HOUSING AUTHORITY OF THE VILLAGE OF OAK PARK Oak Park, Illinois. FINANCIAL STATEMENTS December 31, 2011

Transcription

1 HOUSING AUTHORITY OF THE VILLAGE OF OAK PARK Oak Park, Illinois FINANCIAL STATEMENTS December 31, 2011

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT... 1 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A)... 3 FINANCIAL STATEMENTS Statement of Net Assets... 9 Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress SUPPLEMENTARY INFORMATION Combining Schedule of Net Assets Combining Schedule of Revenues, Expenses and Changes in Net Assets Combining Schedule of Cash Flows Statement of Modernization Costs - Completed Financial Data Schedules SINGLE AUDIT REPORT Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Schedule of Prior Year Findings and Questioned Costs... 50

3 CliftonLarsonAllen LLP Board of Commissioners Housing Authority of the Village of Oak Park Oak Park, Illinois Independent Auditor's Report We have audited the accompanying statement of net assets of the Housing Authority of the Village of Oak Park (the Authority ) as of December 31, 2011, and the related statements of revenues, expenses and changes in net assets, and cash flows for the year then ended. These financial statements are the responsibility of the Authority s management. 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 the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of December 31, 2011, and the changes in its financial position and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 24, 2012, 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 and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis on pages 3 to 8 and the Schedule of Funding Progress on page 27 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing basic financial statements in 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 with management about the methods of preparing 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. However, we did not audit the information and express no opinion on it. An independent member of Nexia International 1

4 Our audit was conducted for the purpose of forming an opinion on the basic financial statements that collectively comprise the Authority s basic financial statements. The accompanying information identified in the Table of Contents as supplementary information on pages 28 to 37 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements The supplementary information and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the audited procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. a Oak Brook, Illinois September 24,

5 MANAGEMENT S DISCUSSION AND ANALYSIS Year Ended December 31, 2011 Our discussion and analysis of the financial performance of The Housing Authority of the Village of Oak Park (the Authority ) provides an overview of the Authority s financial activities for the fiscal year ended December 31, The Statement of Net Assets and the Statement of Activities, on pages 9 and 10, report information about the Authority as a whole. These statements include all assets and liabilities using the accrual basis of accounting. Please read these statements in conjunction with the Auditor s Report, which begins on page 1. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Executive Director, Housing Authority of the Village of Oak Park, 21 South Boulevard, Oak Park, Illinois In the Statement of Net Assets and Statement of Activities, the Authority s Programs are divided into two kinds of activities: HUD funded activities which includes: Housing Choice Voucher Program - provides decent, safe and sanitary housing for eligible low-income families. Public Housing - Mills Park Tower, a 198-unit high-rise HUD subsidized development, providing quality housing for low-income elderly individuals. Business activities which include the office building at 21 South Boulevard and a six-unit rental property located at 324 N. Austin Ave. FINANCIAL HIGHLIGHTS The Authority s net assets increased by 5.02%, or $456,826, from 2010, as a result of this year s operations. Overall revenues of the Housing Authority increased by 4.44% while total expenses decreased by 0.21% from The revenues for the Housing Choice Voucher Program increased by 6.00%, while expenses decreased by.48%. The revenues for the Public Housing Program decreased by 4.47%, while expenses increased by 1.94%. There was minimal decrease in revenues for the Office Building and Rental Property, however expenses decreased by 6.27%. REPORTING ON THE AUTHORITY S PROGRAMS Revenues Overall, the Authority s revenues for 2011 increased by 4.44%, or $282,299, over

6 MANAGEMENT S DISCUSSION AND ANALYSIS Year Ended December 31, 2011 Total revenues for the Housing Choice Voucher Program increased by 6.00%, or $255,944 in The total revenues in 2011 for the Public Housing Program, Mills Park Tower, decreased by 4.57% or $282,498 from The operating subsidy decreased by 9.2%, or $44,061, from 2010, while rental income from tenants increased by 1.5%. There was minimal increase in revenues for the office building and rental property for The Housing Authority leases 9,901 square feet of office space at 21 South Boulevard to the Oak Park Residence Corporation, resulting in rental income of $108,060 for The remaining 4,759 feet in the building is rented by Catholic Charities, which uses this area to operate an adult day care program, resulting in rental income of $36,228. Rental income of $39,900 was received from the tenant at 324 N. Austin Ave. Expenses Overall, 2011 expenses for the Authority decreased by 0.21%, or $12,933, from Current year expenses for the Housing Choice Voucher program for 2011 decreased by.48%, or $23,306 from Administration costs decreased by 4.59% and housing assistance payments made to landlords for HCV participants decreased $35,651 or 0.92%. At year end, a total of 533 vouchers were leased up. Total expenses for the Public Housing Program increased by 1.56%, or $18,480, from Total expenses for business activities decreased by 6.27%, or $8,107, from Capital Asset Administration At the end of 2011, the Authority had $9,243,891 invested in a variety of capital assets including land, buildings, improvements and equipment. During 2011, more than $410,463 of Capital Fund monies was invested in Mills Park Tower for kitchen modernizations and one unit made accessible. Debt Administration The Statement of Net Assets highlights the outstanding debt for the years ended 2011 and At December 31, 2011, the Authority had $1,009,165 in outstanding debt versus $1,035,497 at December 31, The notes and mortgages payable of $1,009,165 at December 31, 2011 consists of: Mortgage balance of $788,269 due for the property located at 21 South Boulevard, monthly payments of $5,198, interest rate of 5.04%, subject to interest rate changes, every five years, based on the treasury rate, matures on June 29, 2032; 4

