THE HOUSING AUTHORITY OF THE CITY OF TALLADEGA, ALABAMA FINANCIAL STATEMENTS DECEMBER 31, 2017

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1 THE HOUSING AUTHORITY OF THE CITY OF TALLADEGA, ALABAMA FINANCIAL STATEMENTS DECEMBER 31, 2017

2 TABLE OF CONTENTS DECEMBER 31, 2017 MANAGEMENT S DISCUSSION AND ANALYSIS 1 INDEPENDENT AUDITORS REPORT 9 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 12 REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE 14 FINANCIAL STATEMENTS Statement of Net Position 17 Statement of Revenues, Expenses and Changes in Net Position 18 Statement of Cash Flows 19 Notes to Financial Statements 20 SUPPLEMENTARY INFORMATION Statement and Certification of Actual Modernization Costs 29 Schedule of Expenditures of Federal Awards 30 Schedule of Prior Year Audit Findings 31 Schedule of Findings and Questioned Costs 32 Financial Data Schedules 34 Page

3 MANAGEMENT S DISCUSSION & ANALYSIS FOR FISCAL YEAR ENDED DECEMBER 31, 2017 The Talladega Housing Authority takes great pride in its overall operation of its three (3) housing complexes. The effective management by the well qualified staff of the Talladega Housing Authority allows it to offer safe, modern and hygienic low-income housing for qualified citizens of Talladega. The properties are maintained in a manner that is very aesthetically pleasing to the entire community. Ongoing renovations and landscaping allows the Talladega Housing Authority to offer a product that is equal to or surpasses available accommodations in the private sector. The information contained in this Management Discussion and Analysis is for the fiscal year ending December 31, The Talladega Housing Authority encourages all readers to consider the contents of these documents when trying to formulate an impression of this Authority. During 2017, the Talladega Housing Authority was very successful in addressing all of its different revenue concerns. Modernization of the complexes continued on track with the authorities overall 5 year plan. Since HUD first started the rating system for PHA s some years ago, the Talladega Housing Authority has always been classified as a HIGH PERFORMER. The Authority s vacancy rates, unit turnarounds and work order completion times were once again among the best in the country. Tenant surveys attested that the residents were very satisfied with the quality of their housing and the staff services provided to them, and were proud to call the Talladega Housing Authority their home. Once again, all financial statements and audits indicated that the Authority was fiscally sound and that it practiced and continued to seek methods of cost reduction and efficiency. For all of the aforementioned facts, the Board of Commissioners and the staff and management of the Talladega Housing Authority are supercilious, and feel that this operation takes a back-seat to no one. If there are any questions or if additional information is needed, please contact Mrs. Nettie Goodwin, Executive Director of the Talladega Housing Authority FINANCIAL HIGHLIGHTS The assets of the Housing Authority of the City of Talladega, Alabama exceeded its liabilities at the close of the most recent fiscal year by $17,640,261 (net position). Of this amount, $3,228,612 (unrestricted net position) may be used to meet the Housing Authority s ongoing obligations to citizens and creditors. The Housing Authority s total net position increased by $1,156,411. 1

4 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 USING THIS ANNUAL REPORT The following terms are used to describe sections of the financial statements: MD&A - Management s Discussion and Analysis Basic Financial Statements - Statement of Net Position - Statement of Revenues, Expenses and Changes in Net Position - Statement of Cash Flows -Notes to Financial Statements Other Required Supplementary Information - Required Supplementary Information Authority-Wide Financial Statements The Authority-wide financial statements are designed to be corporate-like in that all business type activities are consolidated into one column. 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 balanced format where assets equal the sum of liabilities and net position. Assets and liabilities are presented in order of liquidity, and are classified as Current (convertible into cash within one year), and Non-current. 2

