SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY 2016 ANNUAL REPORT

Transcription

1 SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY 2016 ANNUAL REPORT

2 SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016 Financial Section Table of Contents Page Independent Auditor s Report Management s Discussion and Analysis Basic Financial Statements Fund Financial Statements Proprietary Funds: Statement of Net Position Statement of Revenues, Expenses, and Changes in Fund Net Position Statement of Cash Flows Notes to Financial Statements Required Supplementary Information Schedule of Changes in the Authority s Net Pension Liability and Related Ratios Schedule of Employer Contributions and Notes to Required Supplementary Information Other Supplementary Information Financial Data Schedule Schedule of Expenditures of Federal Awards Schedule of Developmental Costs Compliance Section 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 for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs i

3 SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016 Statistical Section Table of Contents Page Net Position by Component Last Ten Years Change in Net Position Last Ten Years Operating Revenues by Source Last Ten Years Non-operating Revenues by Source Last Ten Years Tenant Demographics/ Population Statistics Last Eight Years Dwelling Unit Composition Regular Staff Headcount by Department Last Eight Years ii

4 INDEPENDENT AUDITORS REPORT The Board of Commissioners of the Scott County Redevelopment and Housing Authority Duffield, Virginia: Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities, each major fund, and the aggregate remaining fund information of the Scott County Redevelopment and Housing Authority (the 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 Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and 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 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 auditors 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 accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of the business-type activities, each major fund, and the aggregate remaining fund information of the Scott County Redevelopment and Housing Authority, as of September 30, 2016, and the respective changes in its financial position and its cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

5 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require the management s discussion and analysis and the Schedule of Changes in the Authority s Net Pension Liability and Related Ratios and Schedule of Employer Contributions on pages 3-9 and be presented to supplement the basic financial statements. Such information, although not a required part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority s basic financial statements. The introductory section and statistical section 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 schedule of expenditures of federal awards, the schedule of developmental costs, and the financial data schedule are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards, the schedule of developmental costs, and the financial data schedule are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections 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 May 10, 2017, on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control over financial reporting and compliance. Bostic, Tucker and Company, PC May 10, 2017 Lebanon, Virginia 2

6 MANAGEMENT DISCUSSION AND ANALYSIS

7 Management s Discussion and Analysis SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY MANAGMENTS DISCUSSION & ANALYSIS SEPTEMBER 30, 2016 The management of Scott County Redevelopment & Housing Authority offers the readers of the Authority's financial statements this narrative overview and analysis of the Authority's financial activities for the year ended September 30, This discussion and analysis is designed to assist the reader in focusing on significant financial issues, provide an overview of the Authority's financial activity, identify changes in the Authority's financial position, and identify individual fund issues or concerns. Readers should consider the information presented here in conjunction with the Authority's financial statements to obtain a full understanding of its financial position. This management's discussion and analysis is presented in accordance with the requirements of the Governmental Accounting Standards Board Statement No. 34 (GASB 34) to allow the reader to gain an adequate understanding of the Authority's annual operating results and financial position as of September 30, Questions concerning the information provided in this discussion or requests for additional information should be addressed to the Authority s Executive Director. FINANCIAL HIGHLIGHTS The assets of the Authority exceeded its liabilities at the close of the most recent fiscal year by $951,235 (net position) as opposed to $1,115,583 for the prior fiscal year. The Authority s cash and investments balance as of September 30, 2016 was $426,252 representing a decrease of $40,243 from September 30, The Authority had total revenues of $1,438,323 and total expenses of $1,602,671 for the year ended September 30, In FY 2015 the Authority implemented GASB 68, Accounting and Financial Reporting for Pensions. As a result, an additional $36,319 Net Pension Liability was recorded along with deferred inflows and outflows of resources. This is discussed further in the accompanying Notes to the Financial Statements. 3

