ECORSE HOUSING COMMISSION FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA FOR THE YEAR ENDED JUNE 30, 2016

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1 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA FOR THE YEAR ENDED

2 TABLE OF CONTENTS Introduction Independent Auditor's Report 1-2 Management Discussion and Analysis 3-8 Basic Financial Statements Statement of Net Position 9 Statement of Revenues, Expenses, and Changes in Net Position 10 Statement of Cash Flows 11 Notes to the Financial Statements Supplementary Information Statement of Net Position - (FDS Schedule Format) Statement of Revenues, Expenses, and Changes in Net Position - (FDS Schedule Format) Single Audit Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and Internal Control Over Compliance in Accordance with The Uniform Guidance Schedule of Expenditures of Federal Awards 27 Notes to the Schedule of Expenditures of Federal Awards 28 Schedule of Findings and Questioned Costs Agreed-Upon Procedures Independent Accountants' Report on Applying Agreed-Upon Procedures 31 Agreed-Upon Procedures

3 INTRODUCTION

4 Zenk & Associates, P.C. Certified Public Accountants Members: American Institutes of Certified Public Accountants Michigan Association of Certified Public Accountants INDEPENDENT AUDITOR'S REPORT Board of Commissioners, Ecorse Housing Commission Ecorse, Michigan Regional Inspector General of Audit Department of Housing and Urban Development Report on Financial Statements We have audited the accompanying financial statements of the Ecorse Housing Commission, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we 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 Ecorse Housing Commission, as of June 30, 2016, and the respective changes in financial position and the cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America East U.S. Highway 223, Adrian, MI Phone: Fax:

5 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis information on pages 3 through 9 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 of 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 Ecorse Housing Commission's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and schedule of actual modernization costs incurred on certain closed projects are presented for purposes of additional analysis and are 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 (CFR) 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 financial data schedule and the schedule of expenditures of federal awards are the responsibility of management and were derived from and related 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 use to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the financial data schedules and the schedule of expenditures of federal awards are fairly stated in all material respects in relating to the basic financial statements as a whole. The introductory and schedule of actual modernization costs incurred on certain closed projects have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 9, 2017, on our consideration of the Ecorse Housing Commission s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants agreements and other matters. The purpose of that report is to describe the scope of our testing of internal controls over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Ecorse Housing Commission's internal control over financial reporting and compliance. Zenk & Associates, P.C. March 9, 2017

6 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) MANAGEMENT'S DISCUSSION AND ANALYSIS The Ecorse Housing Commission's (the Commission) management's discussion and analysis is designed to {a} assist the reader in focusing on significant financial issues, {b} provide an overview of the Commission's financial activity, {c} identify change in the Commission's financial assets (its ability to address the next and subsequent year challenges), and {d} identify individual fund issues or concerns. Since the Management 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 Commission's financial statements (beginning on page 9). FINANCIAL HIGHLIGHTS The Commission's net position decreased by $165,582 (or 9%) during Since the Commission engages only in business-type activities, the decrease is all in the category of business-type net position. Net position was $1,617,146 and $1,782,728 for 2016 and 2015 respectively. The business-type activities revenue decreased by $120,381 (or 9%) during 2016, and were $1,179,460 and $1,299,841 for 2016 and 2015 respectively. This decrease in revenue is explained later in this section of the financial statements. The total expenses of all Commission programs increased by $49,466 (or 3% ). Total expenses were $1,527,767 and $1,478,301 for 2016 and 2015 respectively. The decrease in expenses is explained later in this section of the financial statements. USING THIS ANNUAL REPORT The following is a graphic outline of the Commission's financial statement presentation : MD&A Management Discussion and Analysis-pages 3-8 Basic Financial Statements Commission-wide Financial Statements - pages 9-11 Notes to Financial Statements - pages Other Required Supplementary Information Required Supplementary Information - pages