5 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 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 equity) are 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, that have constraints placed on the asset by creditors (such as debt covenants), grantors, contributors, laws, regulations, etc. Unrestricted Amounts: Consists of Net Position that does not meet the definition of Net Investment in Capital Assets, or Restricted Net Position. The Authority-wide financial statements also include a Statement of Revenues, Expenses and Changes in Net Position (similar to an Income Statement). This statement includes Operating Revenues, such as rental income, Operating Expenses, such as administrative, utilities, and maintenance, housing assistance payments to landlords, and depreciation, and Non-Operating Revenue and Expenses, such as capital grant revenue and investment income. The focus of the Statement of Revenues, Expenses and Changes in 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, investing activities, non-capital financing activities, and from capital and related financing activities. 3

6 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 FINANCIAL ANALYSIS Statement of Net Position % 12/31/ /31/2016 Variance Change Current Assets $ 6,068,499 $ 4,876,378 $1,192, % Non-current Assets 11,724,671 12,019,740 (295,069) (2.45)% Total Assets $17,793,170 $16,896,118 $ 897, % Current Liabilities $ 56,801 $ 116,492 $ (59,691) (51.24)% Non Current Liabilities 96, ,776 (199,668) (67.51)% Total Liabilities 152, ,268 (259,359) (62.91)% Net Investment in Capital Assets 11,724,671 11,761,701 (37,030) (0.31)% Restricted Net Position 2,686,978-2,686, % Unrestricted Amounts 3,228,612 4,722,149 (1,493,537) (31.63)% Total Net Position 17,640,261 16,483,850 1,156, % Total Liabilities and Net Position $17,793,170 $16,896,118 $ 897, % Major Factors Affecting the Statement of Net Assets The Housing Authority s Current Assets increased $1,192,121 primarily because of a $872,102 increase in cash. Non-current Assets decreased by $295,069 primarily due to depreciation exceeding current year capital acquisitions. Current Liabilities and Non-Current Liabilities decreased because of payment in full of long-term debt. 4

7 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 Business Type Programs 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, or if applicable, a flat rent based which is established by a local comparability study. The Conventional Public 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 (HAP) 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. The voucher stays with the tenant or HAP. 5

8 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 As illustrated in the Statement of Revenues, Expenses and Changes in Net Position, the overall Net Position of the Authority increased by $1,156,411. Statement of Revenues, Expenses and Changes in Net Position 12/31/ /31/2016 Variance % Change Tenant Revenue $1,023,916 $ 968,735 $ 55, % HUD Operating Grants 3,049,396 2,010,151 1,039, % Capital Grants 493, ,038 (165,176) (25.06)% Investment Income 8,031 8,163 (132) (1.62)% Other Government Grants 140, ,838 (124,490) (47.01)% Other Revenue 567, , , % Total Revenues 5,282,648 4,191,416 1,091, % Administrative Expense 1,113, , , % Tenant Services 156, ,030 1, % Utilities 481, ,548 (33,988) (6.59)% Ordinary Maintenance & Operations 1,222,949 1,055, , % Protective Services 124, ,898 (3,984) (3.09)% General Expenses 137, ,402 (19,085) (12.20)% Interest Expense 7,525 15,003 (7,478) (49.84)% Housing Assistance Payments 93,336 83,213 10, % Depreciation 788, ,542 32, % Total Expenses 4,126,237 3,825, , % Change in Net Position $1,156,411 $ 366,386 $ 790,025 (215.63)% MAJOR FACTORS AFFECTING THE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Total revenue increased $1,091,232, primarily because of increases in Other Revenue $286,604 and HUD Operating Grants $1,039,245 received in Other Government Grants also increased. Rental income increased $55,181 due to higher earning tenants. Other government grants decreased by $124,490 and Capital Grants decreased by $165,176 as a result of decreases in funding. Overall operating expenses increased $301,207. Maintenance expenses increased $167,898 due to more maintenance being needed on the properties. Housing Assistance Payments remained stable, with only a slight increase from the prior year. Depreciation increased $32,244. Utilities decreased $33,988 due to the implementation of an energy performance contract usage and rates. General expenses decreased $19,085. Administrative expenses increased $153,819 due to higher administrative costs. 6