7 MANAGEMENT S DISCUSSION AND ANALYSIS Year Ended December 31, 2011 Mortgage balance of $170,896 for the property located at 324 N. Austin Ave., monthly payments of $1,089, interest rate of 5%, final balloon payment of $165,147 due June 1, 2013; Loan payable of $50,000 with the Village of Oak Park for 324 N. Austin Ave. due on the earlier of the sale of the property or June 16, 2023, with no interest. FINANCIAL PERFORMANCE Overall financial performance of the Housing Authority for 2011 resulted in an increase in net assets of 5.02%, or $456,826. HUD evaluates the Public Housing Program, Mills Park Tower, through the Public Housing Assessment System (PHAS). This system focuses on the physical, financial, management and resident services of the PHA. Physical operations are reviewed by HUD through periodic onsite inspections. Financial information is reported to HUD through electronic submission of the certified annual audit. The System Management Operation Certification evaluates the management performance of the Authority. Areas evaluated include: vacant unit turnaround time, capital fund programs, work orders, annual inspection of dwelling units and systems, security, and economic self sufficiency. HUD also administers satisfaction surveys to residents. Scores for the PHAS system are released in the summer of each year for the previous year. For the year ended December 31, 2011, Mills Park Tower was rated as a high performer, with an overall score of 99. HUD issues the PHAS scores every other year for Public Housing Programs which achieve a high performer rating. HUD evaluates the performance of Housing Choice Voucher (HCV) Programs through the Section 8 Management Assessment Protocol (SEMAP). Areas evaluated include: waiting list, rent reasonableness, determination of adjusted income, utility allowances, housing quality standards, controls and enforcement, expanding housing opportunities and payment standards. For 2011, the score under SEMAP for the Housing Choice Voucher Program was 140, a high performer rating. NOTABLE EVENTS In February 2010, the Authority entered into a Memorandum of Understanding with Interfaith Housing Development Corporation and Catholic Charities regarding the development of a supportive housing facility at 820 Madison Street in Oak Park. In January 2011, the Authority signed a contract to receive a funding award through MYWAY Village, to equip and staff a Computer Learning Center for a two-year grant period. The Authority will provide an in-kind contribution in the amount of $22,500 for each year of the twoyear grant. The in-kind match is expected to come from free rent for the Learning Center, rooftop access, and staff time. 5

8 MANAGEMENT S DISCUSSION AND ANALYSIS Year Ended December 31, 2011 For 2011, the Authority has been awarded an allocation of 15 Housing Choice Vouchers to serve persons with disabilities who are interested in utilizing the Money Follows the Person (MFP) Act and an Authority Voucher to relocate back into the community from a nursing home or other health care institution. The Authority has joined the Regional Housing Initiative (RHI), a consortium of eight housing authorities formed to promote the geographic mobility options of Housing Choice Voucher holders in the Metropolitan Chicago Area. Membership allows the authority to promote affordable housing by pooling Housing Choice Vouchers for use as project based vouchers in areas of economic opportunity throughout metro Chicago. Based on the foregoing information, the management of the Authority believes that its financial position is sound and the operation of its programs continues to be in accordance with HUD requirements. 6

9 MANAGEMENT'S DISCUSSION AND ANALYSIS - STATEMENTS OF NET ASSETS December 31, 2011 and 2010 HUD Activities Business Activities Eliminations Total Authority Current assets $ 1,157,671 $ 1,432,609 $ 163,721 $ 237,214 $ - $ - $ 1,321,392 $ 1,669,823 Capital assets: Land 853, , , , , ,846 Modernization costs 5,911,487 6,322, ,911,487 6,322,898 Structures and equipment 4,681,771 4,798,674 1,799,135 1,805, ,480,906 6,603,762 Total 11,447,104 11,975,418 1,899,135 1,905, ,346,239 13,880,506 Less accumulated depreciation (3,387,232) (3,722,091) (871,279) (914,524) - - (4,258,511) (4,636,615) Net property and equipment 8,059,872 8,253,327 1,027, , ,087,728 9,243,891 Other assets 356, , (356,400) (359,735) - - Total assets $ 9,573,943 $ 10,045,076 $ 1,191,577 $ 1,228,373 $ (356,400) $ (359,735) $ 10,409,120 $ 10,913,714 Current liabilities $ 186,063 $ 259,258 $ 33,033 $ 32,350 $ - $ - $ 219,096 $ 291,608 Long-term liabilities: Due to HA 355, ,735 1,400 - (356,400) (359,735) - - Capital lease payable Notes and mortgage payable - - 1,009, , ,009, ,956 Other liabilities 66,179 66,896 7,572 9, ,751 76,525 Total long-term liabilities 421, ,631 1,018, ,585 (356,400) (359,735) 1,083,225 1,058,481 Total liabilities $ 607,242 $ 685,889 $ 1,051,479 $ 1,023,935 $ (356,400) $ (359,735) $ 1,302,321 $ 1,350,089 Net assets $ 8,966,701 $ 9,359,187 $ 140,098 $ 204,438 $ - $ - $ 9,106,799 $ 9,563,625 Net change $ 392,486 $ 64,340 $ 456,826 Invested in capital assets, net of debt $ 8,059,872 $ 8,253,327 $ (7,641) $ (18,601) $ - $ - $ 8,052,231 $ 8,234,726 Restricted 222, , , ,801 Unrestricted 683, , , , , ,098 Net assets $ 8,966,701 $ 9,359,187 $ 140,098 $ 204,438 $ - $ - $ 9,106,799 $ 9,563,625 7

