Comprehensive Annual Financial Report

Transcription

1 THE HOUSING AUTHORITY OF THE CITY OF DURHAM Comprehensive Annual Financial Report FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013 WITH COMPARATIVE DATA FOR THE YEAR ENDED DECEMBER 31, 2012

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3 THE HOUSING AUTHORITY OF THE CITY OF DURHAM, NORTH CAROLINA Comprehensive Annual Financial Report For the fiscal year ended December 31, 2013 with comparative data for the year ended December 31, 2012 Issued by Department of Finance & Administration Jeffrey G. Causey, CFO 3

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5 The Housing Authority of the City of Durham North Carolina Section I - Introductory Section... 7 Principal Officials... 9 Organizational Chart Transmittal Letter Section II - Financial Section Independent Auditors' Report Management's Discussion and Analysis Basic Financial Statements Exhibit A - Statement of Net Position Exhibit B Statement of Revenues, Expenses, and Changes in Net Position Exhibit C - Statement of Cash Flows Notes to Basic Financial Statements Combining Financial Statements Combining Statement of Net Position Major Funds Combining Statement of Revenues, Expenses, and Changes in Fund Net Position Major Funds Combining Statement of Cash Flows Major Funds Combining Statement of Net Position Nonmajor Funds Combining Statement of Revenues, Expenses, and Changes in Fund Net Position Nonmajor Funds Combining Statement of Cash Flows Nonmajor Funds Section III Statistical Section Table 1 Net Position Table 2 Changes in Net Position Table 3 Operating Revenues By Source Table 4 Nonoperating Revenues By Source Table 5 Debt Service Coverage Table 6 Ratio of Debt to Capital Assets Table 7 Property Characteristics and Unit Composition Table 8 Staff Headcount By Program Section IV Single Audit Section Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Schedule of Prior Year Findings and Questioned Costs Page 5

6 Section V HUD Financial Data Schedule (FDS) Schedule of Net Position - FDS Schedule of Revenues and Expenses and Changes in Net Position FDS HUD Cost Certificates Section VI Budgetary Information Statement of Revenues, Expenses and Changes in Net Position Budget & Actual (Non-GAAP), Public Housing Statement of Revenues, Expenses and Changes in Net Position Budget & Actual (Non-GAAP), Housing Choice Voucher Program Statement of Revenues, Expenses and Changes in Net Position Budget & Actual (Non-GAAP), Central Office Cost Center Page 6

7 SECTION I - INTRODUCTORY SECTION List of Principal Officials Organizational Chart Letter of Transmittal Page 7

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9 The Housing Authority of the City of Durham North Carolina Principal Officials Commissioners as of December 31, 2013 Name Term expires Thomas M. Niemann, Chairman September 28, 2017 Gloria M. Nottingham, Member September 28, 2015 Barbara F. Lofton, Member September 28, 2017 George K. Quick, Member September 28, 2015 John S. Ramsey, Member September 28, 2014 Larry D. Yon, II, Member September 28, 2018 Steve Shewel, Council Liaison (no expiration date) Administrative Staff as of December 31, 2013 Name Dallas J. Parks Jeffrey G. Causey Elvert Dorsey Vickie Ellis Shannon McLean Sabrina Sinegal Rhega Taylor Sherrod Banks, Esq. The Banks Law Firm Position Chief Executive Officer Chief Financial Officer Director of Resident Services Capital Improvements/Strategic Plan Administrator Chief Development and Operations Officer Director of Human Resources Director of Housing Choice Voucher Program Outside Legal Counsel Page 9

10 Organizational Chart As of December 31, 2013 The Housing Authority of the City of Durham North Carolina Chief Executive Officer CEO Department Human Resources Director of Human Resources Accounting Chief Financial Officer Procurement Public Housing AMPs Information Technology Recertification Resident Selection Affordable Housing Communities Chief Development and Operations Officer Capital Funds/ Strategic Pl an Administrator CFP Admin Resident Services Development Director of Resident Services Learning Assistance Technical Services Director of HCV Housing Choice Voucher Program Legend Other Funds Housing Choice Voucher Central Office Cost Center Public Housing Page 10