7 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) The current presentation focuses on both the Commission as a whole (Commission-wide) and the major individual funds. Both perspectives (Commission-wide and major fund) allow the user to address relevant questions, broaden a basis for comparison (year to year or Commission to Commission) and enhance the Commission's accountability. Commission-Wide Financial Statements The Commission-wide financial statements (see pages 9-11) are designed to be corporate-like in that all business type activities are consolidated into columns which add to a total for the entire Commission. 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 Commission. The statement is presented in the format where assets, minus liabilities, equals "Net Position", formerly known as equity. Assets and liabilities are presented in order of liquidity. The focus of the Statement of Net Position (the "Unrestricted Net Position") is designed to represent the net available liquid (noncapital) assets, net of liabilities for the entire Commission. Net Position (formerly equity) are reported in three broad categories: Net Position, 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 assets by creditors (such as debt covenants), grantors, contributors, laws, regulations, etc. Unrestricted Net Position: Consists of Net Position that do not meet the definition of "Net Position Invested in Capital Assets, Net of Related Debt", or "Restricted Net Position". The Commission-wide 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 rental income, Operating Expenses, such as administrative, utilities, and maintenance, and depreciation, and Non-Operating Revenues and Expenses, such as capital grant revenue, investment or 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 financial activities. Fund Financial Statements Traditional users of governmental financial statements will find the Fund Financial Statements presentation more familiar. The focus is now on Major Funds, rather than fund types. The Commission consists of one major fund and is shown here as an Enterprise Fund. Enterprise Funds utilize the full accrual basis of accounting. The Enterprise method of accounting is similar to accounting utilized by the private sector accounting. Many of the funds maintained by the Commission are required by the U. S. Department of Housing and Urban Development (HUD). Others are segregated to enhance accountability and control. 4

8 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) The Commission's Programs Enterprise Funds, using Business-Type Presentation Format Conventional Public Housing Program - Under the Conventional Public Housing Program (CFDA #14.850), the Commission owns and manages dwelling units, which it rents to low-income households. The Conventional Public Housing Program is operated under an Annual Contributions Contract (ACC # C-3012) with HUD. HUD provides Operating Subsidy and Capital Grant funding to enable the PHA to provide the housing at a flat rate or a rate based upon 30% of household income, depending on the circumstances and choice of the renter. Capital Fund Program - (CFDA # ), the Commission receives additional funding from HUD which is the primary funding source for physical and management improvements to the Commission owned properties and its operations. This program provides funding for large-scale improvements or unplanned emergencies that are not covered by the operating subsidies of the conventional program. COMMISSION-WIDE STATEMENT The following table reflects the condensed Statement of Net Position compared to prior year. The Commission is engaged in Business-Type Activities. For more detailed information and breakdown, see page 9 " Statement of Net Position" Change Percent Change Current and Other Assets $ 254,126 $ 349,398 $ (95,272) % Capital Assets 1,456,556 1,761,300 (304,744) % Other Non-Current Assets 61, , % Total Assets 1,710,682 2,110,698 (400,016) % Deferred Outflow of Resources 11,186 3,885 7, % Other Liabilities 145, ,023 (59,749) % Long-Term Liabilities ,426 (124,426) % Total Liabilities 145, ,023 (59,749) % Deferred Inflow of Resources 20,785 2,406 18, % Net Position: Invested in Capital Assets, Net of Related Debt 1,456,556 1,761,300 (304,744) % Unrestricted 160,590 21, , % Total Net Position $ 1,617,146 $ 1,782,728 $ (165,582) -9.29% Major Factors Affecting the Statement of Net Position TABLE 1 STATEMENT OF NET POSITION Current assets decreased by $95,272 or 27%. This decrease is due to a decrease in HUD grants. Capital assets decreased due to depreciation. Current liabilities decreased by $59,749 or 29%. This decrease is due to the decrease in accounts payable. 5