8 Overview of the Financial Reports The following outline describes the integral parts of this financial presentation and is a guideline for understanding its components: I. MD&A Serves as an introduction to the Authority s basic financial statements II. Basic Financial Statements Authority-wide financial statements Notes to the financial statements III. Other Supplementary Information The financial statements in this report are those of a special purpose governmental entity engaged in a business type activity. The following statements are included: Statement of Net Position presents information about the Authority s assets and liabilities and is similar to a balance sheet. The Statement of Net Position reports all financial and capital resources for the Authority. The statement is presented in the format where assets, minus liabilities, equal Net Position, formerly known as equity. Assets and liabilities are presented in order of liquidity and are classified as current (convertible to cash within one year), and non-current. Increases or decreases in net position will serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. Statement of Revenues, Expenses, and Changes in Net Position reports the Authority s revenues by source and type and its expenses by category to substantiate the change in net position for the fiscal year. Statement of Cash Flows discloses net cash provided by, or used for operating activities, non-capital financial activities, and capital and related financing activities. Our analysis of the Authority as a whole follows with the most important question, Has the Authority s financial health improved or worsened as a result of the year s activities? The following analysis of entity-wide net position, revenues, and expenses is provided to assist with answering the above question. This analysis includes all assets and liabilities using the accrual method of accounting, which recognizes revenue when earned and expenses when incurred regardless of when cash is received or paid. 4

9 Analysis of Authority-wide Net Position (Statement of Net Position) Scott County Redevelopment & Housing Authority Comparative Statement of Net Position TABLE I Total Change % Change Cash & Investments $ 426,252 $ 466,495 $ (40,243) -8.63% Other Current Assets 17,605 17,754 (149) -0.84% Capital Assets 888,941 1,006,516 (117,575) % Deferred Outflows of Resources 60,544 48,667 11, % Total Assets and Deferred Outflows $ 1,393,342 $ 1,539,432 $ (146,090) -9.49% Current Liabilities $ 52,843 $ 49,262 $ 3, % Noncurrent Liabilities 344, ,587 29, % Total Liabilities 396, ,849 33, % Deferred Inflows of Resources 45,174 60,000 (14,826) % Net Investment in Capital Assets 888,941 1,006,516 (117,575) % Restricted 19,742 2,725 17, % Unrestricted 42, ,342 (63,790) % Total Net Position 951,235 1,115,583 (164,348) % Total Liabilities, Deferred Inflows & Net Position $ 1,393,342 $ 1,539,432 $ (146,090) -9.49% Total assets and deferred outflows decreased by $146,090 or 9.49%. This decrease was due mainly to decreases in capital assets of $117,575 due to depreciation expense exceeding asset additions. Cash & investments decreased $40,243 or 8.63% due to the results of operations, and other current assets decreased $149 or 0.84% due to a decrease in tenant receivables. Deferred outflows increased $11,877 or 24.40% due to booking the required entries for GASB 68, Accounting and Financial Reporting for Pensions, during the current fiscal year. Total Liabilities increased by $33,084 or 9.09%. Current liabilities increased $3,581 or 7.27% due to an increase in accounts payable and PILOT. Noncurrent liabilities increased $29,503 or 9.38%. Noncurrent compensated absences decreased $6,816 or 21.58% on account of the retirement of the Executive Director. Net Pension Liability increased $36,319 or 12.83% for GASB 68. Deferred Inflows decreased $14,826 or 24.71% also due to booking entries required by GASB 68. Total Net Position decreased by $164,348 or 14.73% which is outlined in detail on the Statement of Revenues, Expenses and Change in Net Position. 5

10 Analysis of Entity-Wide Revenue and Expenses (Statement of Revenues, Expenses, and Change in Net Position) The federal government continued to fund operating grants at a level below total eligibility for the period ended September 30, With no signs of improvement in federal funding or economic conditions in the foreseeable future, the Authority is now using proactive measures to control expenses in future years by adopting a plan to review staff responsibilities and implementing cost management strategies. The Authority continuously looks for new ways to improve operations, control costs, maximize effectiveness, and demonstrate accountability. The following table illustrates changes in revenues and expenses from FY 2015 to FY Scott County Redevelopment & Housing Authority Comparative Statement of Revenues, Expenses, and Change in Net Postion TABLE II Total Change % Change Revenue Tenant Revenue $ 308,922 $ 317,083 $ (8,161) -2.57% Grant Funding 1,114,874 1,128,450 (13,576) -1.20% Interest Income 1,321 1, % Other Income 13, ,719 (104,513) % Total Revenue 1,438,323 1,564,562 (126,239) -8.07% Expenses Administration 403, ,606 43, % Tenant Services 13,983 23,060 (9,077) % Utilities 139, ,729 (11,668) -7.74% Maintenance 210, ,113 (19,732) -8.57% General expense 37,636 43,246 (5,610) % Housing assistance payments 651, ,367 (7,253) -1.10% Depreciation 147, ,311 (37,110) % Total Expenses 1,602,671 1,649,432 (46,761) -2.83% Net Position Change in Net Position (164,348) (84,870) (79,478) 93.65% Prior Period adjustments - (315,000) 315, % Beginning Net Postion 1,115,583 1,515,453 (399,870) % Ending Net Position $ 951,235 $ 1,115,583 $ (164,348) % 6