9 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 CAPITAL ASSETS 12/31/ /31/2016 Variance % Change Land $ 171,433 $ 171,433 $ % Buildings 30,565,619 28,536,898 2,028, % Dwelling Equipment 353, ,822 (40,409) (10.26)% Administrative equipment 869, ,467 16, % Depreciation (20,235,019) (19,486,642) (748,377) 3.84% Construction in process - 1,551,762 (1,551,762) (100.00)% Total Capital Assets, Net of Depreciation $11,724,671 $12,019,740 $ (295,069) (2.45)% DEBT The Housing Authority has no debt outstanding at the end of the fiscal year. ECONOMIC FACTORS AND EVENTS AFFECTING OPERATIONS Several factors may affect the financial position of the Authority in the subsequent fiscal year. These factors are: (1) Federal funding of the Department of Housing and Urban Development. (2) Local labor supply and demand, which can affect salary and wage rates. (3) Costs involved in implementing project based accounting and asset management. (4) Local inflationary, recessionary and employment trends, which can affect resident incomes and therefore, the amount of rental income. 7

10 MANAGEMENT S DISCUSSION & ANALYSIS - CONTINUED FOR FISCAL YEAR ENDED DECEMBER 31, 2017 CONCLUSION The Talladega Housing Authority s management is committed to staying abreast of regulations and appropriations, as well as maintaining an ongoing analysis of all budgets and expenses to ensure that the Authority continues to operate at the highest standards established by the Real Estate Assessment Center and the Department of Housing and Urban Development. CONTACT This financial report is designed to provide our residents, the citizens of the Talladega, Alabama area, all federal and state regulatory bodies, and any creditors with a general overview of the Authority s finances. If you have any questions regarding these financial statements or supplemental information, you may contact Mrs. Nettie Goodwin, Executive Director, at 151 Curry Court, Talladega, Alabama

11 MOODY & COMPANY CERTIFIED PUBLIC ACCOUNTANTS 286 SANIE ROAD ODENVILLE, ALABAMA TELEPHONE (205) FACSIMILE (205) JAMES R. MOODY, CPA PLEASE REPLY TO: P. O. BOX 698 ODENVILLE, AL INDEPENDENT AUDITORS REPORT Board of Commissioners The Housing Authority of the City of Talladega, Alabama Talladega, Alabama port on the Financial Statements We have audited the accompanying financial statements of the business-type activities of The Housing Authority of the City of Talladega, Alabama (the Housing Authority), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the Housing Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 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 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 Housing Authority s preparation and fair presentation of the financial statements 9

12 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 Housing Authority s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Housing Authority of the City of Talladega, Alabama, as of December 31, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof for the year 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 1-8 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 opinions on the financial statements that collectively comprise the Housing Authority of the City of Talladega, Alabama s basic financial statements. The accompanying Financial Data Schedule is presented for purposes of additional 10

13 analysis as required by the U.S. Department of Housing and Urban Development and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and is also not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards and the Financial Data Schedule 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 Schedule of Expenditures of Federal Awards and the Financial Data Schedule are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 10, 2018, on our consideration of the Housing 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 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 Housing Authority s internal control over financial reporting and compliance. April 10, 2018 Odenville, Alabama Moody & Company 11

14 MOODY & COMPANY CERTIFIED PUBLIC ACCOUNTANTS 286 SANIE ROAD ODENVILLE, ALABAMA TELEPHONE (205) FACSIMILE (205) JAMES R. MOODY, CPA PLEASE REPLY TO: P. O. BOX 698 ODENVILLE, AL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Commissioners The Housing Authority of the City of Talladega, Alabama Talladega, Alabama We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities of The Housing Authority of the City of Talladega, Alabama (the Housing Authority), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the Housing Authority s basic financial statements, and have issued our report thereon dated April 10, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Housing Authority s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Housing Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of the Housing Authority s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Housing Authority s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 12

15 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Housing Authority s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Housing Authority s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Housing Authority s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. April 10, 2018 Odenville, Alabama Moody & Company 13