9 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Table 2 presents details on the changes in Unrestricted Net Position TABLE 2 CHANGE OF UNRESTRICTED NET POSITION Unrestricted Net Position -Beginning $ 21,428 Results of Operations (348,307) Adjustments: Depreciation (1) 304,744 Disposal of Assets -0- Retirement of Debt -0- Adjusted Results from Operations (Increase) decrease in Restricted (43,563) -0- Capital Expenditures -0- Prior Period Adjustment 182,725 Unrestricted Net Position - Ending $ 160,590 (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 is a significant measure of the Commission's activities, the analysis of the changes in Unrestricted Net Position provides a clearer change in financial well-being. TABLE 3 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION The following schedule compares the revenues and expenses for the current and previous fiscal year. The Commission is engaged only in Business-Type Activities Change Percent Change Revenues Tenant Revenues - Rent and Other $ 173,105 $ 220,953 $ (47,848) % Operating Subsidies and Grants 1,005,172 1,078,823 (73,651) -6.83% Investment Income (26) % Other Revenues 1,144-1, % Total Revenue $ 1,179,460 $ 1,299,841 $ (120,381) -9.26% Expenses Administrative $ 464,071 $ 419,697 $ 44, % Tenant Services 33,836 55,398 (21,562) % Utilities 87,166 72,216 14, % Maintenance 479, ,358 (81,475) % Protective Services 31,733 18,780 12, % Insurance 51,594 37,483 14, % General 74,740 53,182 21, % Depreciation 304, ,187 44, % Total Expenses $ 1,527,767 $ 1,478,301 $ 49, % Net Increase (Decrease) $ (348,307) $ (178,460) $ (169,847) 95.17% 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Major factors affecting the Statement of Revenue, Expenses, and Changes in Net Position Revenue decreased by $120,381 (9%) This decrease is due to the RAD conversions which prohibits new lease ups on units when vacated by current tenants and a decrease in HUD funding. Expenses increased by $49,466 (3%). This increase is due to the increase in general expenses which were incurred to the RAD conversion nearing completion. CAPITAL ASSETS As of year end, the Commission had $1,456,556 invested in a variety of capital assets as reflected in the following schedule, which represents a net decrease (addition, deductions and depreciation) of $304,744. TABLE 4 CAPITAL ASSETS AT YEAR-END (NET OF DEPRECIATION) Business-Type Activities Change Land and Land Rights $ 494,047 $ 494,047 $ -0- Buildings 10,399,054 10,399, Furniture and Equipment - Dwellings 110, , Furniture and Equipment - Admin 227, , Leasehold Improvements 2,761,431 2,761, Accumulated Depreciation (12,535,641) (12,230,897) (304,744) Total $ 1,456,556 $ 1,761,300 $ (304,744) The following reconciliation summarizes the change in Capital Assets, which is presented in detail on page 17 of the notes. TABLE 5 CHANGE IN CAPITAL ASSETS Business-Type Activities Beginning Balance $ 1,761,300 Additions -0- Prior Period Adjustment -0- Retirements - Net of Depreciation -0- Depreciation (304,744) Ending Balance $ 1,456,556 The major differences are due to current year depreciation. There were no capital asset additions during the year. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Significant economic factors affecting the Commission are as follows: - Federal funding of the Department of Housing and Urban Development. - Very tight housing market which impacts housing rental rates. - Inflationary pressure on utility rates, supplies, and other costs. ECONOMIC FACTORS - Local/state declining economic conditions and employment trends, impacting resident incomes and therefore, the amount of rental income. - No change in the utility allowance due to no changes in the utility costs in FY 16. On January 31, 2015, 200 units of the Commission's public housing units received HUD approval for participation in HUD's Rental Assistance Demonstration (RAD) program. The RAD program provides the Commission the opportunity to convert its current funding stream-public Housing Operating and Capital Funds-to the historically more stable and better funded Section 8 Project-Based Rental Assistance. RAD also allows the Commission to secure outside capital for substantial redevelopment of its properties, the most significant source being Low-Income Housing Tax Credits. The RAD program conversion is still in the construction phase as of June 30, Closing of this process is expected by the end of FY2017, at which time the building will begin immediately after. FINANCIAL CONTACT The individual to be contacted regarding this report is as follows: Mark Carter Executive Director Ecorse Housing Commission 266 Hyacinth Avenue Ecorse, MI (313)

12 BASIC FINANCIAL STATEMENTS

13 STATEMENT OF NET POSITION ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 166,927 Cash - Tenant Security Deposits 22,954 Receivables - Net of Allowance 41,059 Prepaid Expenses 23,186 TOTAL CURRENT ASSETS 254,126 NONCURRENT ASSETS Capital Assets Nondepreciable 494,047 Depreciable 13,498,150 Less: Accumulated Depreciation (12,535,641) Net Capital Assets 1,456,556 Net Pension Asset 61,337 TOTAL NONCURRENT ASSETS 1,517,893 TOTAL ASSETS 1,772,019 DEFERRED OUFLOW OF RESOURCES 11,186 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 1,783,205 LIABILITIES AND NET POSITION CURRENT LIABILITIES Accounts Payable $ 83,242 Accrued Liabilities 24,247 Due To Other Governments 9,282 Tenant Security Deposits 22,954 Unearned Revenue 5,549 TOTAL CURRENT LIABILITIES 145,274 TOTAL LIABILITIES 145,274 DEFERRED INFLOW OF RESOURCES 20,785 NET POSITION Invested in Capital Assets, Net of Related Debt 1,456,556 Unrestricted 160,590 TOTAL NET POSITION 1,617,146 TOTAL LIABILITIES, DEFERRED OUTFLOWS OF RESOURCES, AND NET POSITION $ 1,783,205 "THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS" 9

