Housing Authority of the Town of Vernon Financial Statements and Supplemental Data With Independent Auditors Reports December 31, 2016

Transcription

1 Financial Statements and Supplemental Data With Independent Auditors Reports December 31, State St Bangor, Maine

2 TABLE OF CONTENTS PAGE Management's Discussion & Analysis i-x Independent Auditors' Report 1 3 Basic Financial Statements: Statements of Net Position 4 5 Statements of Revenues, Expenses, and Changes in Fund Net Position 6 Statements of Cash Flows 7 8 Notes to Financial Statements 9 24 Required Supplementary Information: Schedule of the Authority's Proportionate Share of the Net Pension Liability 25 Schedule of Authority Contributions 26 Additional Information: Schedule of Expenditures of Federal Awards 27 Schedule of Findings and Questioned Costs Statement of Modernization Costs Uncompleted 30 Financial Data Schedule Balance Sheet Financial Data Schedule Operating Statement Financial Data Schedule Project Operating Statement 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 Independent Auditors' Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance In Accordance With The Uniform Guidance 39 41

3 TABLE OF CONTENTS PAGE Independent Auditors' Report on State Programs Balance Sheet State Programs Administration Fund Operating Statement State Programs Administration Fund Statement of Retained Earnings State Programs Administration Funds 48 Operating Statement Congregate Services State Programs Administration Fund 49 Notes to State Financial Statements Additional State Information: Schedule of Charges to Appropriated Retained Earnings State Programs Administration Funds 54 Schedule of State Financial Assistance 55 Schedule of Findings and Questioned Costs State Programs 56 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 Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program, and on Internal Control over Compliance in Accordance with the State Single Audit Act 59 61

4 Rockville, CT MANAGEMENT S DISCUSSION AND ANALYSIS December 31, 2016 The Housing Authority of the Town of Vernon s (the Authority) management s discussion and analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the Authority s financial activity, (c) identify changes in the Authority s financial position (its ability to address the next and subsequent year challenges) and (d) identify individual fund issues or concerns. Since the Management s Discussion and Analysis (MD&A) is designed to focus on the current year s activities, resulting changes and currently known facts, please read it in conjunction with the Authority s financial statements (beginning on page 4). FINANCIAL HIGHLIGHTS The Authority s net position decreased by $300,067 ( 4.46%) during Since the Authority engages only in business type activities, the decrease is all in the category of business type net position. Net position was $6,432,354 and $6,732,421 for 2016 and 2015, respectively. Operating revenues increased by $189,884 during 2016 and were $5,734,266 and $5,544,382 for 2016 and 2015, respectively. Operating expenses increased by $292,403 during 2016 and were $6,081,983 and $5,789,580 for 2016 and 2015, respectively. Nonoperating revenues (expenses) netted to $6,969 and $3,828 for 2016 and 2015, respectively. Government capital grants decreased by $395,607 ( 90.68%) during The Authority s total long term liabilities increased $146,565 during the fiscal year to $2,309,621. i

5 USING THIS ANNUAL REPORT MD&A ~Management s Discussion and Analysis pgs i-x~ Basic Financial Statements ~Authority Wide Financial Statements pgs 4 8~ ~Notes to Financial Statements pgs 9 24~ Other Supplementary Information ~Supplementary Information pgs 25 36~ (other than MD&A) ii

6 AUTHORITY WIDE FINANCIAL STATEMENTS The authority wide financial statements (see pgs 4 8) are designed to be corporate like in that all business type activities are consolidated into a single column for the entire Authority. These statements include a Statement of Net Position, which is similar to a Balance Sheet. The Statement of Net Position reports all financial and capital resources for the Authority. The statement is presented in the format where assets, minus liabilities, equal Net Position, formerly known as net assets. Assets and liabilities are presented in order of liquidity, and are classified as Current (convertible into cash within one year), and Non current. The focus of the Statement of Net Position (the Unrestricted Net Position ) is designed to represent the net available liquid (non capital) assets, net of liabilities, for the entire Authority. Net position (formerly net assets) is reported in three broad categories: Net Investment in Capital Assets: This component of net position consists of all capital assets, reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted Net Position: This component of net position consists of restricted assets, when constraints are placed on the asset by creditors (such as debt covenants), grantors, contributors, laws, regulations, etc. Unrestricted Net Position: This component of net position consists of net position that does not meet the definition of Net Investment in Capital Assets, or Restricted Net Position. The financial statements also include a Statement of Revenues, Expenses and Changes in Fund Net Position (similar to an Income Statement). This statement includes operating revenues, such as operating grants and rental income, operating expenses, such as administrative, utilities, maintenance, and depreciation, and non operating revenue and expenses, such as government subsidies, capital grants, investment income and interest expense. The focus of the Statement of Revenues, Expenses and Changes in Fund Net Position is the Change in Net Position, which is similar to net income or loss. Finally, a Statement of Cash Flows is included, which discloses net cash provided by, or used for operating activities, non capital financing activities, and from capital and related financing activities. iii