16 MOODY & COMPANY CERTIFIED PUBLIC ACCOUNTANTS 286 SANIE ROAD ODENVILLE, ALABAMA TELEPHONE (205) FACSIMILE (205) JAMES R. MOODY, CPA PLEASE REPLY TO: P. O. BOX 698 ODENVILLE, AL REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE Board of Commissioners The Housing Authority of the City of Talladega, Alabama Talladega, Alabama Report on Compliance for Each Major Federal Program We have audited The Housing Authority of the City of Talladega, Alabama s (the Housing Authority) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Housing Authority s major federal programs for the year ended December 31, The Housing Authority s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of the Housing Authority s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of 14

17 compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Housing Authority s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Housing Authority s compliance. Opinion on Each Major Federal Program In our opinion, the Housing Authority complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Report on Internal Control Over Compliance Management of the Housing Authority is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Housing Authority s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Housing Authority s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. 15

18 Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the business-type activities of the Housing Authority, as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the Housing Authority s basic financial statements. We issued our report thereon dated April 10, 2018, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. April 10, 2018 Odenville, Alabama Moody & Company 16

19 FINANCIAL STATEMENTS

20 STATEMENT OF NET POSITION DECEMBER 31, 2017 Assets Current Assets Cash and cash equivalents - unrestricted $ 3,253,786 Cash and cash equivalents - restricted 1,033 Investments - restricted 2,685,945 Accounts receivable: Tenants - net of allowance for doubtful accounts of $1,264 61,943 Accrued interest receivable 825 Prepaid insurance 64,967 Total current assets 6,068,499 Capital Assets Land 171,433 Buildings 30,565,619 Furniture, equipment and machinery-dwellings 353,413 Furniture, equipment and machinery-administrative 869,225 Total capital assets 31,959,690 Less: accumulated depreciation 20,235,019 Net capital assets 11,724,671 TOTAL ASSETS $ 17,793,170 See notes to financial statements.

21 Liabilities and Net Position Current Liabilities Compensated absences payable $ 5,058 Accrued payroll taxes payable 5,351 Security deposits 46,392 Total current liabilities 56,801 Noncurrent Liabilities Compensated absences payable 96,108 Total noncurrent liabilities 96,108 Total Liabilities 152,909 Net Position Net investment in capital assets 11,724,671 Restricted 2,686,978 Unrestricted 3,228,612 Total net position 17,640,261 TOTAL LIABILITIES AND NET POSITION $ 17,793,170 17

22 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2017 Operating Revenues Dwelling rent $ 1,023,916 HUD operating grants 3,049,396 Other government grants 140,348 Total operating revenues 4,213,660 Operating Expenses Administrative 1,113,162 Tenant services 156,688 Utilities 481,560 Maintenance 1,222,949 Protective services 124,914 Insurance 110,731 Other general expenses 26,586 Housing assistance payments 93,336 Depreciation 788,786 Total operating expenses 4,118,712 Operating income 94,948 Nonoperating Revenues (Expenses) Other revenue 567,095 Interest expense (7,525) Interest income 8,031 Total nonoperating revenues (expenses) 567,601 Income before capital contributions 662,549 Capital Contributions HUD Capital Grants 493,862 Change in Net Position 1,156,411 Net Position, December 31, ,483,850 Net Position, December 31, 2017 $ 17,640,261 See notes to financial statements. 18