14 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED OPERATING REVENUES: Tenant Revenue $ 173,105 Program Grants - Subsidies 1,005,172 Other Revenue 1,144 OPERATING EXPENSES: TOTAL OPERATING REVENUES 1,179,421 Administrative 464,071 Tenant Services 33,836 Utilities 87,166 Maintenance 479,883 Protective Services 31,733 Insurance 51,594 General Expense 16,936 Payments in Lieu of Taxes 9,282 Bad Debts 48,522 Depreciation 304,744 NON - OPERATING REVENUE (EXPENSES): TOTAL OPERATING EXPENSES 1,527,767 OPERATING LOSS (348,346) Interest and Investment Income 39 CHANGE IN NET POSITION (348,307) TOTAL NET POSITION - BEGINNING 1,782,728 PRIOR PERIOD ADJUSTMENT 182,725 TOTAL NET POSITION - RESTATED 1,965,453 TOTAL NET POSITION - ENDING $ 1,617,146 "THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS" 10

15 STATEMENT OF CASH FLOWS YEAR ENDED CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Tenants $ 142,837 Cash Received from Grants and Subsidies 1,022,684 Cash Payments for Goods and Services (656,296) Cash Payments for Wages and Related Benefits (558,791) NET CASH USED BY OPERATING ACTIVITIES (49,566) CASH FLOWS FROM INVESTING ACTIVITIES: Interest and Investment Income 39 NET CASH PROVIDED BY INVESTING ACTIVITIES 39 DECREASE IN CASH AND CASH EQUIVALENTS (49,527) CASH AND CASH EQUIVALENTS, BEGINNING 239,408 CASH AND CASH EQUIVALENTS, ENDING $ 189,881 RECONCILIATION OF OPERATING LOSS TO CASH USED BY OPERATING ACTIVITIES: Operating Loss $ (348,346) Adjustments to Reconcile Operating Loss to Net Cash used by Operating Activities Depreciation 304,744 Bad Debts 48,522 (Increase) Decrease in: Due From Other Governments 17,512 Receivables - Net of Allowances (25,630) Prepaid Expenses (866) Deferred Outflows of Resources (7,301) Increase (Decrease) in: Accounts Payable (33,992) Accrued Liabilities (1,750) Due to Other Governments (15,056) Security Deposits (5,411) Unearned Revenue (371) Deferred Inflows of Resources 18,379 NET CASH USED BY OPERATING ACTIVITIES $ (49,566) RECONCILIATION OF CASH AND CASH EQUIVALENTS TO STATEMENT OF NET ASSETS Cash and Cash Equivalents $ 166,927 Cash - Security Deposits 22,954 CASH AND CASH EQUIVALENTS, ENDING $ 189,881 "SEE INDEPENDENT AUDITOR'S REPORT" "THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS" 11

16 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Reporting Entity The Ecorse Housing Commission, Ecorse, Michigan, (the Commission) was created by ordinance of the city of Ecorse. The Commission signed an Annual Contributions Contract (ACC) with the U.S. Department of Housing and Urban Development (HUD). The ACC requires the Commission to provide safe, sanitary, and decent housing for qualifying senior and low income families. The Commission consists of the following as of June 30, 2016: MI 007 Low Rent Program 199 Units The accompanying general purpose financial statements comply with the provisions of Governmental Accounting Standards Board, (GASB) Statement No. 14, The Financial Reporting Entity, and Statement No. 39, Determining Whether Certain Organizations are Component Units, in that the financial statements include all organizations, activities, and functions for which the Commission is financially accountable. Financial accountability is defined by the component unit being fiscally dependent on the Commission. On this basis, the Commission's management believes the financial statements represents all of the funds over which the Commission is financially accountable. Basis of Accounting The financial statements of the Commission 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 standardsetting body for establishing governmental accounting and financial reporting principles. The more significant of the Commission's accounting policies are described below. Pursuant to GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, the Commission follows GASB guidance as applicable to proprietary funds and FASB Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30, 1989, that do not conflict with or contradict GASB pronouncements. Government activities, which normally are supported by intergovernmental (grant) revenues, are reported separately from any business-type activities, which would rely to a significant extent on fees and charges for support. All of the Commission's activities are considered business activities. Fund Accounting The Commission maintains its accounting records in accordance with the principles of fund accounting. Fund accounting require the recording of specific receipts and disbursements. The transactions of each fund are reflected in self-balancing groups of accounts and accounting entities that are separate from the activities reported in other funds. 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For the purpose of the statement of cash flows, cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. 12