11 330 E. Main Street P.O. Box 1726 Durham, NC (919) FAX: (919) TDD/TTY: (800) ext. 774 durhamhousingauthority.org A Commitment to Quality Living May 27, 2014 Transmittal Letter Members of the Board of Commissioners Housing Authority of the City of Durham Introduction We are pleased to present the Durham Housing Authority Comprehensive Annual Financial Report (CAFR) for the fiscal year ended December 31, This report was prepared by the Authority's staff and was audited by the public accounting firm of CliftonLarsonAllen LLP. The data presented in this report are the responsibility of the management of the Authority. To the best of our knowledge and belief, the data as presented are accurate in all material aspects; are presented in a manner designed to fairly state the financial position and results of operations of the Authority; and include all necessary disclosures to enable the reader to gain a complete understanding of the Authority's financial affairs. The financial statements are presented in conformity with U.S. Generally Accepted Accounting Principles (GAAP). GAAP requires that management provide a narrative introduction, overview and analysis to complement the basic financial statements in the form of Management's Discussion and Analysis (MD&A). The Authority's MD&A can be found immediately following the report of the independent auditors. The Authority is required to undergo an annual single audit in conformity with the provisions of the Single Audit Act Amendments of 1996 and U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-profit Organizations. It is the Authority's policy to require the accounting firm to be independent certified public accountants with specific experience in auditing governmental entities. Information related to this single audit, including the Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards; the 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; the Schedule of Expenditures of Federal Awards and related notes; Schedule of Findings and Questioned Costs; and the Schedule of Prior Year Findings and Questioned Costs are included in the single audit section of this report. Government Profile The Authority is an autonomous, non-profit municipal entity created by the City of Durham in 1949 pursuant to state law and the National Housing Act of Although it maintains close ties with the City in several respects, the Authority is not a component unit of the City, as defined by the pronouncements of the GASB, since the City is not financially accountable for the operations of the Authority, has no responsibility to fund its deficits or receive its surpluses, and has not guaranteed the Authority's debt. The governing body of the Authority is its Board of Commissioners (Board) and is comprised of six members appointed by city council of the City of Durham and one member appointed Page 11

12 by the mayor of the City of Durham. The Board appoints a Chief Executive Officer to administer the affairs of the Authority. The Authority exists to provide safe, decent, and sanitary housing for low-income families of Durham in accordance with the rules and regulations prescribed by the U.S. Department of Housing and Urban Development (HUD) and other federal agencies. The primary source of external funding for the Authority is the U.S. Department of Housing and Urban Development (HUD) which provides funding for a variety of programs such as the Low Rent Housing Program (Public Housing) and the Housing Choice Voucher Program. In addition to the federal programs, the Authority has established Development Ventures Incorporated, Edgemont Elms Housing, Inc., Learning Assistance, Inc., Preiss-Steele Place Housing, Inc., and other smaller legal entities to explore and develop innovative techniques for providing alternative housing possibilities for the low- to moderate-income residents of Durham. These programs have allowed the Authority the flexibility to develop several private/public partnerships providing a variety of housing opportunities for Durham residents. Economic Condition and Outlook The Authority's financial position is directly affected by the level of federal appropriations and Congressional housing legislation. The impact of these federal actions impacts the Authority more than local economic factors since the Authority's primary source of funding is HUD. Nationwide there are approximately one million units of public housing. The Authority owns and operates approximately 1,800 Public Housing units, 160 units of affordable housing units, and administers approximately 2,700 Housing Choice Voucher Program vouchers. Similar to most housing authorities, approximately 80% of the Authority's operating and capital funding comes from federal dollars in the form of operating subsidies, capital grant funds, and Housing Choice Voucher Program housing assistance payments. For the Housing Choice Voucher (HCV) Program, HUD provides housing authorities with an annual budget for Housing Assistance Payments (HAP) and for HCV administrative fees. HAP funding is passthrough funding intended for landlords. The funds pass through the Authority, which is responsible for administering the program at the local level, before payment to landlords. The Authority is required to account for any excess funds separately as they may only be used to fund HAP payments to landlords if a deficit exists in the funding providing by HUD. For 2013, HUD only provided funding for approximately 94% of the amounts due to landlords, the first time in history HAP funding has been prorated. HCV administrative fees are paid by HUD to the Authority to provide funding for the administrative costs to operate the program. During 2013, HUD only funded about 69% of the estimated amount their formulas indicate as being required to operate an effective program. For the Public Housing program, housing authorities receive operating subsidies in accordance with an operating subsidy funding formula. In general, the calculated subsidy amount is the difference between an estimate of operating costs less an estimate of income from rents. Operating subsidies are subject to annual appropriation by Congress. For 2013, the amount funded was approximately 83% of the calculated subsidy eligibility amount. According to the U.S. Department of Labor, Bureau of Labor Statistics, during 2013, employment in the Durham-Chapel Hill Metropolitan Statistical Area (MSA) improved dramatically. As of December 2013, the unemployment rate was 4.1% compared to 7.1% in December 2012 and an annual rate of 7.4% for The unemployment rate for the state of North Carolina was 6.6% in December On an annual basis, the unemployment decreased from 7.4% for 2012 to 6.4% for Major Initiatives The Authority has implemented a balanced scorecard to provide strategic guidance to staff. As part of the balanced scorecard framework, the Authority identified fifteen strategic objectives and created a corporate strategy map that helps users visualize the relationships between objectives. Page 12