7 THE AUTHORITY S PROGRAMS Conventional Public Housing Under the Conventional Public Housing Program, the Authority rents units that it owns to low income households. The Conventional Public Housing Program is operated under an Annual Contributions Contract (ACC) with HUD, and HUD provides Operating Subsidy and Capital Grant funding to enable the PHA to provide the housing at a rent that is based upon 30% of household income. The Conventional Housing Program also includes the Capital Fund Program, which is the primary funding source for physical and management improvements to the Authority s properties. Housing Choice Voucher Program Under the Housing Choice Voucher Program, the Authority administers contracts with independent landlords that own the property. The Authority subsidizes the family s rent through a Housing Assistance Payment made to the landlord. The program is administered under an Annual Contributions Contract (ACC) with HUD. HUD provides Annual Contributions Funding to enable the Authority to structure a lease that sets the participants rent at 30% of household income. State Programs The Authority owns and operates two elderly housing projects. The State of Connecticut Department of Housing provides financial assistance in the form of Rental Assistance Payments and Congregate Services Subsidy to qualified tenants. Business Activities The Authority administers a tenant based rental assistance program under the State of Connecticut Section 8 Rental and Transitionary Program. iv

8 AUTHORITY WIDE STATEMENT The following table reflects the condensed Statement of Net Position compared to prior year. The Authority is engaged only in business type activities. TABLE 1 STATEMENTS OF NET POSITION * Change % Change Current Assets $ 2,691,098 $ 2,714,243 $ (23,145) 0.85% Capital Assets 6,413,668 6,472,997 (59,329) 0.92% Other Non current Assets 184, , % Total Assets 9,289,050 9,371,524 (82,474) 0.88% Deferred Outflows of Resources 268,206 89, , % Current Liabilities 570, ,395 5, % Non current Liabilities 2,309,621 2,163, , % Total Liabilities 2,880,172 2,728, , % Deferred Inflows of Resources 244, , % Net Position: Net investment in capital assets 4,879,701 4,997,410 (117,709) 2.36% Restricted 901, ,028 16, % Unrestricted 650, ,983 (199,154) 23.43% Total Net Position $ 6,432,354 $ 6,732,421 $ (300,067) 4.46% *As restated For more detailed information see page 4 for the Statement of Net Position. Major Factors Affecting the Statement of Net Position Deferred outflows of resources increased $178,858. Vernon Housing Authority (VHA) participates in the State of CT MERS (Municipal Employees Retirement System). Accordingly, VHA was required, beginning in 2015 (with restatement for 2014), to reflect its portion of CT MERS expenses and liabilities for retirees. The deferred outflow is made up of three components: Employer contributions funded by VHA after the measurement date of the CT MERS plan, which is June 30, 2016; Net difference between projected and actual earnings on plan investments; and v

9 Differences between expected and actual experience (pension costs). Non current liabilities increased $146,565, from $2,163,056 in 2015 to $2,309,621 in The largest component of this increase was the accrued pension liability for the CT MERS plan, which increased $194,521 from $501,999 in 2015 to $696,520 in Deferred inflows of resources were $0 in 2015 and $244,730 in Of the increase in deferred inflows, $232,859 is attributed to Housing Choice Voucher January 2017 funding received in The remaining $11,871 of deferred inflows relates to the CT MERS. Net investment in capital assets decreased by $117,709 primarily because of unspent debt proceeds being utilized. The reduction in Unrestricted Net Position is explained in more detail in Table 2. TABLE 2 CHANGE IN UNRESTRICTED NET POSITION Unrestricted Net Position Beginning* $ 849,983 Results of Operations (300,067) Adjustments: Depreciation 384,353 Adjusted Results of Operations 84,286 Change in Restricted Net Position (16,796) Capital Expenditures (Net of construction in progress capitalized) (325,024) Change in capital debt (43,957) Change in unspent debt proceeds 102,337 Total other adjustments (283,440) Unrestricted Net Position Ending $ 650,829 *As restated (1) Depreciation is treated as an expense and reduces the results of operations but does not have an impact on Unrestricted Net Position. While the results of operations are a significant measure of the Authority s activities, the analysis of the changes in Unrestricted Net Position provides a clearer change in financial well being. vi