23 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2017 Cash Flows From Operating Activities: Received from rents and other fees $ 996,921 Received from grants 3,190,588 Paid to vendors (2,239,654) HAP payments (93,336) Paid to employees (997,324) Net cash provided by operating activities 857,195 Cash Flows From Capital and Related Financing Activities: Purchase of property and equipment (493,862) Payment of loan principal and interest (265,564) Capital grants 493,862 Net cash (used) by capital and related financing activities (265,564) Cash Flows From Investing Activities: Purchase of investments (294,343) Interest income 7,719 Net cash (used) by investing activities (286,624) Cash Flows From Non-Capital Financing Activities: Other revenue 567,095 Net cash provided by non-capital financing activities 567,095 Net increase in cash and cash equivalents 872,102 Cash and cash equivalents at beginning of year 2,382,717 Cash and cash equivalents at end of year $ 3,254,819 Cash and cash equivalents - unrestricted $ 3,253,786 Cash and cash equivalents - restricted 1,033 $ 3,254,819 Reconciliation of operating income to net cash provided by operating activities Cash Flows From Operating Activities: Operating income $ 94,948 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 788,786 Change in assets and liabilities: (Increase) in accounts receivable (26,128) Decrease in prepaid expenses 764 Increase in accounts payable 145 Increase in accrued payroll taxes 199 (Decrease) in compensated absences (1,496) (Decrease) in security deposits (23) Net cash provided by operating activities $ 857,195 See notes to financial statements. 19

24 NOTES TO FINANCIAL STATEMENTS

25 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the Housing Authority have been prepared in conformity with accounting principles generally accepted in the United States of America (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 Reporting Entity - Housing Authorities are chartered as public corporations under the laws of the State of Alabama for the purpose of providing safe and sanitary dwelling accommodations. In determining how to define the reporting entity, management has considered all potential component units by applying the criteria set forth in Section 2100 and 2600 of the Codification of Government Accounting Standards Board and Financial Accounting Standards Board and Statement Number 61 of the Government Accounting Standards Board, The Financial Reporting Entity: Omnibus. The Housing Authority has the following units: Rental Assistance Demonstration (RAD) Section 8 Choice Vouchers 383 units 30 units The Board of Commissioners of the Housing Authority is appointed by the Mayor of the City of Talladega but the Authority designates its own management. The City of Talladega 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 Board is appointed by the City of Talladega, no other criteria established by Section 2100 and 2600 of the Codification of Governmental Accounting Standards Board, the Financial Accounting Standards Board, and Governmental Accounting Standards Board Statement No. 61, The Financial Reporting Entity: Omnibus for inclusion of the Authority in the City of Talladega s financial statements are met. Therefore, a separate financial report is prepared for the Authority. All of the operations of the Authority are included in the audited financial statements and there are no operations or activities which have been excluded. The following entity has been identified as a component unit based on the above criteria: 20

26 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Blended Component Unit The accompanying financial statements present the primary activities, programs and component units over which the Housing Authority exercises significant influence. Significant influence or accountability is based primarily on operational or financial relationships with the Housing Authority (as distinct from legal relationship). THA Communities, LLC (the Company) is a blended component unit reported with the Housing Authority. The Company was incorporated as an Alabama notfor-profit corporation for the purpose of providing decent, safe, and sanitary housing for elderly and handicapped persons of low-income in the City of Talladega, Alabama. Separate financial statements for THA Communities, LLC can be obtained at the Housing Authority s administrative office. B. Programs The accounts of the Housing Authority are organized and operated on the basis of programs. These programs are accounted for in one enterprise fund. C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Enterprise Funds Enterprise funds (business-type activities) are accounted for on the flow of economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the statement of net position. Enterprise funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with an enterprise funds principal ongoing operations. The principal operating revenues of the Housing Authority s funds are rent and maintenance charges to residents, administration fees earned and operating grants. Operating expenses for enterprise funds include administrative costs of providing the service, maintenance, general expenses, depreciation and housing assistance payments to landlords. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. 21

