EASTERN CAROLINA REGIONAL HOUSING AUTHORITY GOLDSBORO, NORTH CAROLINA FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2016

Transcription

1 EASTERN CAROLINA REGIONAL HOUSING AUTHORITY GOLDSBORO, NORTH CAROLINA FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 GREGORY T. REDMAN, CPA TARBORO, NORTH CAROLINA

2 Financial Statements Eastern Carolina Regional Housing Authority Board Members Carl Kornegay, Jr. Belinda Carrway Lana Cieszko Flo Daniels Yolanda Massey Sandra Norris Gabriel Raynor William Scott Administrative Staff Robin T. Lancaster, Executive Director

3 Financial Section Eastern Carolina Regional Housing Authority Table of Contents September 30, 2016 Page Independent Auditor s Report 1 Management s Discussion and Analysis 4 Basic Financial Statements: Statement of Net Position 8 Statement of Revenues, Expenses and Changes in Net Position 9 Statement of Cash Flows 10 Notes to Financial Statements 11 Required Supplemental Financial Data Schedule of the Proportionate Share of the Net Pension Assets Local Government Employees Retirement Systems 26 Schedule of Contributions Local Government Employees Retirement System 27 Supplementary Information Statement of Revenues and Expenditures - Budget to Actual (Non-GAAP) - All Funds 28 Statement of Capital Fund Program Costs - Uncompleted 29 Single Audit Section 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 33 Report on Compliance with Requirements Applicable to Each Major Federal Program and Internal Control over Compliance in Accordance with OMB Uniform Guidance and the State Audit Implementation Act 35 Schedule of Findings and Questioned Costs 37 Corrective Action Plan 41 Summary Schedule of Prior Year Audit Findings 42 Schedule of Expenditures of Federal Awards 43 Financial Data Schedule

4 Financial Section

5 GTR INDEPENDENT AUDITOR S REPORT To the Members of the Board of Commissioners Eastern Carolina Regional Housing Authority Report on the Financial Statements I have audited the accompanying financial statements of the business-type activities, each major fund, and the aggregate remaining fund information of the Eastern Carolina Regional Housing Authority as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility My responsibility is to express opinions on these financial statements based on my audit. I conducted my 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 I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 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, I 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 financial statement presentation of the financial statements Dowd Street Post Office Box 369 Member Tarboro, NC North Carolina Association of Phone: (252) Fax: (252) Certified Public Accountants

6 I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinions. Opinions In my opinion, based on my audit, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, each major fund, and the aggregate remaining fund information of the Eastern Carolina Regional Housing Authority as of September 30, 2016, and the respective changes in financial position and cash flows, where appropriate, 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 and Local Government Employees Retirement System s Schedules of the proportionate share of the Net Pension Liability and Contributions be presented to supplement the basic financial statements. Such information, although not a required part of the basic financial statements, is required by the Government Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in appropriate operational, economic, or historical context. I 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 my inquiries, the basic financial statements, and other knowledge I obtained during my audit of the basic financial statements. I 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. Supplementary and Other Information My audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements of the Eastern Carolina Regional Housing Authority. The financial data schedule, individual fund statements, other schedules, and Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulation Part 200, Uniform Administration Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Audit Guidance) and the State Single Audit Implementation Act, are presented for purposed of additional analysis and are not a required part of the basic financial statements. The financial data schedule, individual fund statements, other schedules, and the Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relates 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 by me. In my opinion, based on my audit, the procedures performed as described above, the financial data schedule, individual fund statements, Schedule of Expenditures of Federal Awards, and other schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, I have also issued my report dated June 29, 2017 on my consideration of Eastern Carolina Regional Housing Authority's internal control over financial reporting and on my tests of its compliance with certain provisions of laws, regulations, contracts, and grants agreements, and other matters. The purpose of the report is to describe the scope of my 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 Eastern Carolina Regional Housing Authority's internal control over financial reporting and compliance. Tarboro, North Carolina June 29,

