SOUTHERN UTE INDIAN HOUSING AUTHORITY. Basic Financial Statements and Single Audit Reports Year Ended September 30, 2016

Transcription

1 SOUTHERN UTE INDIAN HOUSING AUTHORITY Basic Financial Statements and Single Audit Reports Year Ended September 30, 2016

2 Table of Contents Financial Section Page Independent Auditor s Report Management s Discussion and Analysis Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet Special Revenue Fund Statement of Revenues, Expenditures, and Change in Fund Balance - Special Revenue Fund Notes to Financial Statements Supplementary Information Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Single Audit Reports Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs... 29

3 3838 North Central Avenue Suite 1700 Phoenix, Arizona (Fax) Independent Auditor s Report Board of Directors Southern Ute Indian Housing Authority Ignacio, Colorado Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and the major fund of Southern Ute Indian Housing Authority (the Authority), a component unit of Southern Ute Indian Tribe, as of and for the year ended September 30, 2016, 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 financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1

4 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of Southern Ute Indian Housing Authority, as of September 30, 2016 and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 4 through 11 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 accounting principles 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 information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority s basic financial statements. The schedule of expenditures of federal awards as listed in the table of contents is presented for purposes of additional analysis 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, and is not a required part of the basic financial statements. The schedule of expenditures of federal awards 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 statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. 2

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 18, 2016, 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 in considering the Authority s internal control over financial reporting and compliance. Phoenix, Arizona November 18,

6 Southern Ute Indian Housing Authority MANAGEMENT S DISCUSSION AND ANALYSIS Year Ended September 30, 2016 As management of Southern Ute Indian Housing Authority (the Authority), a component unit of the Southern Ute Indian Tribe, we offer readers of the Authority s financial statements this narrative overview and analysis of the financial activities for the year ended September 30, We encourage readers to consider the information presented here in conjunction with the following financial statements, which begin on page 12. FINANCIAL HIGHLIGHTS The Authority s assets exceeded its liabilities at the close of the most recent fiscal year by $7,042,404 (net position). As of the close of the current fiscal year, the Authority s governmental funds reported an ending fund balance of $4,854,426. The Authority s cash and cash equivalents increased $416,156 from September 30, The Authority had intergovernmental revenues of $1,325,712, charges for services of $354,786 and program expenses of $1,796,135 for the year ended September 30, The Authority s capital outlays for the year ended September 30, 2016 were $67,149. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Authority s basic financial statements. The Authority s basic financial statements comprise three components: 1) government wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains the schedule of expenditures of federal awards as supplementary information in addition to the basic financial statements themselves. Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the Authority s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the Authority s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. 4

7 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED OVERVIEW OF THE FINANCIAL STATEMENTS CONTINUED Government-Wide Financial Statements Continued The statement of activities presents information showing how the Authority s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., depreciation and earned but unused vacation leave). The government-wide financial statements report on the function of the Authority that is principally supported by intergovernmental revenues. The Authority s sole function is to provide decent, safe, and sanitary housing to low income and special needs populations, which is funded primarily with grant revenue received from the U.S. Department of Housing and Urban Development. The government-wide financial statements can be found on pages 12 and 13 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Authority, like other special-purpose governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The Authority has only one fund type, namely a special revenue fund. Governmental Fund The special revenue fund is a governmental fund used to account for essentially the same function reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of expendable resources, as well as on balances of expendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. The Authority maintains one special revenue fund in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and change in fund balance. 5

8 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED OVERVIEW OF THE FINANCIAL STATEMENTS CONTINUED Fund Financial Statements Continued Because the focus of the special revenue fund is narrower than that of the government-wide financial statements, it is useful to compare the information presented in the special revenue fund with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financial decisions. Both the special revenue fund balance sheet and the special revenue fund statement of revenues, expenditures, and change in fund balance provide a reconciliation to facilitate this comparison between the special revenue fund and governmental activities. The basic governmental fund financial statements can be found on pages 14 and 15 of this report. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 16 through 22 of this report. Supplementary Information The schedule of expenditures of federal awards is presented for purposes of additional analysis 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 (the Uniform Guidance). The schedule of expenditures of federal awards can be found on page 23 of this report. 6

9 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED GOVERNMENT-WIDE FINANCIAL ANALYSIS The following is an analysis of the financial position and significant changes in operations from the prior year: Net Position Governmental Activities September 30, 2016 and Current and other assets $ 4,989,635 $ 4,792,800 Capital assets, net 2,221,174 2,478,420 Total assets 7,210,809 7,271,220 Current liabilities 135, ,396 Compensated absences 33,196 32,905 Total liabilities 168, ,301 Net position: Net investment in capital assets 2,221,174 2,478,420 Restricted 4,821,230 4,582,499 Total net position $ 7,042,404 $ 7,060,919 As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of the Authority, assets exceeded liabilities by $7,042,404 at the close of the most recent fiscal year. A significant portion of the Authority s net position (32 percent) reflects its investment in capital assets (e.g., buildings, vehicles, and equipment). The Authority uses these capital assets to provide housing services to tribal members; consequently, these assets are not available for future spending. The unrestricted net position of the Authority is available for future use to provide program services. 7

10 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED GOVERNMENT-WIDE FINANCIAL ANALYSIS CONTINUED Statement of Activities Governmental Activities Years Ended September 30, 2016 and Program expenses $ 1,796,135 $ 1,546,854 Program revenues Intergovernmental 1,325,712 1,127,269 Charges for services 354, ,018 Total program revenues 1,680,498 1,440,287 Net program loss ( 115,637) ( 106,567) General revenues Investment income 60,105 41,020 Miscellaneous income 37,017 3,016 Total general revenues 97,122 44,036 Decrease in net position ( 18,515) ( 62,531) Net position, beginning of year 7,060,919 7,123,450 Net position, end of year $ 7,042,404 $ 7,060,919 During the year ended September 30, 2016, program expenses increased by $249,281 and revenues increased by $240,211. The increase in expenses was primarily the result of an overall increase in operating expenses resulting from additional grant money received during they year. The net position of the Authority decreased by $18,515 during the current fiscal year. The Authority s revenues are largely those received from cost reimbursement grants. The Authority draws down monies from the grant awards for allowable program expenses, except for non-cash transactions, such as depreciation expense and changes in unpaid compensated absences. The Authority s intergovernmental revenues and charges for services were insufficient to cover all expenses incurred during the year. 8

11 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED SPECIAL REVENUE FUND FINANCIAL ANALYSIS As noted earlier, the Authority uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The Authority s governmental fund is discussed below. Governmental Fund Changes in Fund Balance Special Revenue Fund Years Ended September 30, 2016 and Revenues: Intergovernmental $ 1,325,712 $ 1,127,269 Charges for services 354, ,018 Miscellaneous revenue 60,105 3,016 Investment income 37,017 41,020 Total revenues 1,777,620 1,484,323 Expenditures Maintenance and operations 1,538,598 1,347,590 Total expenditures 1,538,598 1,347,590 Excess of revenues over expenditures 239, ,733 Fund balance at beginning of year 4,615,404 4,478,671 Fund balance at end of year $ 4,854,426 $ 4,615,404 The focus of the Authority s governmental fund is to provide information on near-term inflows, outflows, and balances of expendable resources. Such information is useful in assessing the Authority s financing requirements. In particular, fund balance may serve as a useful measure of a government s net resources available for spending for program purposes at the end of the fiscal year. 9

12 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED SPECIAL REVENUE FUND FINANCIAL ANALYSIS CONTINUED As of the end of the current fiscal year, the Authority s governmental fund, which consists of one special revenue fund, reported an ending fund balance of $4,854,426. The Authority s two major sources of revenues are cost reimbursement grant revenues of $1,325,712 and charges for services (e.g., rent receipts and administrative charges) of $354,786. The fund balance primarily represents the accumulation of rental and interest income in excess of expenditures reimbursed by funding sources. The fund balance is restricted for allowable program expenditures. The changes in program revenues were previously discussed in the government-wide financial analysis section. Expenditures increased by $190,648 during 2016 primarily due to an increase in repairs and maintenance for the Shoshone and Northridge housing projects. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As of September 30, 2016 the Authority s net investment in capital assets for its governmental activities was $2,221,174 (net of accumulated depreciation). This investment in capital assets includes buildings, improvements, equipment, vehicles and computer software. Major capital asset purchases during the current fiscal year include $67,149 in capital expenditures for a new office copier, rental improvements consisting of new laminate flooring, and two new vehicles. Additional information on the Authority s capital assets can be found in Note 4 on page 21 of this report. Long-Term Liability Information regarding the Authority s long-term liability consisting of compensated absences can be found in Note 5 on page 22 of this report. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The following factors were considered in preparing the Authority s budget for the 2017 fiscal year: A limitation of 20% of grant revenues is applicable to administrative and planning expenditures for each Indian Housing Block Grant. The Authority s main source of funding is through the Federal government. Due to the current condition of the Federal budget, accessibility to those funds may change. 10

13 MANAGEMENT S DISCUSSION AND ANALYSIS CONTINUED CONTACTING THE AUTHORITY S FINANCIAL MANAGEMENT The financial report is designed to provide a general overview of the Authority s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Executive Director, Southern Ute Indian Housing Authority, P.O. Box 447, Ignacio, Colorado 81137, or call (970)

14 Southern UTE Housing Authority STATEMENT OF NET POSITION September 30, 2016 Governmental Activities Assets Cash and cash equivalents $ 4,856,398 Accounts receivable, net 45,007 Intergovernmental 20,357 Due from Southern Ute Indian Tribe 19,426 Prepaid items 26,981 Notes receivable, net 21,466 Capital assets, net 2,221,174 Total assets 7,210,809 Liabilities Accounts payable and accrued expenses 25,046 Refundable deposits 17,014 Unearned revenue 93,149 Noncurrent liabilities: Compensated absences 33,196 Total liabilities 168,405 Net Position Net investment in capital assets 2,221,174 Restricted for maintenance and operations 4,821,230 Total net position $ 7,042,404 The accompanying notes are an integral part of these financial statements. 12

15 Southern Ute Indian Housing Authority STATEMENT OF ACTIVITIES Year Ended September 30, 2016 Governmental Activities Program expenses Maintenance and operations $ 1,796,135 Program revenues Intergovernmental 1,325,712 Charges for services 354,786 Total program revenues 1,680,498 Net program loss (115,637) General revenues Investment income 60,105 Miscellaneous revenue 37,017 97,122 Decrease in net position (18,515) Net position at beginning of year 7,060,919 Net position at end of year $ 7,042,404 The accompanying notes are an integral part of these financial statements. 13

16 Southern Ute Indian Housing Authority BALANCE SHEET - SPECIAL REVENUE FUND September 30, 2016 Assets Cash and cash equivalents $ 4,856,398 Accounts receivable, net 45,007 Intergovernmental 20,357 Due to Southern Ute Indian Tribe 19,426 Prepaid items 26,981 Notes receivable, net 21,466 Total assets $ 4,989,635 Liabilities and fund balance Liabilities Accounts payable and accrued expenses $ 25,046 Refundable deposits 17,014 Unearned revenue 93,149 Total liabilities 135,209 Fund balance Nonspendable: Prepaid items 26,981 Notes receivable 21,466 Restricted for maintenance and operations 4,805,979 Total fund balance 4,854,426 Total liabilities and fund balance $ 4,989,635 Reconciliation of fund balance to total net position: Amounts reported for governmental activities in the statement of net position are different because: Fund balance Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the fund financial statements. Long-term liabilities, including compensated absences, are not due and payable in the current period and therefore are not reported in the fund financial statements. Net position of governmental activities (page 12) $ $ 4,854,426 2,221,174 (33,196) 7,042,404 The accompanying notes are an integral part of these financial statements. 14

17 Southern Ute Indian Housing Authority STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE - SPECIAL REVENUE FUND Year Ended September 30, 2016 Revenues Intergovernmental $ 1,325,712 Charges for services 354,786 Investment income 60,105 Miscellaneous revenue 37,017 Total revenues 1,777,620 Expenditures Current: Maintenance and operations 1,538,598 Total expenditures 1,538,598 Excess of revenues over expenditures 239,022 Fund balance at beginning of year 4,615,404 Fund balance at end of year $ 4,854,426 Reconciliation of the statement of revenues, expenditures and change in fund balance of governmental funds to the statement of activities: Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balance $ 239,022 The payment of compensated absences reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. (291) Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlays for capitalized items $ 67,149 Depreciation expense (324,395) Change in net position (page 13) $ (257,246) (18,515) The accompanying notes are an integral part of these financial statements. 15

18 SOUTHERN UTE INDIAN HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS Year Ended September 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Southern Ute Indian Housing Authority (the Authority) have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to governmental units. These financial statements do not present the financial position or the results of operations of Southern Ute Indian Tribe (the Tribe ). For the year ended September 30, 2016, the Authority implemented the provisions of GASB Statement No. 72, Fair Value Measurement and Application. GASB Statement No. 72 establish standards for measuring fair value and applying fair value to certain investments and disclosures related to all fair value measurements. The implementation of this GASB Statement No. 72 did not materially effect the Authority during The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the government s accounting policies are described below. Reporting Entity - The Authority was established on December 14, 1976 pursuant to Tribal Ordinance 19, as amended in July 2007, and is located in southwest Colorado. The Authority is determined to be a component unit of the Tribe. The Authority is managed by a board of directors, which is composed of five members who are appointed to staggered terms of office ranging from 2 to 3 years. The Authority was organized for the purpose of the development and management of affordable housing within the Tribe s boundaries. Government-Wide and Fund Financial Statements - The government-wide financial statements (the statement of net position and the statement of activities) report on the Authority as a whole. The statement of activities demonstrates the degree to which the direct expenses of the Authority s function are offset by program revenues. Direct expenses are those that are clearly identifiable with the Authority s function. Program revenues include 1) charges for services which are based on exchange or exchange-like transactions, namely monthly tenant charges and 2) grants and contributions that are restricted to meeting the operational or capital requirements of the Authority s programs. Other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for the governmental fund of the Authority (balance sheet and the statement of revenues, expenditures and change in fund balance). 16

19 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements - The statement of net position and the statement of activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred regardless of the timing of the related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Fund Financial Statements - Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Authority considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, compensated absences are recorded only when payment is due. The government reports the following major governmental fund: The special revenue fund is the government s primary operating fund. It accounts for all financial resources of the Authority. There are no other funds of the Authority. Cash and Investments Cash - The Authority s cash and cash equivalents are considered to be cash on hand, demand deposits, nonnegotiable certificates of deposit and certain investments with an original maturity of three months or less. Investments - The Authority may invest, as directed by policies established by the Authority s Board of Directors that comply with the requirements of the U.S. Department of Housing and Urban Development, in interest-bearing deposit accounts, negotiable certificates of deposit, U.S. Government obligations, or obligations that are secured by the U.S. Government, equity investments, and commercial paper rated A1 /P1 or higher by Moody s and Standard and Poor s, respectively. 17

20 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Accounts Receivable Amounts owed to the Authority from tenants for rent and other charges of $45,007 is reported net of an allowance for doubtful accounts which totaled $69,364 as of September 30, Prepaid Items - Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. These prepaid items are recognized as expenditures in the period in which the costs are incurred. Capital Assets - Capital assets, which include property and equipment, are reported in the government-wide financial statements. The Authority defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of three years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed and reported as construction in progress. Property and equipment of the Authority are depreciated using the straight line method over the following useful lives: Assets Years Buildings Building improvements 10 Furniture and equipment 5 Vehicles 5 Compensated Absences - The Authority allows employees to accumulate vacation leave to a maximum of 240 hours and sick leave on an unlimited basis. Upon termination, 50% of accumulated sick leave up to 200 hours and 25% of any hours in excess of 200 hours, and all accumulated vacation leave will be paid to the employee. All accumulated vacation leave and the applicable percentage of accumulated sick leave is accrued when incurred in the governmentwide financial statements. A liability for these amounts is reported in governmental fund financial statements only if they have matured, for example, as a result of employee resignations or retirements. 18

21 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Income Taxes - The Authority is a governmental entity which is subsidized by the Federal government. The Authority is not subject to Federal or state income taxes, nor is it required to file Federal and state income tax returns. The Authority is exempt from all taxes and special assessments of Southern Ute Indian Tribe. Fund Balance Classifications - Fund balances of the governmental funds are reported separately within classifications based on a hierarchy of the constraints placed on those resources. The classifications are based on the relative strength of the constraints that control how the specific amounts can be spent. The classifications are nonspendable, restricted, and unrestricted, which includes committed, assigned, and unassigned fund balance classifications. The nonspendable fund balance classification includes amounts that cannot be spent because they are either not in spendable form such as prepaid expenses and notes receivable, or are legally or contractually required to be maintained intact. Restricted fund balances are those that have externally imposed restrictions on their usage by creditors, such as through debt covenants, grantors, contributors, or laws and regulations. The unrestricted fund balance category is comprised of committed, assigned, and unassigned resources. Committed fund balances are self-imposed limitations approved by the Authority s Board of Directors, which is the highest level of decision-making authority within the Authority. The constraints placed on committed fund balances can only be removed or changed by the Board. Assigned fund balances are resources constrained by the Authority s intent to be used for specific purposes, but are neither restricted nor committed. There are no unassigned fund balances of the Authority due to the fact that the Authority is a special revenue fund funded solely by the U.S. Department of Housing and Urban Development and all unexpended monies are restricted for program expenditures. When an expenditure is incurred that can be paid from either restricted or unrestricted fund balances, the Authority s policy is to use restricted fund balance first. For the disbursement of unrestricted fund balances, it's the Authority s policy to use committed amounts first, followed by assigned amounts, and lastly unassigned amounts. Investment Income - Investment income is comprised of interest, dividends and changes in fair value of applicable investments. Use of Estimates - The process of preparing financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenditures/expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. 19

22 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Budgets - Formal budgetary integration is not employed for the special revenue fund because effective budgetary control is alternatively achieved through the award agreements. Accordingly, a statement of revenues, expenditures and changes in fund balance comparing budget and actual amounts for the special revenue fund is not presented in the accompanying financial statements or as required supplementary information. NOTE 2 CASH AND CASH EQUIVALENTS Cash and Cash Equivalents At September 30, 2016, the cash on hand was $175. The carrying amount of the cash and cash equivalents was $4,856,223 and the bank balance was $4,905,346. The difference is comprised primarily of outstanding checks at year-end. The Authority also holds $9,409 in a money market savings account. Custodial Credit Risk: The bank balance of the checking account and savings account is fully insured by federal depository insurance under the FDIC s insurance limit of $250,000. The Authority has $932,514 in collateral to cover any amounts that may be over the FDIC limit. The Authority also has $4,721,417 in nonnegotiable certificates of deposit. These certificates of deposit are individually fully insured by the FDIC. The Authority does not have a formal policy pertaining to custodial credit risk. NOTE 3 NOTES RECEIVABLE The notes receivable balance is comprised of new mutual help loans made to Tribal members and consist of the following as of September 30, 2016: Principal $ 772,839 Less: accumulated homeowners equity ( 592,138) Less: estimated future homeowners equity discounts ( 159,235) Net notes receivable $ 21,466 Estimated conveyance on these homes ranges from less than 1 year to 5 years. These notes are collateralized by deeds of trust on the housing structures. 20

23 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 4 CAPITAL ASSETS Capital asset activity for the year ended September 30, 2016 was as follows: September 30, September 30, 2015 Additions Deletions 2016 Capital assets being depreciated: Rental housing and improvements Buildings and $ 8,160,819 $ 19,243 $ - $ 8,180,062 improvements 727, ,250 Equipment 127,361 17,499 17, ,959 Vehicles 316,662 30,407 21, ,989 Total capital assets being depreciated 9,332,092 67,149 38,981 9,360,260 Less accumulated depreciation for: Rental housing and improvements Buildings and 6,085, ,564-6,352,394 improvements 362,519 31, ,552 Equipment 120,840 6,156 17, ,095 Vehicles 284,483 20,642 21, ,045 Total accumulated depreciation 6,853, ,395 38,981 7,139,086 Total capital assets, net $ 2,478,420 $ (257,246) $ - $ 2,221,174 Depreciation expense for the year ended September 30, 2016 was charged to maintenance and operations (the Authority s sole function) in the statement of activities. NOTE 5 CHANGES IN NONCURRENT LIABILITIES A schedule of changes in noncurrent liabilities for compensated absences of the Authority for the year ended September 30, 2016, follows: Balance at October 1, 2015 Additions Reductions Balance at September 30, 2016 Due in less than one year Compensated absences $ 32,905 $ 68,285 $ ( 67,994) $ 33,196 $ - 21

24 NOTES TO FINANCIAL STATEMENTS CONTINUED NOTE 6 CONTINGENCIES Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the Authority. NOTE 7 ECONOMIC DEPENDENCY For the year ended September 30, 2016, the Authority s revenues were primarily received from Federal awards, which are subject to availability of funds and the Authority s compliance with Federal rules and regulations. NOTE 8 RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority carries commercial insurance for all such risks of loss, including workers compensation and employees health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE 9 RETIREMENT PLAN The Tribe has a qualified 401(k) plan (the Plan) covering all full and part time employees of the Authority. The Plan is a defined contribution plan and is available to employees who are at least 18 years of age and have completed 1,000 hours of service within a 12 month period. The employer s contributions vest only after the completion of three years of service by employees. One year of service for purposes of the Plan is earned when employees are credited with at least 1,000 hours. Employees credited with less than 501 hours during the Plan year incur a break in service. Voluntary contributions vest immediately. The employees voluntary contributions were $16,610 and the Authority made total matching and discretionary contributions to the Plan of $47,500 for the year ended September 30, NOTE 10 RELATED PARTY TRANSACTIONS During the year ended September 30, 2016, the Authority reimbursed the Tribe for various expenses paid for on behalf of the Authority consisting of $312,757 in employee benefits, construction services, materials and supplies. The total amount payable to the Tribe related to activity discussed in the preceding paragraphs was $16,306 as of September 30, In addition, the Authority has receivable due from the Tribe totaling $35,732 which is an insurance reimbursement for damage to a house. 22

25 Supplementary Information

26 Southern Ute Indian Housing Authority SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended September 30, 2016 Grant/ Federal Grantor/ CFDA Contract Program Title Number Number Expenditures United States Department of Housing and Urban Development Indian Housing Block Grant CO-55-IH $ 1,325,712 Total expenditures of federal awards $ 1,325,712 The accompanying notes are an integral part of this schedule. 23

27 Southern Ute Indian Housing Authority NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended September 30, 2016 NOTE 1 BASIS OF ACCOUNTING The accompanying schedule of expenditures of federal awards (schedule) includes Southern Ute Indian Housing Authority federal grant activity for the year ended September 30, The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. NOTE 3 CATALOG OF FEDERAL DOMESTIC ASSISTANCE (CFDA) NUMBERS The program title and CFDA number was obtained from the federal or pass-through grantor or the 2016 Catalog of Federal Domestic Assistance. NOTE 4 - SUBRECIPIENTS Southern Ute Indian Housing Authority did not have any subrecipients for NOTE 5 INDIRECT COST RATES Southern Ute Indian Housing Authority is reimbursed for actual administrative costs incurred up to 20 percent. 24

28 Single Audit Reports

29 3838 North Central Avenue Suite 1700 Phoenix, Arizona (Fax) Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors Southern Ute Indian Housing Authority Ignacio, Colorado We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities and the major fund of Southern Ute Indian Housing Authority, as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise Southern Ute Indian Housing Authority s basic financial statements, and have issued our report thereon dated November 18, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Southern Ute Indian Housing Authority s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Southern Ute Indian Housing Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of Southern Ute Indian Housing Authority s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 25

30 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Southern Ute Indian Housing Authority s basic financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Phoenix, Arizona November 18,

31 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance 3838 North Central Avenue Suite 1700 Phoenix, Arizona (Fax) Board of Directors Southern Ute Indian Housing Authority Ignacio, Colorado Report on Compliance for Each Major Federal Program We have audited Southern Ute Indian Housing Authority s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Southern Ute Indian Housing Authority s major federal programs for the year ended September 30, Southern Ute Indian Housing Authority s major federal program is identified in the summary of audit results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance of Southern Ute Indian Housing Authority s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Southern Ute Indian Housing Authority s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Southern Ute Indian Housing Authority s compliance. 27

32 Opinion on Each Major Federal Program In our opinion, Southern Ute Indian Housing Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, Report on Internal Control over Compliance Management of Southern Ute Indian Housing Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Southern Ute Indian Housing Authority s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Southern Ute Indian Housing Authority s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Phoenix, Arizona November 18,