10 The following schedule compares the revenues and expenses for the current and previous fiscal year. The Authority is engaged only in business type activities. TABLE 3 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION * Change % Change Operating revenues: Dwelling rental $ 1,518,135 $ 1,504,117 $ 14, % Tenant revenue other 338, ,900 12, % HUD operating grants 3,290,092 3,128, , % Section 8 fraud recovery 11,461 7,204 4, % State operating grants 514, ,636 (33,020) 6.03% Other 61,641 31,267 30, % Total operating revenues 5,734,266 5,544, , % Operating expenses: Administrative 1,278,119 1,115, , % Tenant services 356, ,453 (76,655) 17.68% Utilties 595, ,550 (25,840) 4.16% Maintenance 529, ,356 34, % Protective Services 41,977 41, % General 190, ,497 11, % Extraordinary maintenance 52,783 75,147 (22,364) 29.76% Housing assistance payments 2,652,232 2,483, , % Depreciation 384, ,892 (2,539) 0.66% Total operating expenses 6,081,983 5,789, , % Operating income (loss) (347,717) (245,198) (102,519) 41.81% Nonoperating revenues (expenses): Investment income 6,969 3,828 3, % Total nonoperating revenues (expenses), net 6,969 3,828 3, % Income/(loss) before capital grants (340,748) (241,370) (99,378) 41.17% Governmental capital grants 40, ,288 (395,607) 90.68% Change in net position $ (300,067) $ 194,918 $ (494,985) % *As restated vii

11 Major Factors Affecting the Statements of Revenue, Expenses and Changes in Fund Net Position HUD (U S Department of Housing and Urban Development) operating grants increased $161,834 from 2015 to This was primarily due to an increase in housing assistance payments subsidy in the Housing Choice Voucher program. Administrative Expenses increased $163,089 from 2015 to The increase is attributable to Employee Benefits Administrative and Office Expenses. Tenant Services costs decreased $76,655 from 2015 to 2016 because many functions of the State Congregate program were outsourced to an outside service provider. Utilities Expense decreased $25,840 from 2015 to 2016 because of reduced Electricity cost in the Federal Low Income Public Housing Program. Governmental capital grants decreased $395,607, from $436,288 in 2015 to $40,681 in This is attributable to the $436,288 paving project in 2015 funded through the capital fund program which did not recur in CAPITAL ASSETS CAPITAL ASSETS AND DEBT ADMINISTRATION As of year end, the Authority had $6,413,668 invested in a variety of capital assets, as reflected in the following schedule, which represents a net increase (addition, deduction and depreciation) of $59,329 from the end of last year. TABLE 4 CAPITAL ASSETS AT YEAR END (NET OF DEPRECIATION) Business Type Assets Land $ 441,624 $ 441,624 Land Improvements 1,049,361 1,049,361 Buildings and Improvements 14,305,284 14,259,133 Dwelling Equipment 737, ,089 Non dwelling Equipment 701, ,727 17,235,004 17,168,934 Accumulated Depreciation (12,515,702) (12,131,349) Construction in Process 1,694,366 1,435,412 $ 6,413,668 $ 6,472,997 viii

12 The following reconciliation summarizes the change in Capital Assets, which is presented in detail on page 15 of the notes. TABLE 5 CHANGE IN CAPITAL ASSETS Business Type Activities Beginning Balance $ 6,472,997 Fixed asset additions 325,024 Depreciation (384,353) Ending Balance $ 6,413,668 This year's major additions include (but are not limited to ): Energy conservation equipment $ 231,803 Building improvements $ 46, ,954 ix

13 DEBT OUTSTANDING As of year end, the Authority had $1,856,659 in debt outstanding compared to $1,900,616 in the prior year which is presented in detail on page 17 and 18. ECONOMIC FACTORS Significant economic factors affecting the Authority are as follows: Federal funding of the Department of Housing and Urban Development. Local labor supply and demand, which can affect salary and wage rates. Local inflationary, recessionary and employment trends, which can affect resident incomes and therefore the amount of rental income and Housing Assistance Payments to landlords. Inflationary pressure on utility rates, supplies and other costs. FINANCIAL CONTACT The individual to be contacted regarding this report is Jeffrey Arn, Executive Director, at Specific requests may be submitted to Jeffrey Arn, Executive Director, Housing Authority of the Town of Vernon, 21 Court Street, Rockville, CT, x

14 Independent Auditors Report Board of Commissioners Housing Authority of the Town of Vernon Rockville, CT Report on the Financial Statements We have audited the accompanying financial statements of the Housing Authority of the Town of Vernon which are comprised of the statements of net position as of December 31, 2016 and 2015, and the related statements of revenues, expenses and changes in fund net position and cash flows for the years then ended, 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 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 1

15 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Housing Authority of the Town of Vernon, as of December 31, 2016 and 2015 and the changes in financial position and cash flows thereof, for the years 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 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 Housing Authority of the Town of Vernon s basic financial statements. The schedule of expenditures of federal awards as required by 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 (Uniform Guidance) and the statement of modernization costs and 2

16 financial data schedules required by the Department of Housing and Urban Development are presented for purposes of additional analysis and are not a required part of the basic financial statements of the Housing Authority of the Town of Vernon. The schedule of expenditures of federal awards, statement of modernization costs and financial data schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. 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 financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 11, 2017 on our consideration of the Housing Authority of the Town of Vernon s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. Roy & Associates, CPAs, P.A. Bangor, Maine September 11,

17 STATEMENTS OF NET POSITION December 31, 2016 and * ASSETS Current: Cash and equivalents Unrestricted $ 1,022,445 $ 1,244,962 Restricted 1,490,714 1,256,380 Total cash and cash equivalents 2,513,159 2,501,342 Receivables, net 90, ,101 Prepaid expenses 85,056 75,397 Inventories 2,745 2,403 Total current assets 2,691,098 2,714,243 Noncurrent: Capital Assets: Construction in progress 1,694,366 1,435,412 Depreciable net 4,277,678 4,595,961 Nondepreciable 441, ,624 Notes receivable 150, ,726 Other assets net 33,558 33,558 Total noncurrent assets 6,597,952 6,657,281 Total assets 9,289,050 9,371,524 DEFERRED OUTFLOWS OF RESOURCES Pension 268,206 89,348 Total deferred outflows of resources 268,206 89,348 *As restated The accompanying notes are an integral part of the financial statements 4

18 STATEMENTS OF NET POSITION December 31, 2016 and * LIABILITIES Current: Accounts payable 69, ,590 Due to other governments 140,895 96,990 Accrued interest current 3,636 2,106 Tenant security deposits 13,277 14,179 Unearned revenue 61,874 21,067 Current portion of long term obligations 281, ,463 Total current liabilities 570, ,395 Noncurrent: Accrued interest 37,729 37,904 Net pension liability 696, ,999 Notes payable 1,575,372 1,623,153 Total long term liabilities 2,309,621 2,163,056 Total liabilities 2,880,172 2,728,451 DEFERRED INFLOWS OF RESOURCES Pension 11,871 Housing assistance payments 232,859 Total deferred inflows of resources 244,730 NET POSITION Net investment in capital assets 4,879,701 4,997,410 Restricted 901, ,028 Unrestricted 650, ,983 Total net position $ 6,432,354 $ 6,732,421 *As restated The accompanying notes are an integral part of the financial statements 5

19 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION For the years ended December 31, 2016 and * Operating revenues: Dwelling rental $ 1,518,135 $ 1,504,117 Tenant revenue other 338, ,900 HUD operating grants 3,290,092 3,128,258 State operating grants 514, ,636 Section 8 fraud recovery 11,461 7,204 Other 61,641 31,267 Total operating revenues 5,734,266 5,544,382 Operating expenses: Administrative 1,278,119 1,115,030 Tenant services 356, ,453 Utilities 595, ,550 Ordinary maintenance and operations 529, ,356 Protective services 41,977 General expense 190, ,497 Extraordinary maintenance 52,783 75,147 Housing assistance payments 2,652,232 2,483,655 Depreciation 384, ,892 Total operating expenses 6,081,983 5,789,580 Operating income (loss) (347,717) (245,198) Nonoperating revenues (expenses): Investment Income 6,969 3,828 Total nonoperating revenue (expense), net 6,969 3,828 Net income/(loss) before capital grants (340,748) (241,370) Governmental capital grants 40, ,288 Change in net position (300,067) 194,918 Net position beginning of year 6,732,421 6,537,503 Net position end of year $ 6,432,354 6,732,421 *As restated The accompanying notes are an integral part of the financial statements 6