17 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Restricted Cash Restricted cash accounts represents amounts held for security deposits and other cash restricted for specific programs by HUD. Receivables - Net of Allowance Bad debts are provided on the allowance method based on management's evaluation of the collectability of outstanding tenant receivable balances at the end of the year. The allowance for uncollectible accounts was $39,700 at June 30, Property and Equipment Property and equipment are stated at cost and depreciation is computed using the straight line method over an estimated useful life of the assets. The cost of normal maintenance and repairs, that do not add to the value of the asset or materially extend the asset life, are not capitalized. The following are the useful lives used for depreciation purposes: Buildings and Improvements Equipment Compensated Absences 40 Years 3-10 Years The Commission accounts for compensated absences in accordance with GASB Statement No. 16, Accounting for Compensated Absences. Sick leave and other compensated absences with similar characteristics are accrued as a liability based on the sick leave accumulated at the balance sheet date by those employees who currently are eligible to receive termination payments. To calculate the liability, these accumulations are reduced to the maximum amount allowed as a termination payment. All employees who meet the termination policy of the Commission for years of service are included in the calculation of the compensated absences accrual amount. Due From/To Other Programs Interprogram receivables and payables as of June 30, 2016 on the Financial Data Schedule have been eliminated on the Statement of Net Position. Net Position Net Position consist of investment in capital assets, restricted, and unrestricted. Restricted assets include the accumulation of contributions in the form of cash or other assets which generally do not have to be returned to the contributor. These funds are restricted by HUD as to use and must be approved before expending. Unrestricted assets are designated for use for program expenditures in future periods. Deferred Outflows/Inflows of Resources In additions to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense) until then. The Commission has one item that qualifies for reporting in this category, which is deferred outflows of resources related to the defined pension plan. The deferred outflows of resources related to the defined pension plan are reported in the government-wide financial statements. The deferred outflows of resources result from one transaction: contributions to the defined benefit pension plan subsequent to the plan's year end through the Commission's fiscal year-end. 13

18 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Deferred Outflows/Inflows of Resources, Continued In additions to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until then. The Commission has one item that qualifies for reporting in this category, which is deferred inflows of resources related to the defined pension plan. The deferred inflows of resources related to the defined pension plan are reported in the government-wide financial statements. The deferred inflows of resources result from one transaction: the variance between the plan's actual investment earnings compared to the plan's assumed investment earnings. Recent Accounting Pronouncements The Commission adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions - An Amendment of GASB Statement No. 27. The objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by the state and local governmental employers about financial support for pensions that is provided by other entities. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria. The requirements of Statement 27 and 50 remain applicable for pensions that are not covered by the scope of this Statement. The adoption of GASB Statement No. 68 had a material effect on the Commission's June 30, 2016, financial statements. The Commission adopted GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - An Amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined pension plan after the measurement date of the government's beginning net pension liability. This Statement amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine such amounts. The provisions of the Statement are required to be applied simultaneously with the provisions of Statement 68. The adoption of GASB Statement No. 71 had a material effect on the Commission's June 30, 2016, financial statements. NOTE 2 - CASH AND INVESTMENTS Cash and investments may be invested in the following HUD-approved vehicles: * Direct obligations of the federal government backed by the full faith and credit of the United States; * Obligations of government agencies; * Securities of government sponsored agencies; * Demand and savings deposits; and, * Time deposits and repurchase agreements 14