11 During the year, total revenue decreased by $126,239 or 8.07%. Tenant revenue decreased by $8,161 or 2.57% mainly owing to a decrease in other tenant revenue. Additionally, other income decreased by $104,513 or 88.78%, attributable to revenue from property insurance proceeds received in FY 2015 not received in FY There was also a decrease in grant funding of $13,576 or 1.20%, the result of decreased Capital Fund Program draws during FY Investment income increased by $11 or 0.84% Revenue 0% 1% 21% Tena nt Revenue Grant Funding Interest Income Other Income 78% Total expenses decreased by $46,761 from FY 2015 to FY 2016, a decrease of 2.83%. Administrative costs increased by $43,688 or 12.15%. This was the result of increases in employee benefits by $33,405 or 46.28%, due to booking the required entries for GASB 68 for the current fiscal year for net pension liability and deferred outflows. Other administrative expenses increased $10,580 or 34.26% due in part to the purchase of the General Ledger and Payroll Accounting software package from Scott Accounting and Computer Services. Office and travel expenses also increased. The Authority experienced decreases in all other expense categories. Tenant Services decreased by $9,077 or 39.36%. Salaries decreased $6,250 or 39.06% and employee benefits decreased $2,086 or 37.36%, as the resident services coordinator was on sick leave five months of the year. Utilities decreased by 7.74% or $11,668 due to decreases in both water and electricity expenses. Maintenance decreased by $19,732 or 8.57% largely due to decreased materials and contract costs. Materials decreased $4,889 or 16.38% from FY Contract costs decreased $11,164 or 35.57%, as expenses incurred in FY 2015 for sprinkler inspection/repair and meth testing/remediation were not necessary in FY General expenses decreased $5,610 or 12.97%. Bad debt expense decreased $7,044 or 100% due to fewer tenant accounts being written off in FY Insurance and PILOT increased $429 or 2.01% and $1,005 or 6.79% respectively. Housing Assistance Payments decreased by 1.10% or $7,253 due to decreased vouchers issued. Depreciation decreased $37,109 or 20.13% due to standard calculations for the year. 7

12 9% 2016 Expense 25% Administration 1% Tenant Services Utilities 41% 9% Maintenance General expense Housing assistance payments Depreciation 2% 13% CAPITAL ASSETS: At the end of FY 2015, the Authority had Invested in Capital Assets $1,006,516, net of depreciation. As of September 30, 2016, the Authority s Net Capital Assets decreased by $117,575 to $888,941 due to depreciation expense of $147,201 exceeding capital additions of $29,626. Scott County Redevelopment & Housing Authority Comparative Statement of Capital Assets TABLE III Total Change % Change Land $ 339,257 $ 339,257 $ % Buildings & improvements 6,148,423 6,134,519 13, % Equipment 108,600 78,974 29, % Construciton in Progress - 13,904 (13,904) % 6,596,280 6,566,654 29, % Accumulated Depreciation (5,707,339) (5,560,138) (147,201) 2.65% Total Capital Assets $ 888,941 $ 1,006,516 $ (117,575) % 8

13 Major changes in the capital assets accounts are summarized below: Balance at September 30, 2015 $ 1,006,516 Current period additions - capital fund 29,626 Current period depreciation expense (147,201) Balance at September 30, 2016 $ 888,941 Debt Outstanding As of the year-end, the Authority had no outstanding debt. ECONOMIC FACTORS Several significant economic factors are present that may impact the Authority in the future. Continued proration of Operating Subsidy amounts due to the reduced Congressional funding of the Department of Housing and Urban Development. Local inflationary, recessionary, and employment trends, which can affect resident incomes and therefore the amount of rental income. Inflationary pressure on utility rates, supplies, and other costs. Health care and other insurance costs are expected to increase dramatically over the next several years. Financial Contact Questions concerning any of the information provided in this Management s Discussion & Analysis should be addressed to: Sue Smith, Interim Executive Director Scott County Redevelopment & Housing Authority PO Box 266 Duffield, VA (276) (276) fax 9

14 BASIC FINANCIAL STATEMENTS

15 SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY STATEMENT OF NET POSITION SEPTEMBER 30, 2016 Business-type Activities Assets Non-Major Fund: Low Income Section Eight CDBG Housing Vouchers Discretionary Totals Current assets Cash and cash equivalents $ 348,159 $ 16,331 $ 42,020 $ 406,510 Restricted cash - 19,742-19,742 Accounts receivable, net of allowance Prepaid expenses 15, ,747 Due from other funds 10,692 (10,692) Total current assets 375,617 26,220 42, ,857 Noncurrent assets Land 339, ,257 Buildings 6,148, ,148,423 Machinery and equipment 108, ,600 6,596, ,596,280 Less accumulated depreciation (5,707,339) - - (5,707,339) Total noncurrent assets 888, ,941 Total assets 1,264,558 26,220 42,020 1,332,797 Deferred Outflow of Resources Deferred Pensions 60, $ 60,544 Total Assets and Deferred Outflows $ 1,325,102 $ 26,220 $ 42,020 $ 1,393,341 Current liabilities Accounts payable $ 15,146 $ - $ - $ 15,146 Due to other governments 15, ,815 Deferred revenue Customer deposits 15, ,300 Employee leave liability 4,478 1,714-6,192 Total current liabilities 51,129 1,714-52,844 Long-term debt Liabilities and Net Position GASB 68 Pension Liability 319, ,319 Compensated absences 17,912 6,857-24,770 Total long-term debt 337,231 6, ,089 Total liabilities 388,360 8, ,932 Deferred Inflow of Resources Deferred Pension 45, ,174 Net Position Net Investment in Capital Assets 888, ,941 Restricted - 19,742-19,742 Unrestricted 2,626 (2,094) 42,020 42,552 Total net position 891,567 17,648 42, ,235 Total Liabilities, Deferred Inflows, and Net Position $ 1,325,102 $ 26,220 $ 42,020 $ 1,393,341 The notes to the financial statements are an integral part of this statement 10

16 SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION SEPTEMBER 30, 2016 Business-type Activities Revenue Non-Major Fund: Low Income Section Eight CDBG Housing Vouchers Discretionary Totals Rental income $ 287,763 $ - $ - $ 287,763 Miscellaneous 27,394 6,971-34,365 Expenses 315,157 6, ,128 Administration 264, ,147 1, ,295 Tenant services 13, ,983 Utilities 139, ,061 Maintenance 209, ,381 General 36,532 1,105-37,636 Housing, utility assistance payments - 651, ,114 Depreciation 147, ,201 Total operating expenses 810, ,307 1,853 1,602,671 Operating income (loss) (495,354) (783,336) (1,853) (1,280,543) Other nonoperating income (expenses) Interest income 1, ,321 Operating grants and subsidies 335, ,962-1,114,874 Net non-operating income (expenses) 337, , ,116,195 Income before contributions and transfers (158,174) (4,344) (1,830) (164,348) Change in net position (158,174) (4,344) (1,830) (164,348) Net position at September 30, ,049,741 21,992 43,850 1,115,583 Net position at September 30, 2016 $ 891,567 $ 17,648 $ 42,020 $ 951,235 The notes to the financial statements are an integral part of this statement 11

17 SCOTT COUNTY REDEVELOPMENT AND HOUSING AUTHORITY STATEMENT OF CASH FLOWS SEPTEMBER 30, 2016 Business-type Activities Non-Major Fund: Low Income Section Eight CDBG Housing Vouchers Discretionary Totals Cash flows from operating activities: Receipts from customers and users $ 318,572 $ 6,971 $ - $ 325,543 Payments to suppliers (409,313) (713,492) (1,853) (1,124,658) Payments to employees (247,677) (80,019) - (327,697) Net cash provided (used) by operating activities (338,418) (786,541) (1,853) (1,126,811) Cash flows from noncapital financing activities: Subsidies, grants from state and federal governments 335, ,962-1,114,874 Net cash provided (used) by noncapital financing activities 335, ,962-1,114,874 Cash flows from capital and related financing activities: Purchases of capital assets (29,626) - - (29,626) Net cash provided (used) by capital and related financing activities (29,626) - - (29,626) Cash flows received from investing activities: Interest received 1, ,320 Net cash provided (used) by investing activities 1, ,320 Net increase in cash and cash equivalents (30,864) (7,549) (1,830) (40,243) Cash and equivalents, September 30, ,023 43,622 43, ,495 Cash and equivalents, September 30, 2016 $ 348,160 $ 36,073 $ 42,020 $ 426,252 Reconciliation of operating income to net cash provided (used) by operating activities: Operating income $ (495,354) $ (783,336) $ (1,853) $ (1,280,543) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 147, ,201 Accounts receivable 2, ,660 Prepaid expenses (621) (53) - (674) Deferred outflow of resources (11,877) - - (11,877) Accounts payable 4,531 (1,836) - 2,695 Customer deposits Compensated absences (7,205) (1,316) - (8,522) Net pension liability 36, ,319 Deferred inflow of resources (14,826) - - (14,826) Deferred revenue (20) - - (20) Net cash provided (used) by operating activities $ (338,418) $ (786,541) $ (1,853) $ (1,126,811) The notes to the financial statements are an integral part of this statement 12

18 NOTES TO FINANCIAL STATEMENTS

19 SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Note 1. Summary of Significant Accounting Policies The Scott County Redevelopment & Housing Authority was organized as a political subdivision of the Commonwealth of Virginia under Title 36 of the Code of Virginia. The Authority operates under a Board of Commissioners appointed by the Board of Supervisors of Scott County, Virginia and provides the following services as authorized by its charter: acquisition, construction, maintenance and operation of a low income public housing project. The Authority extends credit to its customers in the normal course of business and this credit is limited to the geographic area surrounding the Authority and is considered a concentration of credit in one geographic area. The accounting policies of the Authority relating to the funds included in the accompanying financial statements conform to generally accepted accounting principles applicable to governmental units. The Authority complies with generally accepted accounting principles and applies all relevant Governmental Accounting Standards Board (GASB) pronouncements. In addition, the Authority applies Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board opinions issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. The Authority has elected not to follow FASB pronouncements since that date. The Authority also adopted the provisions of GASB Statement No. 34 Basic Financial Statements - and Management s Discussion and Analysis-for State and Local Governments in fiscal year Statement 34 established standards for external financial reporting for all state and local governmental entities, which includes a management s discussion and analysis section, a statement of net assets, a statement of activities and changes in net assets and a statement of cash flows. It requires the classification of net assets into three components invested in capital assets, net of related debt; restricted; and unrestricted. The adoption of Statements 33 and 34 had no effect on the basic financial statements except for the classification of net assets, the reflection of capital contributions as a change in net assets and the inclusion of Management s Discussion and Analysis (MD&A) section providing an analysis of the Authority s overall financial position and results of operations. Financial Reporting Entity The Authority complies with GASB Statement No. 14, The Financial Reporting Entity. This statement establishes standards for defining and reporting on the financial reporting entity. It defines component units as legally separate organizations for which the elected officials of the primary government are financially accountable and other organizations for which the nature and significance of their relationship with a primary government are such that exclusion would cause the reporting entity financial statements to be misleading or incomplete. The Authority considered all potential component units in determining what organizations should be included in the financial statements. Based on these criteria, there are no component units to include in the Authority s financial statements. Basis of Presentation The Authority s funds are enterprise funds. Enterprise funds are proprietary funds used to account for business like activities provided to the general public. These activities are financed primarily by user charges and the measurement of financial activity focuses on net income measurement similar to the private sector. The Authority has two major enterprise funds: Low Income Housing and Section Eight Housing Choice Vouchers. 13

20 SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Note 1. Summary of Significant Accounting Policies (continued) Measurement Focus and Basis of Accounting Measurement focus is a term used to describe which transactions are recorded within the various financial statements. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. The proprietary funds utilize an economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or non-current) associated with their activities are reported. Proprietary fund equity is classified as net position. All proprietary funds utilize the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the Authority s enterprise funds are charged to customers for rental of apartments. Operating expenses for enterprise funds include the cost of maintaining the units, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the government s policy to use restricted resources first, then unrestricted resources as they are needed. Cash and Cash Equivalent The Authority considers all highly liquid investments with a maturity of twelve months or less when purchased to be cash equivalents. Property, Plant, and Equipment Fixed Assets Property, plant, and equipment are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred; major improvements or betterments are capitalized. Depreciation is provided over estimated useful lives of the respective assets on the straight-line basis as follows: Buildings and improvements Machinery and equipment Office equipment years 3 7 years 3 10 years Construction in Progress Construction work in progress represents costs accumulated to the replacements or additions of the Authority s apartment units and other projects that were not completed at year end. 14

21 SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Note 1. Summary of Significant Accounting Policies (continued) Measurement Focus and Basis of Accounting (continued) Compensated Absences It is the Authority s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Employees may, depending on level and length of service, be paid for various amounts of their total accrued leave upon termination or retirement. The Authority accrues a liability for leave hours that meets the criteria for payment at the eligible employee s current rates of pay. The accrual for compensated absences at September 30, 2016 was $30,962. Equity Classifications Equity is classified as net assets and displayed in three components: Net Investment in Capital Assets Consists of capital assets including restricted capital assets, net of accumulated depreciation and 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 Consists of net position with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations or other governments; or (2) law through constitutional provisions or enabling legislation. Unrestricted All other net position that do not meet the definition of restricted or net investment in capital assets. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Net Position Net position is the difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources. Net investment in capital assets represents capital assets, less accumulated depreciation, less any outstanding debt related to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt are also included in this component of net position. Net Position Flow Assumption Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted - net position in the proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority s policy to consider restricted net position to have been depleted before unrestricted - net position is applied. 15

22 Note 2. Cash and Investments Deposits SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Deposits with banks are covered by the Federal Deposit Insurance Corporation (FDIC) and collateralized in accordance with the Virginia Security for Public Deposits Act (the Act ) Section et. seq. of the Code of Virginia. Under the Act, banks and savings institutions holding public deposits in excess of the amount insured by the FDIC must pledge collateral to the Commonwealth of Virginia Treasury Board. Financial Institutions may choose between two collateralization methodologies and depending upon that choice, will pledge collateral that ranges in the amounts from 50% to 130% of excess deposits. Accordingly, all deposits are considered fully collateralized. Note 3. Property, Plant and Equipment A summary of changes in fixed assets follows: Balance Balance September 30, 2015 Additions Retirements September 30, 2016 Land $ 339,257 $ - $ - $ 339,257 Buildings 6,134,519 13,904-6,148,423 Furniture & equipment 78,974 29, ,600 Construction in progress 13,904-13,904-6,566,654 43,530 13,904 6,596,280 Accumulated depreciation 5,560, ,201-5,707,339 Note 4. Risk Management $ 1,006,516 $ (103,671) $ 13,904 $ 888,941 The Risk Management Programs of the Authority are as follows: Workmen s Compensation Workmen s compensation insurance is provided through Virginia Association of Counties Group Self Insurance Risk Pool. Management estimates the liability for unpaid claims at September 30, 2016, to be immaterial. General Liability and Other The Authority has purchased general liability and other insurance through private insurance providers. Healthcare Healthcare insurance coverage is provided to the employees of the Authority through policies with United Healthcare Plan of the New River Valley, Inc. There were no significant reductions in insurance coverage from the prior year and no settlements that exceeded the amount of insurance coverage during the last three fiscal years. 16

23 SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Note 4. Risk Management (continued) Public Officials and Employees Liability Public officials and employees liability insurance is provided through the Virginia Association of Counties Group Self Insurance Risk Pool. Fidelity Coverage The Authority has purchased fidelity coverage in the amount of $50,000 from the Selective Insurance Company. Note 5. Defined Benefit Pension Plan For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Authority s Retirement Plan and the additions to/deductions from the Authority s Retirement Plan s net fiduciary position have been determined on the same basis as they were reported by the Virginia Retirement System (VRS). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Plan Description All full-time, salaried permanent employees of the Authority are automatically covered by VRS Retirement Plan upon employment. This plan is administered by the Virginia Retirement System (the System) along with plans for other employer groups in the Commonwealth of Virginia. Members earn one month of service credit for each month they are employed and for which they and their employer are pay contributions to VRS. Members are eligible to purchase prior service, based on specific criteria a defined in the Code of Virginia, as amended. Eligible prior service that may be purchased includes prior public service, active military service, certain periods of leave, and previously refunded service. The System administers three different benefit structures for covered employees Plan 1, Plan 2, and, Hybrid. Each of these benefit structures has a different eligibility criteria. The specific information for each plan and the eligibility for covered groups within each plan are set out in the table below: 17

24 Note 5. Defined Benefit Pension Plan (continued) SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 VRS PLAN 1 About VRS Plan 1 VRS Plan 1 is a defined benefit plan. The retirement benefit is based on a member s age, creditable service and average final compensation at retirement using a formula. Employees are eligible for VRS Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, VRS PLAN 2 About VRS Plan 2 VRS Plan 2 is a defined benefit plan. The retirement benefit is based on a member s age, creditable service and average final compensation at retirement using a formula. Employees are eligible for VRS Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, HYBRID RETIREMENT PLAN About the Hybrid Retirement Plan The Hybrid Retirement Plan combines the features of a defined benefit plan and a defined contribution plan. Most members hired on or after January 1, 2014 are in this plan, as well as VRS Plan 1 and VRS Plan 2 members who were eligible and opted into the plan during a special election window. (See Eligible Members ) The defined benefit is based on a member s age, creditable service and average final compensation at retirement using a formula. The benefit from the defined contribution component of the plan depends on the member and employer contributions made to the plan and the investment performance of those contributions. In addition to the monthly benefit payment payable from the defined benefit plan at retirement, a member may start receiving distributions from the balance in the defined contribution account, reflecting the contributions, investment gains or losses, and any required fees. Eligible Members Employees are in VRS Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, Eligible Members Employees are in VRS Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, Eligible Members Employees are in the Hybrid Retirement Plan if their membership date is on or after January 1, This includes: State employees* School division employees Political subdivision employees*

25 Note 5. Defined Benefit Pension Plan (continued) SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Hybrid Opt-In Election VRS non-hazardous duty covered Plan 1 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, The Hybrid Retirement Plan s effective date for eligible VRS Plan 1 members who opted in was July 1, If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Members who were eligible for an optional retirement plan (ORP) and had prior service under VRS Plan 1 were not eligible to elect the Hybrid Retirement Plan and remain as VRS Plan 1 or ORP. Hybrid Opt-In Election VRS Plan 2 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, The Hybrid Retirement Plan s effective date for eligible VRS Plan 2 members who opted in was July 1, If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Members who were eligible for an optional retirement plan (ORP) and have prior service under VRS Plan 2 were not eligible to elect the Hybrid Retirement Plan and remain as VRS Plan 2 or ORP. Judges appointed or elected to an original term on or after January 1, 2014 Members in VRS Plan 1 or VRS Plan 2 who elected to opt into the plan during the election window held January 1-April 30, 2014; the plan s effective date for opt-in members was July 1, 2014 *Non-Eligible Members Some employees are not eligible to participate in the Hybrid Retirement Plan. They include: Members of the State Police Officers Retirement System (SPORS) Members of the Virginia Law Officers Retirement System (VaLORS) Political subdivision employees who are covered by enhanced benefits for hazardous duty employees Those employees eligible for an optional retirement plan (ORP) must elect the ORP plan or the Hybrid Retirement Plan. If these members have prior service under VRS Plan 1 or VRS Plan 2, they are not eligible to elect the Hybrid Retirement Plan and must select VRS Plan 1 or VRS Plan 2 (as applicable) or ORP. 19

26 Note 5. Defined Benefit Pension Plan (continued) SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Retirement Contributions Members contribute up to 5% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some school divisions and political subdivisions elected to phase in the required 5% member contribution; all employees will be paying the full 5% by July 1, Member contributions are tax-deferred until they are withdrawn as part of a retirement benefit or as a refund. The employer makes a separate actuarially determined contribution to VRS for all covered employees. VRS invests both member and employer contributions to provide funding for the future benefit payment. Retirement Contributions Same as VRS Plan 1. Retirement Contributions A member s retirement benefit is funded through mandatory and voluntary contributions made by the member and the employer to both the defined benefit and the defined contribution components of the plan. Mandatory contributions are based on a percentage of the employee s creditable compensation and are required from both the member and the employer. Additionally, members may choose to make voluntary contributions to the defined contribution component of the plan, and the employer is required to match those voluntary contributions according to specified percentages. Creditable Service Creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit. Creditable Service Same as VRS Plan 1. Creditable Service Defined Benefit Component: Under the defined benefit component of the plan, creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may e Defined Contributions Component: Under the defined contribution component, creditable service is used to determine vesting for the employer contribution portion of the plan. 20

27 Note 5. Defined Benefit Pension Plan (continued) SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Vesting Vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members become vested when they have at least five years (60 months) of creditable service. Vesting means members are eligible to qualify for retirement if they meet the age and service requirements for their plan. Members also must be vested to receive a full refund of their member contribution account balance if they leave employment and request a refund. Members are always 100% vested in the contributions that they make. Vesting Same as VRS Plan Vesting Defined Benefit Component: Defined benefit vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members are vested under the defined benefit component of the Hybrid Retirement Plan when they reach five years (60 months) of creditable service. VRS Plan 1 or VRS Plan 2 members with at least five years (60 months) of creditable service who opted into the Hybrid Retirement Plan remain vested in the defined benefit component. Defined Contributions Component: Defined contribution vesting refers to the minimum length of service a member needs to be eligible to withdraw the employer contributions from the defined contribution component of the plan. Members are always 100% vested in the contributions that they make. Upon retirement or leaving covered employment, a member is eligible to withdraw a percentage of employer contributions to the defined contribution component of the plan, based on service. After two years, a member is 50% vested and may withdraw 50% of employer contributions. After three years, a member is 75% vested and may withdraw 75% of employer contributions. After four or more years, a member is 100% vested and may withdraw 100% of employer contributions. Distribution is not required by law until age 70½.

28 Note 5. Defined Benefit Pension Plan (continued) SCOTT COUNTY REDEVELOPMENT & HOUSING AUTHORITY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2016 Calculating the Benefit The Basic Benefit is calculated based on a formula using the member s average final compensation, a retirement multiplier and total service credit at retirement. It is one of the benefit payout options available to a member at retirement. An early retirement reduction factor is applied to the Basic Benefit if the member retires with a reduced retirement benefit or selects a benefit payout option other than the Basic Benefit. Calculating the Benefit See definition under VRS Plan 1. Calculating the Benefit Defined Benefit Component: See definition under VRS Plan 1 Defined Contribution Component: The benefit is based on contributions made by the member and any matching contributions made by the employer, plus net investment earnings on those contributions. Average Final Compensation A member s average final compensation is the average of the 36 consecutive months of highest compensation as a covered employee. Average Final Compensation A member s average final compensation is the average of their 60 consecutive months of highest compensation as a covered employee. Average Final Compensation Same as VRS Plan 2. It is used in the retirement formula for the defined benefit component of the plan. Service Retirement Multiplier The retirement multiplier is a factor used in the formula to determine a final retirement benefit. The retirement multiplier for nonhazardous duty members is 1.7%. The retirement multiplier for sheriffs and regional jail superintendents is 1.85%. The retirement multiplier of eligible political subdivision hazardous duty employees other than sheriffs and regional jail superintendents is 1.7% or 1.85% as elected by the employer. Normal Retirement Age Age 65. Service Retirement Multiplier Same as Plan1 for service earned, purchased or granted prior to January 1, For non-hazardous duty members the retirement multiplier is 1.65% for creditable service earned, purchased or granted on or after January 1, Normal Retirement Age Normal Social Security retirement age. 22 Service Retirement Multiplier The retirement multiplier is 1.0%. For members that opted into the Hybrid Retirement Plan from VRS Plan 1 or VRS Plan 2, the applicable multipliers for those plans will be used to calculate the retirement benefit for service credited in those plans. Normal Retirement Age Defined Benefit Component: Same as VRS Plan 2. Defined Contribution Component: Members are eligible to receive distributions upon leaving employment, subject to restrictions.