27 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED D. Cash and Cash Equivalents - Cash includes amounts in demand deposits and interestbearing demand deposits. Cash equivalents include amounts in time deposits and cash with fiscal agent. Under state law, the Housing Authority may deposit funds in demand deposits, interest-bearing demand deposits, money market accounts, or time deposits with state banks organized under Alabama law and national banks having their principal offices in Alabama. E. Investments - Investments with an original maturity which exceeds 90 days when purchased are considered investments. The investments are reflected at fair value except for certificates of deposit which are reflected at cost. F. Prepaid Items - Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. G. Compensated Absences - Full-time, permanent employees are granted vacation benefits in varying amounts to specified maximums depending on tenure with the Housing Authority. Sick leave accrues to full-time, permanent employees to specified maximums. Employees are entitled to vacation leave balances at termination. The estimated liabilities include required salary-related payments. Compensated absences are reported as accrued in the financial statements. H. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 statement and the reported amounts of revenues, expenses and other financing sources and uses during the reporting period. Actual results could differ from those estimates. The most significant estimates are in relation to accounts receivable valuations, as well as depreciation and useful lives of capital assets. I. Subsequent Events In preparing the financial statements, management evaluated subsequent events through April 10, 2018, the date the financial statements were available to be issued. 22

28 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED J. Elimination Policy The Housing Authority has adopted the policy while in the process of aggregating data for the statement of net position and the statement of activities, some amounts reported as interfund activity and balances in the funds should be eliminated or reclassified. NOTE 2 - CAPITAL ASSETS Capital assets are recorded at historical cost at the date of acquisition. Assets are depreciated on a straight-line basis over the following years: Buildings and improvements Dwelling equipment Administrative equipment years 5-10 years 5-12 years Depreciation expense for 2017 was $788,786. All capital items over $3,000 are capitalized. NOTE 3 - CHANGES IN CAPITAL ASSETS Dec. 31, Dec. 31, 2016 Additions Retirements Transfers 2017 Land $ 171,433 $ - $ - $ - $ 171,433 Building 28,536, ,028,721 30,565,619 Dwelling equipment 393,822 - (40,554) ,413 Administrative equipment 852, , ,225 Work in process 1,551, ,862 - (2,045,624) - $31,506,382 $493,862 $(40,554) $ - $31,959,690 Accumulated depreciation $19,486,642 $788,786 $(40,409) $ - $20,235,019 23

29 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 4 - DEPOSITS AND INVESTMENTS Summary of deposit and investment balances as of December 31, 2017: Bank deposits $3,841,907 Certificates of deposit 2,098,857 $5,940,764 Custodial credit risk is the risk that in the event of a bank failure, the Housing Authority s deposits may not be returned to it. The Housing Authority s carrying amount of bank deposits and certificates of deposit were $5,490,764. Of the total certificates of deposit, $250,000 was insured through the Federal Depository Insurance Corporation (FDIC). The remaining $1,848,857 was collateralized with securities held by the pledging financial institution s agent in the Housing Authority s name. Of the $3,841,907 in bank deposits, $250,000 was insured through FDIC. The remaining $3,591,907 was collateralized with securities held by the pledging financial institution s agent in the Housing Authority s name. Custodial Credit Risk The Housing Authority policy is to limit credit risk by adherence to the list of HUD permitted investments, which are backed by the full faith and credit of or a guarantee of principal and interest by the U.S. Government. Interest Rate Risk The Housing Authority s formal investment policy does not limit investment maturities as a means of managing its exposure to fair value losses arising from interest rate volatility. The Housing Authority s investment policy was in compliance with HUD policies and provided the ability to invest in U.S. Treasury Bills, certificates of deposit with proper pledges and other governmental securities. NOTE 5 - PENSION PLAN The Housing Authority has a defined contribution retirement plan which is administered by an outside trustee. All full time employees are eligible to participate in the plan. The Housing Authority contributes 13.7% of each eligible employee s base salary, excluding overtime, to the plan. Employer contributions to the plan for the year ended December 31, 2017 were approximately $163,