19 NOTES TO THE FINANCIAL STATEMENTS NOTE 2 - CASH AND INVESTMENTS, Continued. At June 30, 2016, cash was in bank deposits and certificates of deposit, all of which were fully insured or collaterallized with securities held by the Commission or by its agent in the Commission's name. The Commission's cash balances at June 30, 2016, totaled $189,881. The Commission has no investments. Interest Rate Risk - Credit Risk - Custodial Credit Risk - The Commission's formal investment policy does not specifically address the exposure to this risk. The Commission's formal investment policy does not specifically address credit risk. Credit risk is generally evaluated based on the credit ratings issued by nationally recognized statistical rating organizations. The Commission's 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 guarantee of principal and interest by the U.S. Government. Concentration of Credit Risk - The Commission's investment policy does not restrict the amount that the Commission may invest in any one issuer. For all deposits shown below, the market value at the balance sheet date is substantially the same as the carrying value. The difference between the bank balance and carrying value is due to outstanding checks and/or deposits in transit. At various times during the year, the Commission's deposits may have been higher than the June 30, 2016 balances detailed below. This means that the Commission's risk and exposure could be higher at times. The Commission had no significant type of deposit during the year not included below. Depository Balances by Category Carrying Deposits Total Amount Bank Deposits $ 189,631 $ -0- $ -0- $ 189,631 $ 189,631 Petty Cash 250 Total June 30, 2016 $ 189,881 Reconciliation of cash and cash equivalents to the balance sheet: Cash and Cash Equivalents $ $166,927 Cash - Security Deposits 22,954 Total $ 189,881 Deposits and investments with stated interest rates (savings accounts, certificates of deposit) are stated at cost. Investment income is allocated to the fund that owns the deposit. NOTE 3 - RESTRICTED CASH AND INVESTMENTS As of June 30, 2016, the Commission had the following cash and investments, the use of which was restricted under the terms of various grant programs, debt obligations, and other requirements. Cash Conventional Program: Tenant Security Deposits $ 22,954 Total Restricted Cash $ 22,954 15

20 NOTES TO THE FINANCIAL STATEMENTS NOTE 4 - CAPITAL ASSETS Capital Asset activity for the year ended June 30, 2016 was as follows: Beginning Ending Balance Balance 2015 Additions Deletions 2016 Land $ 494,047 $ -0- $ ,047 Buildings 10,399, ,399,054 Furniture and Equipment - Dwellings 110, ,320 Furniture and Equipment - Admin 227, ,345 Leasehold Improvements 2,761, ,761,431 Total Capital Assets, Cost 13,992, ,992,197 Buildings $ (10,012,659) $ (231,793) $ -0- $ (10,244,452) Furniture and Equipment - Dwellings (110,320) (110,320) Furniture and Equipment - Admin (222,206) (1,305) -0- (223,511) Leasehold Improvements (1,885,712) (71,646) -0- (1,957,358) Accumulated Depreciation (12,230,897) (304,744) -0- (12,535,641) Total Capital Assets, Net $ 1,761,300 $ (304,744) $ -0- $ 1,456,556 Depreciation expense for the year ended June 30, 2016 was $304,744. NOTE 5 - COMPENSATED ABSENCES The following is a summary of changes in compensated absences for the year ended June 30, 2016: Liability Amount Description Balance Balance Due Within 2015 Increase Decrease 2016 One Year $ 10,754 $ -0- $ 14,074 $ 23,146 $ 23,146 NOTE 6 - PAYMENTS IN LIEU OF TAXES The Commission has executed a cooperation with the City of Ecorse that provides for tax exemption of the housing projects, but requires the Commission to make payments in lieu of taxes for municipal services received based upon a prescribed formula related to rental income. In 2016, those payments totaled $9,282. NOTE 7 - SUBSEQUENT EVENTS The Commission has evaluated events and transactions for potential recognition of disclosures through March 9, 2017, which is the same date as the financial statements were available to be issued; the following events require disclosure as of June 30,