20 STATEMENTS OF CASH FLOWS For the years ended December 31, 2016 and CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers/tenants $ 1,902,793 $ 1,814,324 HUD operating grants 3,290,092 3,128,258 State operating grants 514, ,636 Payments to vendors/suppliers/landlords (4,547,199) (4,252,851) Payments to employees (984,047) (1,051,890) Other receipts (payments) 113,828 (32,890) Net cash provided (used) by operating activities 290, ,587 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital grants 82, ,639 Proceeds from capital debt 233,506 Principal paid on capital debt (43,957) Purchase of capital assets (323,669) (1,504,508) Net cash provided (used) by capital and related financing activities (285,235) (901,363) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends 6,969 3,828 Net cash provided by investing activities 6,969 3,828 Net increase (decrease) in cash and cash equivalents 11,817 (744,948) Cash and cash equivalents beginning 2,501,342 3,246,290 Cash and cash equivalents ending $ 2,513,159 $ 2,501,342 The accompanying notes are an integral part of the financial statements 7

21 STATEMENTS OF CASH FLOWS For the years ended December 31, 2016 and 2015 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) $ (347,717) $ (245,198) Adjustments to reconcile operating income (loss) to net cash flows from operating activities: Depreciation 384, ,892 (Increase) decrease in the following assets: Receivables: Tenants 6,432 (8,090) Other governments Other receivables (3,748) (2,651) Inventory (342) 767 Prepaid expenses (9,659) (3,647) Deferred outflows of resources (178,858) (38,247) Increase (decrease) in the following liabilities: Accounts payable (84,008) 135,017 Due to other governments 43,905 (69,550) Tenant security deposits (902) 1,860 Advances 40,807 (9,463) Net pension liability 194, ,824 Deferred inflows of resources 244,730 (120,767) Total adjustments 637, ,785 Net cash flows from operating activities $ 290,083 $ 152,587 The accompanying notes are an integral part of the financial statements 8

22 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Housing Authority of the Town of Vernon, Connecticut, (PHA) was created pursuant to Section 8 40 of the Connecticut General Statutes to provide low income public housing for qualified individuals. The PHA has contracted with the Federal Authority, acting through the Department of Housing and Urban Development (HUD), for financial assistance for low income public housing pursuant to the United States Housing Act of 1937, as amended. The PHA has also contracted with the State of Connecticut, Department of Housing (DOH) for financial assistance for elderly housing projects in the form of capital grants and/or loans pursuant to Section 8 70 and 8 114a of the Connecticut General Statutes. The financial statements of the Housing Authority of the Town of Vernon (Authority) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. A. The Financial Reporting Entity The Housing Authority of the Town of Vernon is a quasi municipal corporation governed by a Board of Commissioners. In evaluating how to define the Authority for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity is made by applying the criteria set forth in Section 2100 of GASB s Codification of Governmental Accounting and Financial Reporting Standards, Defining the Financial Reporting Entity. The basic, but not the only, criterion for including a potential component unit within the reporting entity is the governing body s ability to exercise oversight responsibility. The most significant manifestation of this ability is financial interdependency. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of governing authority, the designation of management, the ability to significantly influence operations and accountability for fiscal matters. The other criterion used to evaluate potential component units for inclusion or exclusion from the reporting entity is the existence of special financing relationships, regardless of whether the Authority is able to exercise oversight responsibilities. Based on the above criteria, it was determined that no other entities should be included in the Authority s financial statements. 9

23 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED B. Related Organizations The Authority is not a department of the Town of Vernon. The basis of the Authority's relationship with the Town is a cooperation agreement, which calls for the Town to provide support services (police, fire, etc.) to Authority developments. In exchange, the Authority makes voluntary payments in lieu of taxes (PILOT) to the Town of Vernon. The PILOT for 2016 and 2015 was $79,723 and $75,941, respectively. C. Basis of Presentation The Authority accounts for its operations as an enterprise fund. An enterprise fund is used to account for operations that (a) are financed and operated in a manner similar to private business enterprises when the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered through user charges; or (b) where the governing body has decided that periodic determination of revenue earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The Authority is comprised of business type activities only. As prescribed by Section Sp20 of GASB s Codification of Governmental Accounting and Financial Reporting Standards, Special Purpose Governments, only the financial statements required for enterprise funds are presented. D. Measurement Focus/Basis of Accounting Proprietary funds are accounted for on the flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operations of these activities are included on the statements of net position. The Authority's statements of revenues, expenses and changes in net position present increases (e.g., revenues) and decreases (e.g., expenses) in total net position. The statements of net position and statements of revenues, expenses and changes in net position of the Authority are presented on the accrual basis of accounting. Under this method of accounting, revenues are recognized when earned and expenses are recorded when liabilities are incurred without regard to receipt or disbursement of cash. 10