8 Management's Discussion & Analysis

9 Management s Discussion and Analysis Management s Discussion and Analysis The Eastern Carolina Regional Housing Authority s management s discussion and analysis is designed to provide an overview of the Authority s operations and financial position. Please read it in conjunction with the Authority s financial statements. Financial Highlights The Authority is operated under the HUD model of reporting, known as asset management. Under these guidelines, the Authority established eleven individual cost centers, each having their own balance sheet, income statement and budget. In addition to these asset management project (AMPs) cost centers, the Authority established a central office cost center to act as property and asset manager of the owned public housing developments. The developments pay a management fee to the central office for this service. The fees paid to central office are obtained from a HUD approved fee schedule and are based on unit occupancy. Central office operations are included in the attached financial statements under the column headed Central Office Cost Center. The Authority s entity-wide net position increased by $324,053 during This included depreciation expense on capital assets of $1,464,660. Net Position was $20.8 million and $20.5 million for 2016 and 2015 respectively. Fund Financial Statements The Authority is accounted for as an enterprise fund, utilizing the full accrual basis of accounting. These statements include: Statement of Net Position: Financial and capital resources for the Authority, or net position. o o Net investment in Capital Assets: 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. Unrestricted Net Position: Net Position that do not meet the definition of Net investment in Capital Assets, or Restricted Net Position. Statement of Revenues, Expenses and Changes in Fund Net Position: Operating Revenues, such as rental income; Operating Expenses, such as administrative, utilities, and maintenance, and depreciation; and Non- Operating Revenue and Expenses, such as capital grants, investment income and interest expense. 4

10 Management s Discussion and Analysis The Authority s Programs Conventional Public Housing The Conventional Public Housing Program is operated under an Annual Contributions Contract (ACC) with HUD, and HUD provides Operating Subsidy and Capital Grant funding to enable the PHA to provide the housing at a rent that is based upon 30% of household income. The Capital Fund Program is the primary funding source for physical and management improvements to the Authority s properties. Central Office Cost Center - In compliance with HUD s guidelines on Asset Management, the Authority established a central office cost center. The AMPs pay a management fee to central office for property management. Any accumulated excess of revenues over expenses in the central office cost center is considered non-federal funds which can be used at the discretion of the board of commissioners to promote programs consistent with the mission of the Authority. Business Activities represents non-hud resources developed from vending activities. Authority-wide Statements The following table reflects the condensed Statement of Net Position compared to the prior year. The Authority is engaged only in Business-Type activities Assets: Current assets $ 6,238,913 $ 5,643,431 Non-current assets 17,589,440 18,139,021 Total Assets $ 23,828,353 $ 23,782,452 Deferred Outflows of Resources 318,399 73,973 Total Assets and Deferred Outflows of Resources $ 24,146,752 $ 23,856,425 Liabilities: Current liabilities $ 593,384 $ 577,763 Long-term liabilities 2,712,574 2,738,113 Total Liabilities $ 3,305,958 $ 3,315,876 Deferred Inflows of Resources $ 10,575 $ 34,383 Net Position: Net investment in capital assets $ 15,007,824 $ 15,324,163 Restricted net position - - Unrestricted net position 5,822,395 5,182,003 Total Net Position $ 20,830,219 $ 20,506,166 Total Liabilities, Deferred Inflows of Resources and Net Position $ 24,146,752 $ 23,856,425 5

11 Management s Discussion and Analysis The following schedule compares the revenues and expenses for the current and previous fiscal year. The Authority is engaged only in Business-Type Activities Revenues Tenant revenue rents and other $ 2,536,996 $ 1,808,628 Operating subsidies and grants 2,814,241 2,615,702 Capital grants 728, ,080 Other revenue 16,934 5,626 Investment income 4,404 3,991 Gain (loss) on sale of capital assets - 88 Total Revenues $ 6,101,345 $ 4,849,115 Expenses Administrative $ 1,953,637 $ 1,049,673 Asset management fee 87,600 $ - Tenant services 5,691 5,413 Utilities 455, ,453 Maintenance 1,100,827 1,092,524 Protective services 221, ,067 General 438, ,107 Depreciation 1,464,660 1,489,538 Extraordinary maintenance 13,785 14,270 Loss on sale of capital assets 25 Interest expense 107, ,967 Casualty losses 20,776 3,027 Total Expenses $ 5,870,743 $ 4,642,039 Revenue (loss) from operations $ 230,602 $ 207,076 Special items - - Change in Net Position $ 230,602 $ 207,076 Net Position beginning of year $ 20,506,166 $ 20,420,527 Prior period adjustments 93,451 (121,437) Net Position end of year $ 20,830,219 $ 20,506,166 6

12 Management s Discussion and Analysis Capital Assets and Debt Administration Capital Assets As of year-end, the Authority had $17.6 million invested in a variety of capital assets as reflected in the following schedule, which represents a net decrease (additions, deductions and depreciation) of $1,005,237 from the end of last year Capital Assets Land $ 1,645,849 $ 1,646,318 Construction in progress 15,373 41,961 Buildings 43,317,925 42,492,936 Equipment 1,195,582 1,069,367 Accumulated Depreciation (28,585,289) (27,111,561) Total $ 17,589,440 $ 18,139,021 Debt Outstanding As of year-end, the Authority had $2,581,616 principal outstanding on notes payable obtained to purchase Energy Performance equipment. Financial Contact The individual to be contacted regarding this report is Robin Lancaster, Executive Director at ECRHA Central Office, located in Goldsboro, N.C. The contact telephone number is (919)