21 NOTES TO THE FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIRMENT PLANS Defined Benefit Plan The Commission participated in the Municipal Employees' Retirement System, (MERS) as a division of the City of Ecorse. MERS is a defined benefit pension plan within the Michigan Department of Management and Budget, Bureau of Retirement Systems that provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. MERS issues a publicly available financial report that includes financial statements and required supplementary information for the plan. Statistical information concerning the plan can be obtained from MERS, which is contained in their annual report. That report may be obtained by writing to MERS - Municipal Employees' Retirement System, 1134 Municipal Way, Lansing, MI or by calling or on the web at The Commission is invoiced by MERS on a monthly basis for its required contributions. For the year ended June 30, 2016, the Commission was invoiced at 0% of gross wages. The Commission does not have any active or vested former employees in the plan currently. The Commission only has one retiree still in the plan. The Commission contributed $7,770 for the Plan's year ended December 31, As a result of implementing GASB 68, the Commission recorded deferred outflows of $11,186 which is due to a negative return on investment; deferred inflows of $20,785, which is due to the changes in the experience and assumption rates and a net pension asset of $61,337 for pension benefits offered to one retiree. As described in Footnote 1 above, the Commission implemented GASB 68 during the year. This standard requires disclosures related to pension benefits; those required additional disclosures are included only in the financial statements of the City of Ecorse. Defined Contribution Plan The Commission has also provided a defined contribution plan created in accordance with Internal Revenue Code Section 401 (k). The defined contribution plan is available to all full-time employees not already participating in another plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan, investment earnings, and forfeitures of other participants' benefits that may be allocated to such participant's account. Benefits vest after six years of service. The Commission can elect to match contributions of the contributing participant's compensation. Employees can voluntarily contribute. The Commission did not elect to match contributions and did not contribute to the defined contribution plan as of June 30, NOTE 9 - POSTEMPLOYMENT BENEFITS The Commission does not provide any postemployment benefits (OPEB) other than pensions, such as health care coverage or life insurance, to retired employees as described in GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. NOTE 10 - RISK MANAGEMENT The Commission is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Commission manages risk through the purchase of commercial insurance. Management believes such coverage is sufficient to preclude any significant uninsured losses to the Commission. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. 17

22 NOTES TO THE FINANCIAL STATEMENTS NOTE 11 - LEASE COMMITMENTS The Commission leases devices and office equipment under an operating lease agreement which is non-cancelable. Total rent expense amounted to $6,089 for the year ended June 30, Future minimum rental commitments under non-cancelable operating lease agreements as June 30, 2016 are as follows: NOTE 12 - CONTINGENT LIABILITIES Grants Litigation and Claims NOTE 15 -PRIOR PERIOD ADJUSTMENTS Year Ending June 30, 2017 $ 2, and Thereafter 291 Total $ 2,688 The Commission received financial assistance from federal agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and is subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the Commission. The amount, if any, of disbursements which may be disallowed by the grantor cannot be determined at this time, although the Commission expects such amounts, if any, to be immaterial. The Commission is a defendant in several lawsuits arising from its normal course of business. Where possible, estimates have been made and reflected in the financial statements for the effect, if any, of such contingencies. The ultimate outcome of these matters is not presently determinable. The Commission recorded an adjustment to correct net position, which was understated for Projects as of June 30, The adjustment increased the reported net position amount by $182,725 for expenses. Projects Equity Transfer $ -0- Capital Assets -0- Income/Expense 182,725 Total $ 182,725 18

23 OTHER SUPPLEMENTARY INFORMATION

24 STATEMENT OF NET POSITION FDS SCHEDULE SUBMITTED TO HUD FDS Line Project Item No. Account Description Totals ASSETS 111 Cash - Unrestricted $166, Cash - Restricted - Modernization and Development Cash - Other Restricted Cash - Tenant Security Deposits 22, TOTAL CASH 189, Accounts Receivable - PHA Projects Accounts Receivable - HUD Other Projects Accounts Receivable - Other Government Accounts Receivable - Miscellaneous A/R Tenants - Dwelling Rents 134, Allowance for Doubtful Accounts (96,289) 127 Notes, Loans, & Mortgages Receivable - Current Fraud Recovery 2, Allowance for Doubtful Accounts - Fraud Accrued Interest Receivable TOTAL ACCOUNTS RECEIVABLE 41, Investments - Unrestricted Investments - Restricted Prepaid Expenses & Other Assets 23, Inventories Allowance for Obsolete Inventories Interprogram Due From TOTAL CURRENT ASSETS 254, Land 494, Buildings 10,399, Furniture and Equipment - Dwellings 110, Furniture and Equipment - Administrative 227, Leasehold Improvement 2,761, Accumulated Depreciation (12,535,641) 167 Construction in Progress TOTAL FIXED ASSETS, NET 1,456, Other Assets 61, TOTAL NON-CURRENT ASSETS 1,517, Deferred Outflow of Resources 11, TOTAL ASSETS AND DEFERRED OUTLFOWS $1,783,205 LIABILITIES 312 Accounts Payable <=90 Days $83, Accrued Wages/Payroll Taxes 1, Accrued Compensated Absences 23, Accounts Payable - HUD PHA Programs Accounts Payable - Other Governments 9, Tenant Security Deposits 22, Unearned Revenue 5, Current Portion of Long-Term Debt - Capital Current Portion of Long-Term Debt - Operating Other Current Liabilities Interprogram Due To TOTAL CURRENT LIABILITIES 145, Long-Term Debt, Net of Current - Capital Long-Term Debt, Net of Current - Operating Noncurrent Liabilities - Other Accrued Compensated Absences - Noncurrent Accrued Pension and OPEB Liabilities TOTAL NONCURRENT LIABILITIES 0 19