24 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED E. Cash and Investments The reporting entity considers highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Investments are reported at fair value, which is determined using selected bases. Short term investments are reported at cost, which approximates fair value. Securities traded on national or international exchanges are valued at the last reported sales price at current exchange rates. Cash deposits are reported at their carrying amount, which reasonably approximates fair value. Additional deposit and investment risk disclosures are presented in Note 2. F. Accounts Receivable Accounts receivable from tenants are carried at the original amount billed less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by using historical experience applied to an aging of accounts receivable. Accounts receivable from tenants are written off with board approval when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Allowances for other non tenant receivables are reviewed annually. G. Inventories Inventories are recorded at cost. Inventory is comprised of food and supplies at the congregate facility. H. Capital Assets Capital assets are stated at cost. Items capitalized have an original cost of $500 or more and over one year of useful life. Depreciation of property and equipment is provided using the straight line method over the estimated useful lives of the related assets. Estimated useful lives are assigned as follows: Land Improvements Buildings and Improvements Dwelling Equipment 5 10 Nondwelling Equipment 5 10 Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the asset are capitalized. 11

25 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED I. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. J. Revenue Recognition Tenant revenues are recognized as rentals become due. Rental payments received in advance, if any, are deferred until earned. The Authority has entered into annual contribution contracts (ACC) with HUD to develop, manage, and own public housing projects and to administer the federal Section 8 housing programs, whereby monthly housing assistance payments are made to landlords on behalf of eligible lower income tenants. Except as discussed in the following paragraph, intergovernmental revenues are recognized in the period in which all grant requirements are satisfied, which is typically when the Authority has expended the funds on allowable costs. Grant funds received in advance of satisfying all requirements are recorded as unearned revenue. Revenues from the HUD Housing Choice Voucher (HCV) program are recognized based on the most recent quarter's validated costs from the Voucher Management System, rather than the methodology discussed in the above paragraph, in accordance with HUD requirements. K. Operating Revenues and Expenses Operating revenue includes rental income, operating grants, management services provided and all other revenue relating to the provision of safe, decent, and affordable housing services that do not result from transactions defined as capital and related financing, non capital and related financing, or investing activities. Operating expenses include salaries and wages, housing assistance payments, utilities, maintenance, depreciation of fixed assets, administrative expenses and all other expenses relating to the provision of safe, decent and affordable housing services that do not result from transactions defined as capital and related financing, non capital and related financing, or investing activities. L. Income Taxes The Authority is not subject to federal or state income taxes due to its designation as a public housing authority, nor is it required to file federal or state tax returns. 12

26 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and CASH A. Cash The Authority has adopted HUD s Investment Regulation PIH as its investment policy for Federal funds. HUD regulations require that all HUD deposits in financial institutions and investments be fully insured or collateralized by U.S. Government obligations that have a market value of not less than the principal amount of the deposits. The policy also requires that investments not have a maturity period longer than three years. Deposits not under the regulatory agreements with HUD are not required to be insured or collateralized. Custodial Credit Risk Cash Deposits In the case of cash deposits, this is the risk that in the event of a bank failure, the Authority s deposits may not be returned to it. The Authority does not have a formal policy for custodial credit risk, except ensuring that it follows the HUD regulations for federal deposits as detailed in the prior paragraph. At year end, the Authority s carrying amount of deposits was $2,513,159 and the bank balance was $2,661,093. The difference between the carrying amount and the bank balance represents deposits in transit, outstanding checks, and cash on hand. Nonnegotiable certificate of deposits (CDs) are treated as deposits, therefore, the above carrying amount may include CDs which are classified as cash investments for the statement of net assets and statement of cash flows. At year end, all of the Authority s deposits were insured or collateralized by government securities held by the counterparty or its agent in the Authority s name. 13

27 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and RESTRICTIONS ON CASH Restricted cash includes funds which are required to be used for future housing assistance payments (HAP), tenant security deposits, as well as future capital costs for state elderly and congregate facilities. Occasionally, these accounts may be temporarily underfunded because transfers of security deposits from the general checking accounts have not occurred. The total amount of restricted funds included at December 31, 2016 and 2015 was as follows: Restricted Cash Tenant security deposits $ 13,277 $ 14,179 Housing assistance payments 280,473 35,291 Repairs, maintenance and replacements 874, ,737 Capital equipment 322, ,173 Total Restrictions on Cash $ 1,490,714 $ 1,256, RECEIVABLES Receivable balances are segregated by type and presented in the financial statements net of allowance for uncollectible amounts. The following table disaggregates amounts as of December 31, 2016 and 2015: HUD $ 29,419 $ 71,129 Other Governments 11,554 12,123 Miscellaneous 46,118 42,959 Tenants 5,341 11,773 Allowance for Uncollectibles (2,294) (2,883) $ 90,138 $ 135,101 14

28 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and SUMMARY OF CHANGES IN CAPITAL ASSETS The following is a summary of proprietary fund type fixed assets at December 31, 2016 and 2015: 2016 Balance Disposals/ Balance 12/31/15 Additions Placed in Service 12/31/16 Nondepreciable Construction in progress $ 1,435,412 $ 258,954 $ $ 1,694,366 Land 441, ,624 Subtotal nondepreciable 1,877, ,954 2,135,990 Depreciable Land improvements 1,049,361 1,049,361 Buildings & Improvements 14,259,133 46,151 14,305,284 Dwelling Equipment 737, ,089 Nondwelling Equipment 681,727 19, ,646 Subtotal depreciable 16,727,310 66,070 16,793,380 Accumulated Depreciation (12,131,349) (384,353) (12,515,702) Depreciable net 4,595,961 (318,283) 4,277,678 Grand Total $ 6,472,997 $ (59,329) $ $ 6,413, Balance Disposals/ Balance 12/31/14 Additions Placed in Service 12/31/15 Nondepreciable Construction in progress $ 360,096 $ 1,477,010 $ $ 1,837,106 Land 441, ,624 Subtotal nondepreciable 801,720 1,477,010 2,278,730 Depreciable Land improvements 613, ,288 1,049,361 Buildings & Improvements 14,259,133 14,259,133 Dwelling Equipment 737, ,089 Nondwelling Equipment 648,813 32, ,727 Subtotal depreciable 16,258, ,202 16,727,310 Accumulated Depreciation (11,744,457) (386,892) (12,131,349) Depreciable net 4,513,651 82,310 4,595,961 Grand Total $ 5,315,371 $ 1,559,320 $ $ 6,874,691 15

29 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and NOTES RECEIVABLE Promissory note receivable from Vernon Non Profit Housing Development Corporation due when funds become available from the sale of a property (or properties) in the Village Street Revitalization Project, interest payments of $46 accrued monthly, interest at 1%, secured by real estate and personal property at Orchard Street. $ 55,542 $ 55,542 Promissory note receivable from Vernon Non Profit Housing Development Corporation due when funds become available from the sale of a property (or properties) in the Village Street Revitalization Project, interest payments of $78 accrued monthly, interest at 1%, secured by real etate and personal property at Linden Place. 95,184 95,184 $ 150,726 $ 150,726 None of the outstanding balances are expected to be collected within the next year. 7. OBLIGATIONS UNDER OPERATING LEASES The Authority is obligated under certain leases, accounted for as operating leases. Operating leases do not give rise to property rights or lease obligations, and therefore assets and liabilities related to the lease agreements are not recorded in the Authority's financial statements. Rental expense incurred under operating leases totaled $3,937 and $7,863, respectively, during the years ended December 31, 2016 and A summary of the operating lease commitments to maturity follows: Fiscal Year 2017 $ 3, ,364 Total minimum payments $ 7,301 16

30 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and LONG TERM OBLIGATIONS Long term debt activity for the fiscal years ending December 31, 2016 and 2015 was as follows: 2016 Original Balance Balance Current Amount 12/31/15 Additions Retirements 12/31/16 Portion CHFA 2.51% loan from Connecticut Housing Finance Authority dated 12/16/2014. Monthly principal and interest payments until maturity in December Secured by equipment purchased by the Authority. $ 1,667,110 $ 1,667,110 $ $ 43,957 $ 1,623,153 $ 47,781 DOH 0% loan from Connecticut Department of Housing dated 05/20/2015. Due in full upon the receipt of construction or permanent financing, but no later than 24 months from the date of the commitment letter (05/11/2015). Secured by property located at 80 Franklin Street, Vernon. 233, , , ,506 $ 1,900,616 $ $ 43,957 $ 1,856,659 $ 281,287 Less current portion: (281,287) $ 1,575, Original Balance Balance Current Amount 12/31/14 Additions Retirements 12/31/15 Portion CHFA 2.51% loan from Connecticut Housing Finance Authority dated 12/16/2014. Monthly principal and interest payments until maturity in December Secured by equipment purchased by the Authority. $ 1,667,110 $ 1,667,110 $ $ $ 1,667,110 $ 43,957 DOH 0% loan from Connecticut Department of Housing dated 05/20/2015. Due in full upon the receipt of construction or permanent financing, but no later than 24 months from the date of the commitment letter (05/11/2015). Secured by property located at 80 Franklin Street, Vernon. 233, , , ,506 $ 1,667,110 $ 233,506 $ $ 1,900,616 $ 277,463 Less current portion: (277,463) $ 1,623,153 17

31 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and LONG TERM OBLIGATIONS CONTINUED The annual future debt payment requirement for all debt outstanding as of December 31, 2016 is as follows: Year Ending Principal Interest Total 2017 $ 281,287 $ 42,298 $ 323, ,664 41,055 92, ,726 39,711 95, ,871 38,366 98, ,411 36, , to , , , to ,397 97, , to ,451 22, ,959 $ 1,856,659 $ 474,608 $ 2,331,267 Changes in other long term obligations for the fiscal year ended December 31, 2016 and 2015 are summarized as follows: 2016 Balance Balance Due Within 12/31/15 Additions Reductions 12/31/16 One Year Interest $ 40,010 $ 3,461 $ 2,106 $ 41,365 $ 3,636 Net Pension Liability 501, , ,520 $ 542,009 $ 197,982 $ 2,106 $ 737,885 $ 3, Balance Balance Due Within 12/31/15 Additions Reductions 12/31/16 * One Year Interest $ $ 40,010 $ $ 40,010 $ 2,106 Net Pension Liability 377, , ,999 $ 377,175 $ 164,834 $ $ 542,009 $ 2,106 *As restated 9. RESTRICTED NET POSITION Restricted net position consists of the following at December 31, 2016 and 2015: Housing Choice Voucher HAP Equity $ 27,552 $ 35,291 Repairs, Maintenance and Improvements 874, ,737 $ 901,824 $ 885,028 18

32 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and DEFINED BENEFIT PENSION PLAN A. General Information about the Pension Plan Plan description The Municipal Employees Retirement System (MERS) is a cost sharing, multipleemployer, public employee retirement system (PERS) established by the State of Connecticut and administered by the State Retirement Commission to provide pension benefits for the employees of participating municipalities. MERS is considered to be part of the State of Connecticut s financial reporting entity and is included in the State s financial reports as a pension trust fund. Those reports may be obtained by writing to the State of Connecticut, Office of the State Comptroller, 55 Elm Street, Hartford, CT or by calling Benefits provided MERS provides retirement, disability, and death benefits. Retirement benefits are determined as 2 percent of average final compensation times years of service. Employees with 5 years of continues service, 15 years of active aggregate service or 25 years of aggregate service are eligible to retire at age 55. Employees are eligible for service related disability benefits regardless of service. Ten years of service is required for nonservice related disability eligibility. Disability benefits are calculated as a service retirement allowance based on compensation and service to the date of the disability. Death benefits are computed on the basis of the member s average final compensation and creditable service at date of death. Contributions Participating employers make annual contributions consisting of a normal cost contribution, a contribution for the amortization of the net unfunded accrued liability and a prior service amortization payment which covers the liabilities of the System not met by member contributions. The Authority s contractually required contribution rate for the years ended December 31, 2016 and 2015 was percent and percent, respectively, of covered payroll. Contributions to the pension plan from the Authority were $99,473 and $104,542, respectively, for the years ended December 31, 2016 and

33 NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2016 and DEFINED BENEFIT PENSION PLAN CONTINUED B. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At December 31, 2016 and 2015 the Authority reported a liability of $696,520 and $501,999, respectively, for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016 and 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of those dates. The Authority s proportion of the net pension liability was based on the total amount of reported payroll relative to the reported payroll of all participating employers. At June 30, 2016 and 2015, the Authority s proportion was and percent, respectively. For the years ended December 31, 2016 and 2015, the Authority recognized pension expense of $167,083 and $86,889, respectively. At December 31, 2016 and 2015, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Deferred Inflows of Outflows of Resources Resources Deferred Inflows of Resources Difference between expected and actual experience $ 15,011 $ $ $ Net difference between projected and actual earnings on pension plan investments 202,442 38,100 Changes in proportion and differences between employer contributions and proportionate share of contributions 11,871 Contributions subseqent to the measurement date 50,753 51,248 $ 268,206 $ 11,871 $ 89,348 $ 20