13 Basic Financial Statements

14 Statement of Net Position - Proprietary Fund September 30, 2016 Non-major Major Funds Funds Public Central Blended CU Low Rent Housing Office Seymour Blended CU Public Capital Cost Business Johnson New East Assets Housing Fund Center Activities Homes Homes Total Current Assets: Cash and investments $ 4,611,030 $ - $ 412,183 $ 193 $ 569,373 $ 361,894 $ 5,954,673 Restricted cash Accounts receivable 23,776-26, ,961 A/R - Tenants, net 47, ,409 Prepaid expenses 54,709-4, ,165 Inventories, net 127, ,705 Interprogram Total Current Assets $ 4,864,629 $ - $ 442,824 $ 193 $ 569,373 $ 361,894 $ 6,238,913 Capital Assets: Land and non-depreciable $ 1,585,743 $ - $ - $ - $ - $ - $ 1,585,743 Other capital assets, net 15,322, ,555 75,479 4,899-16,003,697 Total Capital Assets $ 16,908,507 $ - $ 600,555 $ 75,479 $ 4,899 $ - $ 17,589,440 Total Non-current Assets $ 16,908,507 $ - $ 600,555 $ 75,479 $ 4,899 $ - $ 17,589,440 Total Assets $ 21,773,136 $ - $ 1,043,379 $ 75,672 $ 574,272 $ 361,894 $ 23,828,353 Deferred Outflows of Resources Contributions to pension plan in current fiscal year $ 213,327 $ - $ 105,072 $ - $ - $ - $ 318,399 Total Assets and Deferred Outflows of Resources $ 21,986,463 $ - $ 1,148,451 $ 75,672 $ 574,272 $ 361,894 $ 24,146,752 Liabilities and Net Position Current Liabilities: Accounts payable $ 213,556 $ - $ 1,640 $ - $ - $ - $ 215,196 Security deposits 132,486-3, ,986 Unavailable revenue 4, ,731 Accrued compensated absences 19,874-21, ,216 Long-term debt-current portion 196, ,255 Total Current Liabilities $ 566,901 $ - $ 26,483 $ - $ - $ - $ 593,384 Non-Current Liabilities: Long-term debt $ 2,385,361 $ - $ - $ - $ - $ - $ 2,385,361 Accrued compensated absences 5,545-19, ,418 Net pension liability 202,202-99, ,795 Total Non-current Liabilities $ 2,593,108 $ - $ 119,466 $ - $ - $ - $ 2,712,574 Total Liabilities $ 3,160,009 $ - $ 145,949 $ - $ - $ - $ 3,305,958 Deferred Inflows of Resources Pension deferrals $ 7,085 $ - $ 3,490 $ - $ - $ - $ 10,575 Total Liabilities and Deferred Inflows of Resources $ 3,167,094 $ - $ 149,439 $ - $ - $ - $ 3,316,533 Net Position Net Investment in capital assets $ 14,326,891 $ - $ 600,555 $ 75,479 $ 4,899 $ - $ 15,007,824 Restricted net position Unrestricted net position 4,492, , , ,894 5,822,395 Total Net Position $ 18,819,369 $ - $ 999,012 $ 75,672 $ 574,272 $ 361,894 $ 20,830,219 Total Liabilities, Deferred Inflows of Resources, and Net Position $ 21,986,463 $ - $ 1,148,451 $ 75,672 $ 574,272 $ 361,894 $ 24,146,752 The notes to the financial statements are an integral part of this statement. 8