25 STATEMENT OF NET POSITION FDS SCHEDULE SUBMITTED TO HUD FDS Line Project Item No. Account Description Totals 300 TOTAL LIABILITIES 145, Deferred Inflow of Resources 20,785 EQUITY Invested in Capital Assets, Net of Related Debt 1,456, Restricted Net Assets Unrestricted Net Assets 160, TOTAL EQUITY/NET ASSETS 1,617, TOTAL LIABILITIES, DEF INFLOWS, AND EQUITY $1,783,205 20

26 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FDS SCHEDULE SUBMITTED TO HUD FDS Line Low Rent Capital Project Item No. Account Description M Fund Totals REVENUE Net Tenant Rental Revenue $166,885 $0 $166, Tenant Revenue - Other 6, , TOTAL TENANT REVENUE 173, , PHA HUD Grants 795, ,518 1,005, Capital Grants Investment Income - Unrestricted Fraud Recovery Other Revenue 1, , Gain/Loss on Sale of Fixed Assets Investment Income - Restricted TOTAL REVENUE 969, ,518 1,179,460 EXPENSES Administrative Salaries 235, , Auditing Fees 0 7,500 7, Book-Keeping Fees Advertising and Marketing Employee Benefit Contribution - Administrative 98, , Office Expense 23,925 8,810 32, Legal Expense 1, , Travel 18, , Other 52,818 16,452 69, Relocation Costs 0 30,931 30, Tenant Services - Other 2, , Water 55, , Electricity 15,920 6,885 22, Gas 9, , Ordinary Maintenance and Operation - Labor 163, , Ordinary Maintenance and Operation - Materials 63,969 15,169 79, Ordinary Maintenance and Operation - Cont Cost 98,697 82, , Employee Benefit Contribution - Ord Maintenance 56, , Protective Services - Other Contract Costs 3,970 27,763 31, Insurance Premiums 51, , Other General Expenses 2,000 1,000 3, Compensated Absences 13, , Payments in Lieu of Taxes 9, , Bad Debts - Tenant Rents 48, , Severance Expense TOTAL OPERATING EXPENSES 1,026, ,518 1,223, EXCESS OPERATING REVENUE OVER EXPENSES (56,563) 13,000 (43,563) OTHER EXPENSES Extraordinary Maintenance Casualty Losses - Non Capitalized Depreciation Expense 304, , TOTAL EXPENSES 1,331, ,518 1,527,767 OTHER FINANCING SOURCES (USES) Operating Transfer In 13, , Operating Transfer Out 0 (13,000) (13,000) TOTAL OTHER FINANCING SOURCES (USES) 13,000 (13,000) EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENSES (348,307) 0 (348,307) Beginning Equity 1,782, ,782, Prior Period Adjustment 182, ,725 21

27 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FDS SCHEDULE SUBMITTED TO HUD FDS Line Project Item No. Account Description Totals ENDING EQUITY $1,617,146 $0 $1,617, Unit Months Available 2, , Unit Months Leased 2, , Land Purchases Building Purchases Furniture & Equipment - Dwelling Purchases Furniture & Equipment - Admin Purchases Leasehold Improvements Purchases

28 SINGLE AUDIT

29 Zenk & Associates, P.C. Certified Public Accountants Members: American Institutes of Certified Public Accountants Michigan Association of Certified Public Accountants INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Commissioners, Ecorse Housing Commission Ecorse, Michigan Regional Inspector General of Audit Department of Housing and Urban Development We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller of the United States, the financial statements of business-type activities of the Ecorse Housing Commission as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Ecorse Housing Commission's basic financial statements and have issued our report thereon dated March 9, Internal Control Over Financial Reporting In planning and performing our audit, we considered the Ecorse Housing Commission's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control. Accordingly, we do not express an opinion on the effectiveness of the Ecorse Housing Commission'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 combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 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 over financial reporting 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 Ecorse Housing Commission s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards East U.S. Highway 223, Adrian, MI Phone: Fax: