Long-Term Liabilities Accrued Compensated Absences Mortgages Payable Total Long-Term Liabilities Total Liabilities 8,437 1,660,000 1,668,437 1,888,180 Net Assets Investment in Capital Assets Net of Related Debt Restricted Net Assets Unrestricted Net Assets Total Net Assets Total Liabilities and Net Assets $ 11,082, ,593 1,960,358 13,177,881 15,066,061 See the accompanying notes to financial statements

19 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Enterprise Fund Operating Revenues Dwelling Rent Operating Grants Other Income Total Operating Revenues $ 570,229 1 '123,006 78,095 1,771,330 Operating Expenses Administrative Ten ant Services Utilities Maintenance and Operations General Expense Depreciation Total Operating Expenses Operating Income (Loss) 489,390 66, , , , ,219 2,094,744 (323,414) Non-Operating Revenues (Expenses) Investment Income Interest Expense Loss on Disposal of Capital Assets Total Non-Operating Rev/(Exp) Increase (Decrease) in Net Assets before Capital Contributions Capital Contributions Increase (Decrease) in Net Assets Net Assets, Beginning Net Assets, Ending 23,992 (88,902) (299, 129) (364,039) (687,453) 1,046, ,899 12,818,982 $ 13,177,881 See the accompanying notes to financial statements

20 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Cash flows from operating activities: Cash Received from Dwelling Rent Cash Received from Operating Grants Cash Received from Other Income Cash Payments for Salaries & Benefits Cash Payments to Vendors Net Cash flows provided (used) by operating activities Cash flows from capital and related financing activities: Capital Outlay (including change in Accounts Payable) Capital Grants Received Payment of Interest and Principal on Capital Debt Net cash flows provided (used) by capital and related financing activities Cash flows from investing activities: Transfer from (to) Investments Interest earned from cash and cash equivalents Net cash flows provided (used) by investing activities Net Increase (decrease) in cash and cash equivalents Cash and cash equivalents. beginning of year: Current Assets and Restricted Assets Cash and cash equivalents. end of year: Current Assets and Restricted Assets Total cash and cash equivalents, end of year Reconciliation of operating income to net cash provided by (used inl operating activities: Operating Income (Loss) Adjustment to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation Bad Debls Change in Accounts Receivable Change in Accounts Receivable - Other Change in Deferred Revenue Change in Prepaid Insurance Change in Inventory Change in Accounts Payable Change in Accrued Expenses Change in Tenant Security Deposits Change in Other Current Liabilities Net cash provided by (used in) operating activities Enterprise Fund $ 542,757 1,123,006 95,106 (648,595) (1,073,075) 1,010,308 (180,374) (243,141) (20, 142) 21,567 1,425 17, , ,979 $ 688,979 $ (323,414) 569,219 40,520 (29,364) 16,006 1,892 2,285 (1,966) (8,044) (13,749) 1,005 4,531 $ 258,921 See the accompanying notes to financial statements

21 NOTE A- SIGNIFICANT ACCOUNTING POLICIES THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2011 The financial statements of the Housing Authority have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Authority is a Special Purpose Government engaged only in business-type activities and therefore, presents only the financial statements required for the enterprise fund, in accordance with GASB Statement 34 paragraph 138. The Authority has multiple programs which are accounted for in one enterprise fund, which is presented as the "enterprise fund" in the basic financial statements as follows: Enterprise Fund - In accordance with the Enterprise Fund Method, activity is recorded using the accrual basis of accounting and the measurement of focus is on the flow of economic resources. Under the accrual basis of accounting revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. This required the Housing Authority to account for operations in a manner similar to private business or where the Board has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. Governmental Accounting Standards The Housing Authority has applied all applicable Governmental Accounting Standards Board pronouncements as well as pronouncements issued by the Financial Accounting Standards Board on or before November 30, 1989, and those issued after November 30, 1989 except for those that conflict with or contradict Governmental Accounting Standards Board pronouncements. FURTHER SIGNIFICANT ACCOUNTING POLICIES ARE: The Housing Authority considers cash on hand and cash in checking to be cash equivalents. Cash on hand is not included in calculation of collateral required. Accounts Receivable Accounts receivable are carried at the amount considered by management to be collectible. Tenant accounts receivable are immaterial for further disclosures. Prepaid Items Prepaid Items consist of payments made to vendors for services that will benefit future periods. Inventories Inventories consist of supplies that have not been used or consumed. Inventory is valued at average cost and recorded as an expense when it is consumed

22 NOTES TO FINANCIAL STATEMENTS- CONTINUED NOTE A- SIGNIFICANT ACCOUNTING POLICIES CONTINUED Deferred Revenue The Authority recognizes revenues as earned. Amounts received in advance of the period in which it is earned is recorded as a liability under Deferred Revenue. Revenue Accounting Policies Dwelling rent income, HUD Grants received for operations, other operating fund grants and operating miscellaneous income are shown as operating income. These financial statements do not contain material inter-fund revenues and expenses for internal activity. The policy is to eliminate any material inter-fund revenues and expenses for these financial statements. Capital Assets Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The costs of maintenance and repairs are expensed while significant renewals and betterments are capitalized. Minor equipment items with a value less than $500 or a useful life that is less than a year are expensed. Depreciation has been expensed in the statement of income and expenses. Estimated useful lives are as follows: Buildings Improvements Furniture fixtures and equipment 40 years 25 years 5-10 years Intangible Assets In accordance with SFAS 142 intangible assets with finite useful lives will be amortized over their estimated useful life. Bond issuance costs consist primarily of unamortized revenue bond issuance costs. Expenses relating to the issuance of the capital program bonds are capitalized and amortized on a straight-line basis over the term of the bond's maturity. Cost Allocation Plan In accordance with OMB Circular A-87, the Authority utilizes a Cost Allocation Plan. The Authority allocates indirect costs to programs on the basis of one of the following methods: direct salaries and wages, percentage of office square footage, number of vouchers and/or units, estimated/actual time spent, number of checks processed or the allotment stipulated in contractual agreements. NOTE B- REPORTING ENTITY DEFINITION The Housing Authority is a separate non-profrt corporation with a Board of Commissioners. The Mayor appoints the Board of Commissioners. However, the Housing Authority has complete legislative and administrative authority and it recruits and employs personnel. The Authority adopts a budget that is approved by the Board of Commissioners. Subsidies for operations are received primarily from HUD. The Authority has substantial legal authority to control its affairs without local government approval; therefore, all operations of the Authority are a separate reporting entity as reflected in this report. The Authority has no other component units. The Authority is responsible for its debts and is entitled to surpluses. No separate agency receives a financial benefit nor imposes a financial burden on the Authority. -20-

23 NOTES TO FINANCIAL STATEMENTS- CONTINUED NOTE C- CASH AND INVESTMENT DEPOSITS Custodial Credit Risk- The Housing Authority policy is to limit credit risk by adherence to the list of HUD permitted investments, which are backed by the full faith and credit of or a guarantee of principal and interest by the U.S. Government. Interest Rate Risk - The Housing Authority's fonnal investment policy does not limit investment maturities as a means of managing its exposure to fair value losses arising from interest rate volatility. The U.S. Department of HUD requires housing authorities to invest excess funds in obligations of the U.S., certificates of deposit or any other Federally insured investments. The Housing Authority's cash and cash equivalents consist of cash held in an interest bearing checking account totaling $448,886 and $105,000 held for payment of current debt invested in short term US Treasury Money Market Funds. The restricted cash of $134,593 is held in US Treasury Money Market Funds. Investments consist of fourteen certificates of deposit totaling $1,421,940. The certificates of deposit bear interest at rates ranging from 0.65% to 1.73% with maturity periods of six months to a year, and penalties for early withdrawal. Any penalties for early withdrawal would not have a material effect on the financial statements. The remaining $500 is held in the form of petty cash or change fund. Deposits with financial institutions are secured as follows: Insured by FDIC Investments held in U.S. Treasury Obligations Collateralized with specific securities in the Authority name which are held by the financial institution Audited Balance $ 1,382, , ,503 $ 2,110,419 Bank Balance $ 1,382, , ,492 $ 2,177,408 All investments are carried at cost plus accrued interest, which approximates market. The Authority had no realized gains or losses on the sale of investments. The calculation of realized gains or losses is independent of a calculation of the net change in the fair value of investments. NOTE D- CONTRACTUAL COMMITMENTS The Authority had Outstanding Contractual Commitments as of the Balance Sheet Date as follows: Tvoe Commitment Amount Modernization Contracts $152,

24 NOTES TO FINANCIAL STATEMENTS- CONTINUED NOTE E- RISK MANAGEMENT The Housing Authority is exposed to various risks of losses related to torts; thefts of, damage to, and destruction of assets; error and omissions; injuries to employees; and natural disasters. The Housing Authority carries commercial insurance for all risks of loss, including workman's compensation and employee health and accident insurance. The Housing Authority has not had any significant reductions in insurance coverage or any claims not reimbursed. NOTE F- CONCENTRATION OF RISK The Housing Authority receives most of its funding from HUD. These funds and grants are subject to modification by HUO depending on the availability of funding. NOTE G- SIGNIFICANT ESTIMATES The financial statements include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to depreciation and useful lives. The estimates may be adjusted as more current information becomes available, and any adjustment could be significant. NOTE H- COMPENSATED ABSENCES It is the Housing Authority's policy to permit employees to accumulate a limited amount of eamed but unused annual leave. Employees receive 6.5 hours annual leave per month for full time employees. The maximum amount of annual leave that any employee may accrue is 60 days. Upon separation from employment, an employee shall be paid for all accumulated annual leave, as of their final date of employment. Leave accrued but not yet paid as of the end of the year, is shown as a liability allocated between current and non-current. NOTE I - PENSION PLAN The Authority has a Defined Contribution Pension Plan that is administered by an outside trustee. All employees hired after March 31, 1988 are required to participate in the plan. The Housing Authority contributes 7.5% of annual salaries to the plan for participating employees. Also, 5.5% is withheld from salaries of participating employees and is contributed to the plan. Total employer contributions to the plan were $29,880 for the year and the total employee contributions were $23,

25 NOTES TO FINANCIAL STATEMENTS- CONTINUED NOTE J- CAPITAL ASSETS A summary of capital assets is as follows at fiscal year end. Land Building and Improvements Furniture, Fixtures and Equipment Construction in Process Less Accumulated Depreciation Total Property and Equipment CONVENTIONAL $ 471,375 19,951,280 1 '192,704 (10,359,478) $ 11,255,881 CAPITAL FUND $ 1,559,969 $ 1,559,969 TOTAL $ 471,375 19,951,280 1,192,704 1,559,969 (10,359,478) $12,815,850 October 1, 2010 Balance Additions Transfers & Deletions September 30, 2011 Balance Land $ 471,375 $ Construction in Process 613, ,352 Total Assets not being depreciated 1,084, ,352 $ $ 471,375 1,559,969 2,031,344 Buildings and Improvements 19,946, ,485 Furniture and Equipment 2,068,779 32,282 Total Property and Equipment 23,100,461 1,109,119 Less Accumulated Depreciation Buildings & lmprov (9,074,653) (495,615) Furniture & Equipt (1,450,729) (73,604) Net Book Value $ 12,575,079 $ 539,900 (125,895) (908,357) (1,034,252) 13, ,121 $ (299, 129) 19,951, ,704 23,175,328 (9,557,266) (802,212) $ ,850 NOTE K- DEFERRED FINANCING COSTS Costs relating to obtaining the capital financing are capitalized and amortized over the term of the related debt using the straight line method. When a loan is paid in full, any unamortized financing costs are removed from the related accounts and charged to operations. Accumulated amortization at September 30, 2011 was $21,

26 NOTES TO FINANCIAL STATEMENTS- CONTINUED NOTE L- BONDS PAYABLE The Housing Authority pledged a portion of its annual Capital Fund Grant from HUD to secure the Authority's allocable portion of Bonds issued jointly by the Authority and other participating Alabama housing authorities. The Authority's allocable share of the net proceeds, $2,405,000 was used to acquire, construct, equip, renovate and improve public housing developments owned and operated by the Authority for rental to and occupancy by qualified tenants under the applicable HUD rules and regulations. The Bonds are designated "Capital Program Revenue Bonds, Series 2003." The entire proceeds of $2,405,000 were deposited with the trustee, the Bank of New York (fonnerly South Trust Bank), which was authorized and directed to apply and disburse such monies for the purposes and in the order specified in the Master Trust Indenture. The Bonds bear interest at a rate not to exceed six percent and are paid semiannually. Interest paid and expensed during the year was $88,902. Future bond payments are as follows: Fiscal Year PrinciEal Interest Balance Due ,000 76,145 1,660, ,000 71,740 1,550, ,000 67,120 1,440, ,000 62,084 1,325, ,000 56,708 1,205, , , , ,000 34,043 Total Payments $ 1,765,000 $ 560,355 Long-term debt consists of the following: Balance Balance Due Within 09/30/10 Increases Decreases 09/30/11 One Year Bonds Payable $ 1,865,000 $ $ 100,000 $ 1,765,000 $ 105,000 Compensated Absences 18,336 19,500 27,290 10,546 2,109 Less: Current Portion 103,667 (107,109) Long Term Debt $ 1 987,003 $ 1,668,437 $ 107,109 NOTE M- RESTRICTED CASH Restricted cash at September 30, 2011 consisted of the following: Restricted for Bond Fund Reserves $134,593 There is no offsetting liability for the restricted funds. Therefore, the $134,593 is shown as Restricted Net Assets in the net asset section of the Statement of Net Assets. -24-

27 NOTES TO FINANCIAL STATEMENTS- CONTINUED NOTE N- LOSS ON DISPOSAL OF CAPITAL ASSETS The Housing Authority amended its capitalization policy changing the capitalization amount from $500 to $1,200. The Housing Authority wrote off all assets that were below this new capitalization amount which resulted in a loss on disposal of $299,129. NOTE 0- COMMITMENTS AND CONTINGENCIES Amounts received or receivable from HUD are subject to audit and adjustment by grantor agencies. If expenses are disallowed as a result of these audits, the claims for reimbursement to the grantor agency would become a liability of the Authority. In the opinion of management, any such adjustments would not be significant. NOTE P- SUBSEQUENT EVENTS In preparing financial statements, management evaluated subsequent events through June 21, 2012, the date the financial statements were issued. -25-

28 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA SCHEDULE OF ASSETS, LIABILITIES AND NET ASSETS BY PROGRAM SEPTEMBER 30, 2011 ASSETS Public Capital Housing Fund ARRA Program Program Program Elimination Total Current Assets Cash and Cash Equivalents $ 554,386 $ $ $ $ 554,386 Tenants Accounts Receivable 27,714 27,714 (Allowance for Doubtful Accounts) (17,094) (17,094) Accounts Receivable- HUD 36,044 36,044 Accounts Receivable - Other Accrued Interest Receivable 9,030 9,030 Investments 1,421,940 1,421,940 Prepaid Insurance 14,480 14,480 Inventory net of Allowances 36,745 36,745 Total Current Assets 2,047,494 36,044 2,083,538 Restricted Assets Cash Bond Fund 134, ,593 Total Restricted Assets 134, ,593 Capital Assets land 471, ,375 Buildings 19,951,280 19,951,280 Furniture & Equipment 1 '192,704 1,192,704 Construction in Process {Less): Accumulated Depreciation Net Capital Assets Other Non-current ASSfi!ts Bond Issuance Fee Net of Amortization ,080 Total Noncurrent Assets 32,080 32,080 Total Assets $13 470,048 $ 1 596,013 $ $ $15,066,

29 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA SCHEDULE OF ASSETS, LIABILITIES AND NET ASSETS BY PROGRAM SEPTEMBER 30, 2011 LIABILITIES AND NET ASSETS Public Capital Housing Fund ARRA Program Program Program Elimination Total Current Liabilities Accounts Payable $ 469 $ 36,044 $ $ $ 36,513 Accrued Wages and Payroll Taxes 2,317 2,317 Accrued Compensated Absences 2,109 2,109 Accrued Interest Payable 19,587 19,587 Accrued Pilot 13,561 13,561 Deferred Revenue 4,731 4,731 Resident Security Deposits 35,925 35,925 Current Maturities of Long Term Debt Total Current Liabilities Long-Term Liabilities Accrued Compensated Absences 8,437 8,437 Mortgages Payable Total Long-Term Liabilities Total Liabilities Net Assets Investment in Capital Assets Net of Related Debt 9,522,961 1,559,969 11,082,930 Restricted Net Assets 134, ,593 Unrestricted Net Assets 1,960,358 1,960,358 Total Net Assets 11,617,912 1,559,969 13,177,881 Total Liabilities and Net Assets $ 13,470,048 $ 1, $ $ $15,066,

30 THE HOUSING AUTHORITY OF THE CITY OF LANETI, ALABAMA SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2011 Public Capital Housing Fund ARRA Program Program Program Total Operating Revenues Dwelling Rent $ 570,229 $ $ $ 570,229 Operating Grants 1,010, ,646 1,123,006 Other Income 78, Total Operating Revenues 1,658, ,646 1, Operating Expenses Administrative 469,619 19, ,390 Tenant Services 57,038 9,600 66,638 Utilities 418, ,362 Maintenance and Operations 395, ,319 General Expense 155, ,816 Depreciation Total Operating Expenses 2,065, , Operating Income (Loss) {406,689) 83,275 {323,414) Non-Operating Revenues {Expenses} Investment Income 23,992 23,992 Interest Expense (5,627) (83,275) Loss on Disposal of Capital Assets Total Non-Operating Rev/{Exp) Increase {Decrease) in Net Assets before transfers and Contributions (687,453) ( ) Operating Transfers In (Out) Capital Contributions Total Other Financing Sources {Uses) Increase (Decrease) in Net Assets (687,453) 472, , ,899 Net Assets, Beginning 12,205, ,617 12,818,982 Transfer of Net Assets 100,000 (100,000) Transfer of Net Assets 573,917 {573,917} Net Assets, Ending $11,617,912 $ 1,559,969 $ $ 13,177,

31 THE HOUSING AUTHORITY OF THE CITY OF LANETT, ALABAMA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2011 EXPENDITURES Low Rent Public Housing Expenditures Total CFDA Number a $ 1,010,360 Public Housing Capital Fund Program Total CFDA Number (CFP Cluster) Capital Fund Program - Recovery Act Funded Total CFDA Number (CFP Cluster) TOTAL FEDERAL EXPENDITURES 573,917 $ 2,169,358 Basis of Presentation: The above schedule of expenditures of federal awards includes the federal grant activity of the Authority and is presented on the accrual basis of accounting. The information on this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. -29-

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33 THE HOUSING AO'I'HORIT'l OF THE CITY OF r.aneti' lj\lllltt' ALABAMl\ PU<ANCIAL DATA SCHEDULE SKPTEMBER JO, 20H TOTAL