30 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 6 - ECONOMIC DEPENDENCY During the current year, the PHA received $3,543,258 from the Department of Housing and Urban Development through various grant awards. Such grant awards accounted for approximately 67% of revenue reported by the PHA. NOTE 7 - ACCRUED COMPENSATED ABSENCES It is the Authority s policy to permit employees to accumulate a limited amount of earned but unused annual leave that will be paid to employees upon separation from the Authority s service. The cost of such leave is accrued annually and was $101,166 at December 31, NOTE 8 CHANGES IN LONG-TERM LIABILITIES The changes in long-term liabilities are as follows: Balance Balance Amounts Due December 31, December 31, Within 2016 Additions Deletions 2017 One Year Compensated absences $ 97,530 $ - $ 1,422 $96,108 $5,058 Long-term debt 198, ,246 - $295,776 $ - $199,668 $96,108 NOTE 9 POST EMPLOYMENT BENEFITS The Housing Authority does not offer any post-employment benefits to retirees, therefore, GASB Statements No. 43 and No. 45 do not apply. NOTE 10 LONG-TERM DEBT The Housing Authority paid off its debt in the current fiscal year. Interest in the amount of $7,525 has been expensed in the statement of revenues, expenses and changes in net position. 25

31 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 11 CONDENSED FINANCIAL INFORMATION The Housing Authority has the following condensed financial information: Condensed Statement of Net Position THA Communities, LLC Assets Current assets $ 5,491,440 Non-current assets 11,707,116 Total assets $17,198,556 Liabilities and Net Position Current liabilities $ 49,480 Noncurrent liabilities 58,665 Total liabilities 108,145 Net Position Net investment in capital assets 11,707,116 Restricted 2,685,945 Unrestricted 2,697,350 Total net position 17,090,411 Total liabilities and net position $17,198,556 26

32 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 11 CONDENSED FINANCIAL INFORMATION - CONTINUED Condensed Statement of Revenues, Expenses and Changes in Net Position THA Communities, LLC Operating Revenues $1,094,454 Operating Expenses 2,090,743 Operating income (loss) (996,289) Nonoperating Revenues (Expenses) 18,086,700 Income (loss) before capital contributions 17,090,411 Capital contributions - Change in net position 17,090,411 Net position, December 31, Net position, December 31, 2017 $17,090,411 27

33 NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2017 NOTE 11 CONDENSED FINANCIAL INFORMATION - CONTINUED Condensed Statement of Cash Flows THA Communities, LLC Cash flows from operating activities $19,239,676 Cash flows from non-capital activities 17,989,808 Cash flows from capital and related activities (31,863,162) Cash flows from investing activities (2,686,082) Net increase in cash and cash equivalents 2,680,240 Cash and cash equivalents at beginning of year - Cash and cash equivalents at end of year $ 2,680,240 Cash and cash equivalents unrestricted $ 2,680,240 Cash and cash equivalents - restricted - $ 2,680,240 28

34 SUPPLEMENTARY INFORMATION

35 STATEMENT AND CERTIFICATION OF ACTUAL MODERNIZATION COSTS FOR THE YEAR ENDED DECEMBER 31, 2017 Capital Fund Capital Fund Capital Fund AL09P AL09P AL09P Funds Approved $ 749,046 $ 778,418 $ 787,504 Funds Expended 749, , ,504 Excess of Funds Approved $ - $ - $ - Funds Advanced $ 749,046 $ 778,418 $ 787,504 Funds Expended 749, , ,504 Excess of Funds Advanced $ - $ - $ - 1. The distribution costs as shown on the Final Statements of Modernization Costs dated July 20, 2017, September 18,2017 and October 4, 2017, respectively, accompanying the Actual Modernization Cost Certificates submitted to HUD are in agreement with the PHA's records. 2. All modernization costs have been paid and all related liabilities have been discharged through payment. See notes to financial statements. 29

36 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2017 Pass-Through Federal Grantor's Federal Grantor Program Title CFDA Number Number Expenditures U.S. Department of Housing and Urban Development Direct Programs: Annual Contribution Contract A-3831 Operating Subsidy a N/A $ 933,201 Capital Fund Program N/A 2,506,570 Housing Choice Vouchers N/A 103,487 TOTAL FEDERAL FINANCIAL AWARDS $ 3,543,258 NOTE 1 - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Talladega Housing Authority and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. See notes to financial statements. 30