15 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund Non-major Major Funds Funds Public Central Blended CU Low Rent Housing Office Seymour Blended CU Public Capital Cost Business Johnson New East Housing Fund Center Activities Homes Homes Total Operating Revenues: Operating grants $ 2,521,010 $ 293,231 $ - $ - $ - $ - $ 2,814,241 Dwelling rentals 1,592,230-32, ,624,775 Other revenue 150, , ,221 Total Operating Revenues $ 4,264,089 $ 293,231 $ 793,917 $ - $ - $ - $ 5,351,237 Operating Expenses: Management fee $ 574,673 $ - $ - $ - $ - $ - $ 574,673 Asset management fee 87, ,600 Bookkeeping fee 62, ,883 Administration 632, ,260 11,288 15,026 54,944 1,316,081 Tenant services 5, ,691 Utilities 451,983-3, ,519 Ordinary maintenance 1,090,648-9, ,100,827 Protective services 221, ,540 Insurance 177,145-18, ,250 General expense 227,495-15, ,447 Depreciation 1,433,649-30, ,464,660 Total Operating Expenses $ 4,965,870 $ - $ 679,941 $ 11,533 $ 15,883 $ 54,944 $ 5,728,171 Operating Income (Loss) $ (701,781) $ 293,231 $ 113,976 $ (11,533) $ (15,883) $ (54,944) $ (376,934) Non-operating Revenues (Expenses): Interest expense $ (107,986) $ - $ - $ - $ - $ - $ (107,986) Investment income-unrestricted 3, ,160 Investment income-restricted Other revenue 15, ,934 Gain (Loss) on disposal of capital assets (25) (25) Extraordinary maintenance (13,785) (13,785) Casualty losses (20,776) (20,776) Total Non-operating Revenues (Expenses) $ (122,866) $ - $ 211 $ 688 $ 733 $ - $ (121,234) Net income (loss) before contributions and transfers $ (824,647) $ 293,231 $ 114,187 $ (10,845) $ (15,150) $ (54,944) $ (498,168) Capital contributions - 728, ,770 Operating transfers 1,022,001 (1,022,001) (275,845) (328,577) 589,422 15,000 - Change in Net Positon $ 197,354 $ - $ (161,658) $ (339,422) $ 574,272 $ (39,944) $ 230,602 Net Position - beginning of year 18,542,765-1,146, , ,838 20,506,166 Prior period adjustments 79,250-14, ,451 Net Position - end of year $ 18,819,369 $ - $ 999,012 $ 75,672 $ 574,272 $ 361,894 $ 20,830,219 The notes to the financial statements are an integral part of this statement. 9

16 Statement of Cash Flows Non-major Major Funds Funds Public Central Blended CU Low Rent Housing Office Seymour Blended CU Public Capital Cost Business Johnson New East Housing Fund Center Activities Homes Homes Total Cash Flows From Operating Activities: Cash received from tenants $ 1,576,047 $ - $ 32,545 $ - $ - $ - $ 1,608,592 Other revenue 139, , ,878 Cash paid for goods and services (2,304,723) - (150,950) (9,168) (15,271) (54,944) (2,535,056) Operating grants 2,516, , ,809,531 Cash paid to employees (1,114,735) - (525,834) (2,435) - - (1,643,004) Net Cash Provided (Used) by Operating Activities $ 812,395 $ 293,231 $ 117,133 $ (11,603) $ (15,271) $ (54,944) $ 1,140,941 Cash Flow From Non-capital Financing Activities: Operating transfers $ 1,022,001 $ (1,022,001) $ (275,845) $ (328,577) $ 589,422 $ 15,000 $ - Due (to) from other funds Other revenue (18,630) (17,651) Net Cash Provided (Used) by Non-capital Financing $ 1,003,371 $ (1,022,001) $ (275,845) $ (328,088) $ 589,912 $ 15,000 $ (17,651) Cash Flow From Capital And Related Financing Activities: Payments on long-term debt $ (233,242) $ - $ - $ - $ - $ - $ (233,242) Proceeds from long-term debt Proceeds from capital grants - 728, ,770 Purchase of capital assets (922,303) - (50,461) (972,764) Interest expense (107,986) (107,986) Net Cash Flow from Capital and Related Financing Activities $ (1,263,531) $ 728,770 $ (50,461) $ - $ - $ - $ (585,222) Cash Flow From Investing Activities: Investment income $ 3,750 $ - $ 211 $ 199 $ 244 $ - $ 4,404 Net increase (decrease) in cash and cash equivalents $ 555,985 $ - $ (208,962) $ (339,492) $ 574,885 $ (39,944) $ 542,472 Cash and Cash Equivalents - beginning of year 4,055, , , ,838 5,412,201 Cash and Cash Equivalents - end of year $ 4,611,030 $ - $ 412,183 $ (5,319) $ 574,885 $ 361,894 5,954,673 Reconciliation of Operating Loss to Net Cash Used by Operating Activities Operating Income (Loss) $ (701,781) $ 293,231 $ 113,976 $ (11,533) $ (15,883) $ (54,944) $ (376,934) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by Operating Activities: Depreciation $ 1,433,649 $ - $ 30,399 $ - $ 612 $ - $ 1,464,660 Changes in Assets and Liabilities: - (Increase) Decrease in accounts receivable (19,285) - (26,147) (45,432) (Increase) Decrease in deferred outflows (163,028) - (81,398) (244,426) Increase (Decrease) in deferred inflows (16,296) - (7,512) (23,808) Increase (Decrease) in net pension liability 157,223-78, ,644 Increase (Decrease) in security deposits (30,153) (29,553) Increase (Decrease) in accounts payable 159,044-7,786 (70) ,760 (Increase) Decrease in prepaid expenses (4,782) - 1, (3,774) (Increase) Decrease in inventories (2,196) (2,196) Total Adjustments $ 1,514,176 $ - $ 3,157 $ (70) $ 612 $ - $ 1,517,875 Net Cash Provided by Operating Activities: $ 812,395 $ 293,231 $ 117,133 $ (11,603) $ (15,271) $ (54,944) $ 1,140,941 The notes to the financial statements are an integral part of this statement. 10

17 Notes to the Financial Statements I. Summary of Significant Accounting Policies A. Reporting Entity The Eastern Carolina Regional Housing Authority (the Authority) is a public body and a corporate and politic created under the authority of Chapter 157 of the General Statues of North Carolina. The Authority was created in 1941 for the purpose of providing safe and sanitary housing for the low-income citizens of a ten-county region in eastern North Carolina. The Authority is a legally separate entity that is fiscally independent of other governments. It is governed by an eleven-member board of commissioners appointed to five year terms by the county commissioners of the area it serves. The Authority designates its own management and the cities and counties served by the Authority provide no general financial support to the Authority and are not responsible for the debts or entitled to the surpluses of the Authority. The Authority has the power to approve its own budget and maintain its own accounting system. Although the cities and counties appoint the governing board of the Authority, no other criteria established by GASB 39 for the inclusion of the Authority in their financial reports 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. B. Basis of Presentation Fund Accounting The accounts of the Eastern Carolina Regional Housing Authority are organized and operated on a fund basis. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts recording its assets, liabilities, retained earnings, revenues, and expenses. The Authority accounts for its operations in one fund type, the enterprise fund. An enterprise fund is used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination or revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Funding for public housing authorities is received from the United States Department of Housing and Urban Development (HUD) and from participants in public housing programs. 11

18 Notes to the Financial Statements Major Funds Conventional Low Rent Public Housing At September 30, 2016, the Authority owned and operated 730 dwelling units in eleven (11) asset management properties (AMPs) under the auspices of this federally-funded program. Funding for the projects was acquired through advances from the United States Department of Housing and Urban Development (HUD). The objective of this program is to provide decent, safe, and sanitary housing and related facilities for eligible lowincome families and the elderly. Tenants pay a portion of their rent as determined by HUDestablished formula, and HUD makes operating subsidy grants to the Authority based on housing needs to ensure the low-income character of the tenant bases of projects operated by the Authority under this program. The activities of the Public Housing Capital Fund Program, see below, are accounted for and included in the conventional low-rent public housing fund. Public Housing Capital Fund Program Funds received under the capital fund program are provided to improve the physical condition of the conventional low-income public housing units, as well as to upgrade the management of that program. Program funds are made available to the Authority based on an assessment of physical needs, management capabilities, personnel training and educational needs, and the need for other services and equipment that would promote more efficient and effective use of available funds. Since 1987, funding under this program has been in the form of grants. Prior to that date, funding was financed over a 20-year period; under the requirements of the pre-1987 funding, the Authority must operate a project that received modernization funds as public housing for at least 20 years, unless the Authority receives HUD approval to do otherwise. Central Office Cost Center In compliance with HUD s guidelines on asset management, the Authority has established a central office cost center to act as property and asset manager of the owned public housing developments. The developments pay a management fee to the central office cost center for this service. Any accumulated excess of revenues over expenses in the central office cost center is considered non-federal funds which can be used at the discretion of the board of commissioners to promote programs consistent with the mission of the Authority. Non-major Funds Business Activities - owns a small parcel of land adjacent to the Goldsboro housing development. The fund s revenue is generated from the operation of a vending machine. Blended Component Unit Eastern Carolina Regional Housing Authority Development Corporation is a private not-for-profit corporation organized under the laws of the State of North Carolina for the purpose of development of affordable housing in the geographical areas served by the Authority. Management has determined that the corporation meets the criteria to be included in the reporting entity using the blended presentation method. No separate financial statements are issued for the corporation. 12

19 Notes to the Financial Statements C. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Enterprise funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of this fund are included on the statement of net position, which is the result of deducting the all the liabilities from all the assets. Total net position is segregated into three components: 1) net investment in capital assets, 2) restricted net position, and 3) unrestricted net position. Operating statements for this fund present increases (e g., revenues) and decreases (e.g., expenses) in total net position. All funds of the Authority are maintained on the modified accrual basis during the year. The financial statements for the Authority have been presented on the accrual basis. Under this basis, revenues are recorded when earned and expenses are recorded when incurred. In converting from the modified accrual basis, the changes required are adjustments for unpaid interest, depreciation, prepaid tenant rents, payments of principal on outstanding debt, and capital outlay. Payments of outstanding debt and accrued interest by HUD, which have been earned by the Authority, but not yet realized, are recorded as revenue. D. Budgetary Data The Authority maintains budgetary controls over all funds, as required by the Budget and Fiscal Control Act and the terms of the Authority s annual budget is adopted for all enterprise funds, except the Low Rent Housing Modernization Project Fund, which is a capital project fund. A multi-year budget is adopted for that fund. Expenditures may not legally exceed appropriations at the departmental level for the enterprise funds or at the object level for the capital project sub-fund. The management of the Authority may transfer appropriations within a fund up to $1,000 without Board approval, except that all increases in appropriations to administration and capital expenditures must be approved by the Board. The budget was prepared on the modified accrual basis of accounting, as required by the Budget and Fiscal Control Act. E. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Fund Equity Deposits and Investments All deposits of the Authority are made in board-designated official depositories and are secured as required by State law [G.S ]. The Authority may designate, as an official depository, any bank or savings association whose principal office is located in North Carolina. Also, the Authority may establish time deposit accounts such as NOW and SuperNOW accounts, money market accounts, and certificates of deposit. 13

20 Notes to the Financial Statements State law [G.S (c)] authorizes the Authority to invest in obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States; obligations of the State of North Carolina; bonds and notes of any North Carolina local government or public authority; obligations of certain non-guaranteed federal agencies; certain high-quality issues of commercial paper and bankers acceptances and the North Carolina Capital Management Trust (NCCMT). As required by the annual contributions contract, the Authority prepares cash forecasts for each program to determine the amount of funds available for investment and to maximize investment earnings. During the fiscal year and at year-end, all cash was held in the form of interest bearing accounts. The deposits are considered cash and cash equivalents for the Statement of Cash Flows. Allowance for Doubtful Accounts All receivable that historically experience uncollectible accounts are shown net of an allowance for doubtful accounts. This amount is estimated by analyzing the percentage of receivables that were written off in prior years. Capital Assets Expenditures for any major renewal or betterment that extends the useful life of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. The Housing Authority capitalization policy is to expense small purchases of $2,500 or less. Capital assets are recorded at historical cost at the date of acquisition. Assets are depreciated on a straight-line basis over the following years: Dwelling structures Non-dwelling structures Community space Site improvements Dwelling equipment Office furniture and equipment Maintenance equipment Automobiles and vehicles 40 years 40 years 40 years 15 years 7 years 7 years 7 years 3-5 years Inventories Inventories are recorded at cost, cost being determined on the first-in, first-out basis. The consumption method is used to account for inventories. Under the consumption method, inventories are recorded as expenditures when purchased and inventory on hand at year-end is recorded as an asset. 14

21 Notes to the Financial Statements Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, Deferred Outflows of Resources, represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The Authority has one item that meet this criterion, pension deferrals for the 2016 fiscal year. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, Deferred Inflows of Resources, represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The Authority has one item that meet the criterion for this category deferrals of pension expenses. Compensated Absences Eastern Carolina Regional Housing Authority allows its employees to accumulate earned vacation leave, and such leave is fully vested when earned. The current portion of accumulated vacation pay and salary related payments are not considered to be material. Employees can accumulate an unlimited amount of sick leave. Sick leave does not vest but unused sick leave accumulated at the time of retirement may be used in determination of length of service for retirement benefits purposes. Since the Authority has no obligation for the accumulated sick leave until it is actually taken, no accrual for sick leave has been made. Prepaid Items Payments made to vendors for services that will benefit periods beyond the fiscal year-end are recorded as prepaid. Inter-Program Receivables and Payables Inter-Program receivables/payables are all classified as either current assets or current liabilities. They are the result of the Public Housing Authority being used as a common paymaster for shared costs of the Authority. Cash settlements are made monthly and all inter-program balances are reconciled. Any amounts for these inter-program receivables and payables are only shown in the Interfund row in the combining statements in each fund column. Annual Contributions and Operating Subsidies In accordance with the annual contribution contracts, the Authority receives operating subsidies. Such amounts are included as grant revenues from the federal government in the financial statements. Income Taxes As a political subdivision of the State of North Carolina, the Authority is exempt from federal and State income taxes. 15

22 Notes to the Financial Statements Net Position Net position is classified into three parts; as net investment in capital assets, restricted, and unrestricted. Restricted net position represents constraints on resources that are either externally imposed (as by creditors, grantors, contributors, or laws or regulations of other governments), or imposed by the law. Pensions For purposes of measuring the net pension asset, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Local Governmental Employees Retirement System (LGERS) and additions to/deductions from LGERS fiduciary net position have been determined on the same basis as they are reported by LGERS. For this purpose, plan member contributions are recognized in the period in which the contributions are due. The Eastern Carolina Regional Housing Authority employer contributions are recognized when due and the Eastern Carolina Regional Housing Authority has a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of LGERS. Investments are reported at fair value. II. Stewardship, Compliance and Accountability Excess of Expenditures over Budget - There were no violations of budget over expenditures during the year ended September 30, 2016 for the Eastern Carolina Regional Housing Authority. III. Detailed Notes on All Funds A. Assets Deposits The Authority s deposits are either insured or are collateralized using the dedicated method. Under the Dedicated method of collateralization, all deposits over the federal depository insurance coverage are collateralized with securities held by the Authority s agent in the Authority s name. The Authority has no formal policy regarding custodial credit risk for deposits. At the year-end, the Authority s deposits had a carrying amount of $5,954,673 and a bank balance of $5,978,043. Of the bank balance $250,000 was covered by the federal depository insurance and $5,728,043 was covered by collateral held under the dedicated method. Interest rate risk As a means of limiting its exposure to fair value losses arising from interest rates, the Authority typically limits its investment portfolio to maturities of 12 months or less. Credit risk The Authority has no policy regarding credit risk. 16

23 Notes to the Financial Statements Custodial credit risk For an investment, the custodial credit risk is the risk that in the event of the failure of the counter party, the Authority will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. All cash balances are fully collateralized at 100% and pledged securities are in the custody of another banking party. The Authority has no policy on custodial credit risk. Investments At September 30, 2016, the Authority did not have any investments. The Authority has no policy regarding credit risk. Tenant Rents Receivable Allowance for Doubtful Accounts The amounts presented in the Statement of Net Position are net of the following allowances for doubtful accounts: Capital Assets Low Rent Public Housing Fund $ 29,626 The capital assets of the Eastern Carolina Regional Housing Authority at September 30, 2016 consisted of the following: Balance at Adjustments/ Balance at 10/1/2015 Additions Retirements 9/30/2016 Non-depreciable Assets Land $ 1,646,318 $ - $ (469) $ 1,645,849 Construction 41,961 - (26,588) 15,373 Total Non-depreciable Assets $ 1,688,279 $ - $ (27,057) $ 1,661,222 Depreciable assets Building and improvements $ 42,492,936 $ 824,989 $ - $ 43,317,925 Furniture and equipment 1,069, ,215-1,195,582 Total Depreciable Assets $ 43,562,303 $ 951,204 $ - $ 44,513,507 Less accumulated depreciation (27,111,561) 1,473,728 - (28,585,289) Depreciable Assets - Net $ 16,450,742 $ 1,473,728 $ - $ 15,928,218 Total Capital Assets - Net $ 18,139,021 $ 17,589,440 All land, buildings, and building improvements in the Eastern Carolina Regional Housing Authority low-income public housing and capital fund programs are encumbered by a declaration of trust in favor of the U.S. government, as security for obligations guaranteed by the federal government and to protect other federal government interests. At September 30, 2016, the total cost of such assets, before depreciation, was $46,175,

24 Notes to the Financial Statements B. Liabilities Long-Term Debt The Authority obtained a loan on March 30, 2012 to purchase Energy Performance equipment with the intent to reduce energy costs. The total note was for $3,148,996. The terms are 3.95% interest and scheduled for 159 payments. Principal and interest payments required for the note are as follows: Year Ending September 30 Principal Interest Total , , , ,216 92, , ,131 83, , ,047 74, , ,013 64, , ,420, ,961 1,559,915 Total $ 2,581,616 $ 554,235 $ 3,135,851 Changes in Long-term Liabilities Beginning Ending Current Balances Balances Portion of 10/01/15 Increases Decreases 09/30/16 Balance Compensated absences 73,259 - (6,625) 66,634 41,216 Energy loan 2,814,858 - (233,242) 2,581, ,847 Total $ 2,888,117 $ - $ (239,867) $ 2,648,250 $ 236,063 Unavailable Revenue Unavailable revenue at September 30, 2016 consisted of the following: Prepaid rent $ 4,731 18

25 Notes to the Financial Statements Defined Benefit Retirement Plan Local Governmental Employees Retirement System Plan Description. The Eastern Carolina Regional Housing Authority is a participating employer in the statewide Local Governmental Employees' Retirement System (LGERS), a cost-sharing multiple-employer defined benefit pension plan administered by the State of North Carolina. LGERS membership is comprised of general employees and local law enforcement officers (LEOs) of participating local governmental entities. Article 3 of G.S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. Management of the plan is vested in the LGERS Board of Trustees, which consist of 13 members nine appointed by the Governor, one appointed by the State Senate, one appointed by the State House of Representatives, and the State Treasurer and State Superintendent, who serve as exofficio members. The Local Governmental Employees' Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State's CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina , by calling (919) , or at Benefits Provided. LGERS provides retirement and survivor benefits. Retirement benefits are determined as 1.85% of the member s average final compensation times the member s years of creditable service. A member s average final compensation is calculated as the average of a member s four highest consecutive years of compensation. Plan members are eligible to retire with full retirement benefits at age 65 with five years of creditable service, at age 60 with 25 years of creditable service, or at any age with 30 years of creditable service. Plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service. Survivor benefits are available to eligible beneficiaries of members who die while in active service or within 180 days of their last day of service and who have either completed 20 years of creditable service regardless of age or have completed five years of service and have reached age 60. Eligible beneficiaries may elect to receive a monthly Survivor s Alternate Benefit for life or a return of the member s contributions. The plan does not provide for automatic post-retirement benefit increases. Increases are contingent upon actuarial gains of the plan. Contributions. Contribution provisions are established by General Statute and may be amended only by the North Carolina General Assembly. The Eastern Carolina Regional Housing Authority employees are required to contribute 6% of their compensation. Employer contributions are actuarially determined and set annually by the LGERS Board of Trustees. The Eastern Carolina Regional Housing Authority contractually required contribution rate for the year ended September 30, 2016, was 12.00% of compensation for general employees, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year. Contributions to the pension plan from the Eastern Carolina Regional Housing Authority were $124,569 for the period October 31, 2015 through September 30,

26 Notes to the Financial Statements Refunds of Contributions Authority employees who have terminated service as a contributing member of LGERS, may file an application for a refund of their contributions. By state law, refunds to members with at least five years of service include 4% interest. State law requires a 60- day waiting period after service termination before the refund may be paid. The acceptance of a refund payment cancels the individual s right to employer contributions or any other benefit provided by LGERS. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At September 30, 2016, the Authority reported a liability of $301,796 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of December 31, The total pension liability was then rolled forward to the measurement date of June 30, 2016 utilizing update procedures incorporating the actuarial assumptions. The Authority s proportion of the net pension liability was based on a projection of the Authority s long-term share of future payroll covered by the pension plan, relative to the projected future payroll covered by the pension plan of all participating LGERS employers, actuarially determined. At June 30, 2016, the Authority s proportion was %, which was a decrease of % from its proportion measured as of June 30, For the year ended September 30, 2016, the Authority recognized pension expense of $236,859. At September 30, 2016, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ 5,670 $ 10,575 Changes of assumptions 20,670 - Net difference between projected and actual earnings on pension plan investments 166,856 - Changes in proportion and differences between Authority contributions and proportionate share of contributions 103,545 - Authority contributions subsequent to the measurement date 21,658 - Total $ 318,399 $ 10,575 $21,658 reported as deferred outflows of resources related to pensions resulting from Authority contributions subsequent to the measurement date will be recognized as an increase of the net pension liability in the year ended September 30, Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense as follows: 20

27 Notes to the Financial Statements Year ended June $ 59, , , , Thereafter $ - 286,165 Actuarial Assumptions. The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return 3.0 percent 4.25 to 8.55 percent, including inflation and productivity factor 7.25 percent, net of pension plan investment expense, including inflation The plan currently uses mortality tables that vary by age, gender, employee group (i.e. general, law enforcement officer) and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. The actuarial assumptions used in the December 31, 2014 valuation were based on the results of an actuarial experience study for the period January 1, 2005 through December 31, Future ad hoc COLA amounts are not considered to be substantively automatic and are therefore not included in the measurement. The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical performance of investment strategies. Fixed income return projections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are established through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class as of June 30, 2016 are summarized in the following table: 21