13 In addition to work on the corporate strategic plan, the Authority pursued several other projects throughout A major rehabilitation project at Edgemont Elms was completed. With the construction phase completed, the Authority successfully negotiated a modification to the existing first mortgage on the property. The modification provides for resumption of principal and interest payments commencing in Based on a prior agreement, principal and interest payments on the second mortgage, held by the City of Durham, will also resume during The Authority received funding approval from several sources, including the NC Housing Finance Agency and the City of Durham, to be used for a new 20-unit development referred to as Goley Pointe. This development will include public housing, project-based voucher, and market rate units and is targeted at homeless families. Construction on this community commenced during 2013 with a projected completion date in late During June and July 2009, the local field office of HUD conducted a comprehensive monitoring review of the Authority. This review covered all areas and functions receiving federal funds. In addition to the already known problems with the HCV Program, the review also revealed significant problems with the procurement activities and functions of the Authority and generated comments related to other areas. In response to this, Authority staff were engaged in corrective action activities for much of the latter half of the year. The Authority also retained a firm to conduct an assessment of operations. During 2010, efforts were pursued to implement several of the recommendations identified by the firm. In the early part of Page 13

14 2011, the local field office lifted a set of controls that had been imposed on the Authority as a result of the monitoring review. Subsequent to the 2013 year end, the local field office issued a letter closing the matter, noting all concerns had been addressed. During 2013, the Authority successfully negotiated with the U.S. Department of Housing and Urban Development s Office of Inspector General to establish a repayment plan for amounts outstanding as questioned costs discovered during an audit in The Authority and HUD have entered into an agreement calling for repayment of approximately $3.6 million over a period of 100 years. Financial Information The Authority's management is responsible for establishing and maintaining an internal control structure designed to ensure that the Authority's assets are protected from loss, theft or misuse, and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with GAAP. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the costs of a control should not exceed the benefits to be derived and (2) the valuation of costs and benefits require estimates and judgment by management. Single Audit: As a recipient of federal awards, the Authority is also responsible for ensuring that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to those programs. The internal control structure is subject to periodic evaluation by management, compliance staff of the Authority, and the Authority's independent auditors. As part of the Authority's single audit, tests are made to determine the adequacy of the Authority's internal control structure, including that portion relative to federal awards, as well as to determine whether the Authority has complied with applicable laws, regulations, contracts, and grants. The Authority's single audit for the fiscal year ended December 31, 2013 resulted in two findings, including: : Tenant Participation Program controls not adequate to review and monitor use of funds (internal control, noncompliance, significant deficiency); : Housing Choice Voucher Program Eligibility, Reporting and Special Test (noncompliance and significant deficiency). Component Units: The Authority has four (4) active component units as of December 31, These component units include: Development Ventures Incorporated Learning Assistance, Inc. Edgemont Elms Housing, Inc. Preiss-Steele Place Housing, Inc. All of these component units have a December 31 st fiscal year end. The component units are all considered blended component units as the Authority s Board members also serve as the Board members for these units and the Authority s management controls the activities of these units. In addition to the above component units, the Authority is a party to or otherwise related to a variety of legal entities created for the purpose of facilitating development of affordable housing for the residents of Durham. Debt Administration: A summary of the Authority's outstanding debt is provided under the MD&A following this report and also in Note P to the Basic Financial Statements. Awards: The Government Finance Officers Association of the United States and Canada (GFOA) awards Page 14

15 Certificates of Achievement for Excellence in Financial Reporting to entities that publish an easily readable and efficiently organized comprehensive annual financial report whose contents conform to program standards and satisfy GAAP and applicable legal requirements. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. The Authority submitted the report for the fiscal year ended December 31, 2012 for consideration, but did not receive the award. This report incorporates changes and suggestions provided by the GFOA reviewers in an effort to produce a report that meets the program s requirements. Acknowledgments: The preparation of this report has been accomplished through the hard work of the Finance & Administration staff and the support of other staff members throughout the Authority. We wish to thank the management and staff of CliftonLarsonAllen LLP, who provided necessary expertise and technical assistance. We would also like to take this opportunity, on behalf of the staff and residents served by the Durham Housing Authority, to acknowledge the members of the Board of Commissioners for their tireless support and guidance. Respectfully submitted, Jeffrey G. Causey, CPA, CAPM Chief Financial Officer Page 15

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17 SECTION II - FINANCIAL SECTION Independent Auditors Report Management's Discussion and Analysis Basic Financial Statements Combining Financial Statements Page 17

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19 CliftonLarsonAllen LLP INDEPENDENT AUDITORS REPORT Board of Commissioners Durham Housing Authority Durham, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the Durham Housing Authority (the Authority), which comprise the statement of net position as of December 31, 2013 and 2012 and the related statements of revenues, expenses and change in net position for the years ended December 31, 2013 and 2012, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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 opinion. An independent member of Nexia International Page 19

20 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of December 31, 2013 and 2012, and the changes in its financial position and, cash flows for the years then ended in accordance 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 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Authority s basic financial statements. The combining financial statements, budgetary information, financial data schedules and HUD cost certifications are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining financial statements, budgetary information, financial data schedules and HUD cost certifications are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Financial Data Schedules and HUD Cost Certifications are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section and tables included in the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 26, 2013 on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over Page 20

21 financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Baltimore, Maryland May 27, 2014 Page 21

22 Management's Discussion and Analysis December 31, 2013 Overview of the Financial Statements Management of the Housing Authority of the City of Durham, North Carolina (the Authority) is pleased to offer readers of the Authority's financial statements this narrative overview and analysis of its basic financial statements for the fiscal year ended December 31, 2013, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). GAAP requires the inclusion of three basic financial statements: the statement of net position (balance sheet); the statement of revenues, expenses and changes in net position (income statement); and the statement of cash flows. In addition, GAAP requires the inclusion of management's discussion and analysis (MD&A) as required supplementary information. This discussion and analysis is intended to serve as an introduction to the Authority's basic financial statements and financial performance for the year ended December 31, 2013, with comparative data from the year ended December 31, 2012 and December 31, We suggest reading this in conjunction with the transmittal letter in the Introductory Section and the Authority's basic financial statements, which immediately follow this section. Financial Highlights Assets of the Authority exceeded liabilities at December 31, 2013 by $28.9 million (net position). Of this amount, $5.6 million (unrestricted net position) may be used to meet the Authority's on-going obligations. Total net position decreased by $5,413,138 during Capital assets decreased by $1,542,288 during the year. This decrease was due to depreciation. Operating revenues decreased by $1,975,141 compared to the prior year. This was primarily due to reductions in funding from the U.S. Department of Housing and Urban Development. During 2013, operating expenses increased by $2,623,797 compared to The Authority experienced an operating loss of $7.2 million during The operating loss for 2012 was $2.6 million. The Authority's total debt decreased from $3.1 million to $3.0 million, or about 4.2%, from 2012 to Financial Analysis Statement of Net Position The statement of net position presents the assets, liabilities, and net position of the Authority at the end of the fiscal year. The purpose of the statement of net position is to give readers a snapshot of the fiscal condition of the Authority as of a certain point in time. It presents end-of-year data for assets, liabilities, and net position (assets minus liabilities). Also shown is the sum of total liabilities and total net position, which equals total assets. Page 22

23 Summary Statement of Net Position A SSETS Current assets $ 7,541,328 $ 9,338,874 $ 11,570,267 Noncurrent assets 7,062,901 9,578,658 9,234,313 Capital assets 19,641,600 21,183,888 19,815,238 Total Assets $ 34,245,829 $ 40,101,420 $ 40,619,818 L IABILITIES Current liabilities $ 3,055,530 $ 2,107,661 $ 2,717,840 Noncurrent liabilities 2,335,897 3,726,219 3,779,871 Total Liabilities 5,391,427 5,833,880 6,497,711 N ET P OSITION December 31 Net investment in capital assets 16,653,465 18,066,371 16,542,828 Restricted HOPE VI loan reserves 5,569,780 8,080,661 9,483,408 Replacement reserve 98, Operating reserve 119,853 5,352 - Housing assistance payments 782,412 1,501,533 - Unrestricted 5,630,265 6,613,623 8,095,871 Total Net Position $ 28,854,402 $ 34,267,540 $ 34,122,107 Table 1: Summary Statement of Net Position Total Assets of the Authority at December 31, 2013 were $34,245,829. This represents a decrease of $5,855,591 or 14.6% compared to December 31, The reduction in Total Assets for the Authority was comprised of a Total Assets reduction of 19.2% ($1,797,546) $50,000,000 in Current Assets. Approximately two-thirds of the reduction in current assets came in unrestricted $40,000,000 cash, which declined to $4,616,869 from $5,824,793 $30,000,000 during the year. Similar to 2012, much of this reduction was due to $20,000,000 construction on major projects like Edgemont Elms, Goley Pointe, $10,000,000 and Preiss-Steele Place during the year. Restricted Cash decreased $- by 18.9% during the year due to HCV program HAP payments to landlords exceeding the amounts Figure 1: Total Assets received from HUD. This was primarily due to an unprecedented move by HUD to prorate funding for Housing Assistance Payments to approximately 95% of eligibility. The Authority is allowed to use restricted cash from prior years to make up the difference when payments exceed proceeds received. The Authority also experienced a decrease of approximately 40.0% in net accounts receivable from 2012 to 2013 due to reductions in grants Page 23

24 outstanding. Non-Current Assets decreased by $2,515,757 (7.3%) due to increases in notes receivable in the HOPE VI grant program and recording a full allowance against the accrued interest balance in the amount of $3,363,403. Capital Assets decreased by $1,542,288, (7.3%) due to depreciation. Total liabilities for the Authority are $5,391,427, a decrease of Total Liabilities $442,453 or 7.6% compared to the 10,000,000 prior year. Current liabilities include accounts payable, accrued expenses, unearned revenues, funds held for others in the form of tenant security deposits, other liabilities, and the current portion 5,000,000 of long-term debt. As a whole, current liabilities increased 45% compared to the prior year. Most of the increase in due to an increase in current portion of long - term debt. Unearned revenues decreased by $27,786 or 23.4% due to timing issues related to Figure 2: Total Liabilities grants. Non-Current Liabilities decreased by 37.3% ($1,390,322) primarily due to reductions in long-term debt. Net position for the Authority at December 31, 2013 decreased by Unrestricted Net Position $5,413,138 or 15.8%. Net $10,000,000 position represents the Authority's equity and is divided up into three categories. The first category, Net investment in capital assets, represents the Authority's investment in capital assets $5,000,000 including land, buildings, construction in progress, and equipment, net of any related capital debt outstanding. This category decreased by $1,412,906, $- with depreciation exceeding the value of new construction. The second category is Restricted Net Figure 3: Unrestricted Net Position Position which are assets that have some external limitations on the way in which they may be used. The Authority had an decrease in Restricted Net Position of $3,016,874 that was primarily the result of an decrease in the HOPE VI grant program. The decrease was also a result of a reduction in funds restricted for the HCV Program as the Authority used reserves to make housing assistance payments. The final category is Unrestricted Net Position which are assets available for use on any lawful and prudent purpose of the Authority. This category decreased by $983,358 or 14.9%. Most of this reduction is due to drawdowns of available funds for projects like the Edgemont Elms Apartments, the Goley Pointe project and pre-development related to Preiss-Steele Place. Page 24

25 Statement of Revenues, Expenses, and Changes in Net Position The statement of revenues, expenses and changes in net position is designed to present the revenues and expenses earned by the Authority, both operating and non-operating. Generally, operating revenues are amounts received for providing housing to the Authority's tenants and operating expenses are those expenses incurred to maintain the housing units and provide other services to those tenants. Nonoperating revenues and expenses are funds received or spent for which goods and services are not provided. Summary Statement of Revenues, Expenses and Changes in Net Position Year Ended December Operating Revenues Tenant rent $ 4,863,093 $ 4,669,756 $ 4,505,300 Operating grants & subsidies 28,981,902 31,025,492 32,006,237 Other revenues 241, , ,559 Total operating revenues 34,086,821 36,061,962 36,765,096 Operating Expenses Administration 6,189,557 6,616,733 7,057,586 Tenant services 917,109 1,060,938 1,189,793 Utilities 3,623,079 3,353,138 3,320,488 Maintenance & operations 4,126,390 4,634,990 5,542,093 Protective services 12, , ,640 General expense 4,266,509 1,597,550 1,596,504 Housing assistance payments 18,580,286 17,759,833 18,536,427 Depreciation & amortization 3,534,487 3,375,544 3,042,024 Total operating expenses 41,250,332 38,626,535 40,501,555 Net operating loss (7,163,511) (2,564,573) (3,736,459) Non-operating revenues (expenses) Investment income 4,996 8,040 13,332 Mortgage interest income 358, , ,876 Interest expense (98,432) (103,070) (118,083) Casualty Loss (4,147) (23,647) 36,932 Gain on sale of capital assets 2,212-42,095 Total non-operating revenues (expenses) 262, , ,152 Change in net assets before contributions (6,900,714) (2,329,374) (3,408,307) Capital grants contributions 1,487,576 2,474,808 2,434,769 Change in net position (5,413,138) 145,434 (973,538) Net position - beginning of year 34,267,540 34,122,106 35,095,645 Net position - end of year $ 28,854,402 $ 34,267,540 $ 34,122,107 Table 2: Summary Statement of Revenues, Expenses and Changes in Net Position During 2013, operating revenues decreased by $1,975,141, or 5.5% compared to the prior year. One major change occurred in the area of Operating grants & subsidies which experienced a reduction of $2,043,590 due to reductions in funding received from HUD. Other revenues increased primarily due to funds advanced to Development Ventures Incorporated for development projects. Operating expenses increased by 6.8% during 2013, or $2,623,797. The majority of functional expenses declined during However, utilities increased by 8.1% or $269,941 during the year due to rate Page 25

26 increases and increased usage. Housing assistance payments increased by a sizable amount, $820,453, compared to Tenant services declined by 13.6% or $143,829 during 2013 as grants ended and associated expenses were eliminated. General expenses increased by 167.1% or $2,668,959 due to setting up an allowance against accrued interest receivables. Non-operating revenues and expenses increased during 2013 by $27,598. Total operating revenues $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $ Figure 4: Operating revenues Total operating expenses $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $ Capital Assets Figure 5: Operating expenses Depreciation expense for the year ended December 31, 2013 was $3,534,487. The table below shows the Authority's capital assets and accumulated depreciation at the end of the fiscal year as compared to the end of the two previous fiscal years. Page 26

27 December Land $ 1,961,937 $ 1,961,936 $ 1,869,236 Buildings & improvements 75,238,732 73,246,534 68,602,746 Equipment 1,777,790 1,832,689 1,838,750 Total capital assets 78,978,459 77,041,159 72,310,732 Accumulated depreciation (59,336,859) (55,857,271) (52,495,494) Total capital assets net of depreciation $ 19,641,600 $ 21,183,888 $ 19,815,238 Table 3: Statement of Capital Assets Note G to the Authority's basic financial statements provides additional detail regarding the changes in capital assets during the year. Debt Administration The Authority uses short- and long-term borrowings to finance property acquisitions and to make improvements to properties. During 2013, long-term debt outstanding decreased by $129,382. The table below summarizes outstanding long-term debt at the end of the fiscal year as compared to the end of the two previous fiscal years. December Notes Payable $ 2,988,135 $ 3,117,517 $ 3,272,410 Total long-term debt $ 2,988,135 $ 3,117,517 $ 3,272,410 Table 4: Statement of Long-Term Debt Note O to the Authority's basic financial statements provide additional detail regarding the changes in debt during the fiscal year. Economic Factors Affecting the Authority The following key economic indicators and other factors are expected to impact the economic situation of the Authority: Actions to make changes to the fundamental size of the Federal budget and deficit will continue to result in constraints on funding made available to the Authority; The economic climate, which has shown only very slight positive changes in recent months, appears to have reached a new baseline, which will likely result in a new, unplanned level of demand for services despite funding reductions that limit the Authority s ability to respond; The possibility that Federal agencies and officials may make changes in programs to increase flexibility in the use of funds and Authority operational requirements in light of severe funding cutbacks will benefit the agency if they come to pass. Page 27

28 Requests for Information This financial report is designed to provide a general overview of the Authority's finances for all those interested. Questions concerning any of the information presented in this report or requests for additional information should be directed to: Jeffrey G. Causey Chief Financial Officer 330 East Main Street Durham, NC Phone: (919) ext. 320 TDD/TTY: (800) ext jcausey@dha-nc.org Page 28

29 BASIC FINANCIAL STATEMENTS Page 29

30 EXHIBIT A - STATEMENT OF NET POSITION Durham Housing Authority Durham, North Carolina ASSETS December 31, Current Assets Cash & cash equivalents $ 4,616,869 $ 5,824,793 Cash & cash equivalents - restricted 1,871,753 2,308,776 Investments 728, ,604 Accounts receivable, net 229, ,070 Inventory & prepaid items 95,328 95,631 Total Current Assets 7,541,328 9,338,874 Noncurrent Assets Capital Assets Land 1,961,937 1,961,936 Buildings 75,238,732 73,246,534 Furniture, equipment & machinery 1,777,790 1,832,689 Accumulated depreciation (59,336,859) (55,857,271) Total capital assets, net 19,641,600 21,183,888 Notes Receivable 6,865,766 9,378,751 Other assets 197, ,907 Total Noncurrent Assets 26,704,501 30,762,546 TOTAL ASSETS $ 34,245,829 $ 40,101,420 The accompanying notes are an integral part of the financial statements. Page 30

31 Durham Housing Authority Durham, North Carolina December 31, LIABILITIES Current Liabilities Accounts payable $ 817,162 $ 1,103,801 Accrued compensated absences, current portion 40,659 74,962 Accrued expenses 217, ,018 Unearned revenues 91, ,897 Tenant security deposits 399, ,133 Other current liabilities - 87,702 Current portion of long-term debt 1,489, ,148 Total Current Liabilities 3,055,530 2,107,661 Noncurrent Liabilities Long-term debt, net of current portion 1,498,170 2,992,369 Other noncurrent liabilities 471, ,759 Accrued compensated absences, net of current portion 365, ,091 Total Noncurrent Liabilities 2,335,897 3,726,219 TOTAL LIABILITIES 5,391,427 5,833,880 NET POSITION Net investment in capital assets 16,653,465 18,066,371 Restricted HOPE VI loan reserves 5,569,780 8,080,661 Replacement reserve 98,627 - Operating reserve 119,853 5,352 Housing assistance payments 782,412 1,501,533 Unrestricted 5,630,265 6,613,623 TOTAL NET POSITION $ 28,854,402 $ 34,267,540 The accompanying notes are an integral part of the financial statements. Page 31

32 EXHIBIT B STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION Exhibit B - Statement of Revenues, Expenses, and Changes in Net Assets Durham Housing Authority Durham, North Carolina For the year ended December 31, Operating Revenue Tenant rent $ 4,863,093 $ 4,669,756 Operating grants 28,981,902 31,025,492 Other revenue 241, ,714 Total Operating Revenue 34,086,821 36,061,962 Operating Expenses Administration 6,189,557 6,616,733 Tenant services 917,109 1,060,938 Utilities 3,623,079 3,353,138 Maintenance 4,126,390 4,634,990 Protective services 12, ,809 General expense 4,266,509 1,597,550 Housing assistance payments 18,580,286 17,759,833 Depreciation & amortization 3,534,487 3,375,544 Total Operating Expenses 41,250,332 38,626,535 Operating Loss (7,163,511) (2,564,573) Nonoperating Revenues/(Expenses) Investment income 4,996 8,040 Mortgage interest income 358, ,876 Interest expenses (98,432) (103,070) Casualty losses (4,147) (23,647) Gain/loss on sale of assets 2,212 - Total Nonoperating Revenues/(Expenses) 262, ,199 Change in net position before capital contributions (6,900,714) (2,329,374) Capital contributions 1,487,576 2,474,808 Change in net position (5,413,138) 145,434 Total net position - beginning of year 34,267,540 34,122,106 Total net position - end of year $ 28,854,402 $ 34,267,540 The accompanying notes are an integral part of the financial statements. Page 32

33 EXHIBIT C - STATEMENT OF CASH FLOWS Durham Housing Authority Durham, North Carolina For the year ended December 31, Cash Flows from Operating Activities Receipts from customers and users $ 5,244,741 $ 8,367,893 Receipts from grants and subsidies 28,914,878 31,025,492 Payments to suppliers (11,709,155) (15,441,434) Payments for housing assistance (18,580,286) (17,759,833) Payments to employees (4,721,404) (5,270,026) Net cash provided/(used) by operating actvities (851,226) 922,092 Cash Flows from Non-Capital Financing Activities Change in other liabilities - (2,414) Interest expense paid (98,432) (103,070) Net cash provided/(used) by noncapital financing activities (98,432) (105,484) Cash Flows from Investing Activities Purchases of investments (532) (777) (Decrease) Increase in Long Term Notes Receivable (67,960) 15,850 Interest received 4,996 8,040 Net cash provided/(used) by investing activities (63,496) 23,113 Cash Flows from Capital and Related Financing Activities Proceeds from sales of assets 2,212 - Changes in long term debt payable (129,382) (154,893) Grant revenue - capital grants 1,487,576 2,474,808 Purchases of capital assets (1,992,199) (4,744,832) Net cash provided/(used) by capital and related financing activities (631,793) (2,424,917) Net Increase/(Decrease) in Cash (1,644,947) (1,585,196) Cash at beginning of period 8,133,569 9,718,765 Cash at end of period 6,488,622 8,133,569 Reconciliation of operating income to net cash provided by/(used in) operating activities Net income/(loss) from operations (7,163,511) (2,564,573) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation/Amortization 3,534,487 3,375,544 Casualty losses (4,147) (23,647) Provisions for bad debt 3,076,616 - Changes in assets and liabilities: Decrease (Increase) in accounts receivable (67,024) 552,442 Decrease (Increase) in inventory & prepaid expenses 7,184 72,599 Decrease (Increase) in inventory (6,881) - Decrease (Increase) in Interprogram Due From - (10,032) Decrease (Increase) in other noncurrent assets 2,772 25,645 Increase (Decrease) in accounts payable (286,639) (436,624) Increase (Decrease) in accrued expenses 20,086 52,986 Increase (Decrease) in unearned revenue (27,786) (158,048) Increase (Decrease) in security/trust deposits 4,943 14,896 Increase (Decrease) in other current liabilities (5,352) 131 Increase (Decrease) in other noncurrent liabilities 64,026 20,773 Net cash provided/(used) by operating actvities $ (851,226) $ 922,092 The accompanying notes are an integral part of the financial statements. Page 33

34 The Housing Authority of the City of Durham North Carolina Notes to Basic Financial Statements December 31, 2013 and 2012 Notes to Basic Financial Statements Note A Summary of Organization, Significant Accounting Policies and Reporting Entity 1. Introduction The financial statements of the Authority have been prepared in conformity with generally accepted accounting principles (GAAP). The Authority is required to follow all statements of the GASB. GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, was issued to incorporated GASB and AICPA guidance into GASB authoritative literature The more significant of the government's accounting policies are described below. 2. Organization The Durham Housing Authority is authorized by and operates under the provisions of Chapter 121B of the North Carolina General Statutes, as amended, which is known as the Housing and Urban Renewal Law. The Durham Housing Authority (the Authority ) is a public body and a body corporate and politic organized under the laws of the State of North Carolina by the City of Durham for the purpose of providing adequate housing for qualified low-income individuals. The City provides no financial support to the Authority and is not responsible for the debts or entitled to the surpluses of the Authority. The Authority has the power to approve its own budget and maintains its own accounting system. Although the City of Durham appoints the governing board of the Authority, no other criteria established by Governmental Accounting Standards Board for inclusion of the Authority in the financial reports of the City of Durham are met. Therefore, a separate financial report is prepared for the Authority. Additionally, the Authority has entered into annual contribution contracts with the U.S. Department of Housing and Urban Development ( HUD ) to be the administrator of the housing and housing related programs described herein. The Authority is not subject to Federal or State income taxes and is not required to file Federal or State income tax returns. The Authority is governed by a seven-member Board of Commissioners. The Board hires the Chief Executive Officer who is responsible for the daily administration of the Authority. The Authority currently administers the following housing programs: Low-Rent Public Housing Program Section 8 Housing Choice Voucher Program Capital Fund Program Capital Fund Stimulus Program HOPE VI Program Shelter Plus Care Program Resident Opportunities and Self-Sufficiency (ROSS) Program Page 34

35 The Housing Authority of the City of Durham North Carolina Notes to Basic Financial Statements December 31, 2013 and Description of the Authority Funding for the Durham Housing Authority is primarily from the United States Department of Housing and Urban Development (HUD) and from payments received from tenants of the Authority owned housing. Under the Low Rent Housing Program, low income tenants pay a portion of the rental cost of public housing, based upon the income and need of the tenants. HUD funds the difference between the actual costs to operate the Low Rent Housing Program and the amounts paid by tenants through operating subsidies. These subsidies and debt service payments are made to or on behalf of the Authority under the terms and conditions of the annual contributions contract with HUD. The Section 8 Housing Choice Voucher Program provides rental supplements to the owners of existing private housing who rent to qualifying individuals. The Authority processes all applicants for the Section 8 Housing Assistance Payments Program, places approved applicants in housing and pays the owner of the private housing a monthly rental supplement. Under the conditions of an annual contributions contract, HUD reimburses the Authority for the rental supplements and the administrative cost of managing the Program. 4. Reporting Entity In determining how to define the reporting entity, management has considered all potential component units by applying the criteria set forth in Government Accounting Standards Board Statement Number 61, the Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34: Financial Accountability - The Authority is responsible for its debts, does not impose a financial burden on the City of Durham and is entitled to all surpluses. No separate agency receives a financial benefit or imposes a financial burden on the Authority. On the basis of the application of these criteria, the Authority is a legally separate entity that is fiscally independent of other governments, and there are no other entities that are to be reported as a component units, except as noted below, nor is the Authority to be included in the City of Durham financial reports; therefore, the Authority reports independently. 5. Basis of Presentation Basis of Accounting - The Authority uses the accrual basis of accounting. Under this method, revenues are recorded when earned, and expenses are recorded when liabilities are incurred, regardless of when the related cash flow takes place. Basis of Presentation The statements of the Authority are presented as a single proprietary fund financial statement consisting of various programs. This financial statement presentation provides an indication of the financial performance of the Authority as a whole. The operations of the Authority are accounted for in the three basic financial statements: the statement of net assets; the statement of revenues, expenses and changes in net assets; and the statement of cash flows. These statements report information on all activities of the Authority and its component units. Page 35