10 MANAGEMENT'S DISCUSSION AND ANALYSIS - STATEMENTS OF ACTIVITIES Years Ended December 31, 2011 and 2010 HUD Activities Business Activities Total Authority Revenues: Operating subsidy $ 479,115 $ 435,054 $ - $ - $ 479,115 $ 435,054 Rental income 518, ,722 38,700 39, , ,622 Section 8 income 3,778,082 4,028, ,778,082 4,028,796 Administrative fee income 468, , , ,736 HUD PHA grant-modern 347, , , ,463 Non-dwelling rental 6,000 6, , , , ,288 Ports-in income 545, , , ,482 Interest income 1,100 1, ,868 1,338 Other income 31,935 38,030 1,200 1,200 33,135 39,230 Total income 6,176,937 6,459, , ,574 6,362,710 6,645,009 Expenses: Administration 585, ,966 2,295 1, , ,281 Management fee ,104 9,928 11,104 9,928 Tenant services 52,461 58, ,461 58,279 Utilities 141, , , ,167 Maintenance and operation 235, ,790 14,007 4, , ,622 Extraordinary maintenance 51,838 35, ,838 35,497 Protective services 8,933 11, ,933 11,454 Ports-in housing assistance payments 545, , , ,482 Housing assistance payments 3,872,199 3,836, ,872,199 3,836,548 General expenses 238, ,328 7,104 8, , ,134 Mortgage interest ,409 49,117 50,409 49,117 Payment in lieu of taxes 18,861 19,578 3,872 3,992 22,733 23,570 Depreciation 320, ,860 40,550 43, , ,104 Total expenses 6,071,775 6,066, , ,234 6,201,116 6,188,183 Change in net assets $ 105,162 $ 392,486 $ 56,432 $ 64,340 $ 161,594 $ 456,826 8

11 STATEMENT OF NET ASSETS December 31, 2011 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,075,880 Cash - restricted 424,801 Accounts receivable - tenants 3,083 Accounts receivable - HUD 87,655 Accounts receivable - other 55,738 Accounts receivable - Oak Park Residence Corporation 7,848 Prepaid expenses 7,234 Prepaid insurance 7,584 Total current assets 1,669,823 CAPITAL ASSETS Land and land improvements 953,846 Modernization costs 6,322,898 Structures and equipment 6,603,762 13,880,506 Less accumulated depreciation 4,636,615 Total capital assets 9,243,891 TOTAL ASSETS $ 10,913,714 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable - trade $ 163,850 Accounts payable - HUD 5,663 Security deposits and other liabilities 55,213 Current portion of long-term liabilities 27,209 Deferred revenue 5,198 Accrued liabilities 34,475 Total current liabilities 291,608 LONG-TERM LIABILITIES Notes and mortgage payable, less current portion 981,956 Accrued liabilities 76,525 Total long-term liabilities 1,058,481 Total liabilities 1,350,089 NET ASSETS Invested in capital assets, net of related debt 8,234,726 Restricted net assets 424,801 Unrestricted net assets 904,098 Total net assets 9,563,625 TOTAL LIABILITIES AND NET ASSETS $ 10,913,714 The accompanying notes are an integral part of the financial statements. 9

12 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year Ended December 31, 2011 OPERATING REVENUES Operating subsidy $ 435,054 Section 8 revenues 4,028,796 Rental income 566,622 Non-dwelling rental income 150,288 Ports-in income 579,482 Administrative fee revenues 433,736 Other revenues 39,230 Total operating revenues 6,233,208 OPERATING EXPENSES Administration 563,281 Tenant services 58,279 Utilities 135,167 Ordinary maintenance and operation 225,622 Protective services 11,454 Management fee 9,928 Financial 49,117 Real estate taxes 23,570 Insurance 89,789 General expense 192,345 Housing assistance payments 3,836,548 Ports-in housing assistance payments 579,482 Extraordinary maintenance 35,497 Total operating expenses 5,810,079 Operating income before depreciation 423,129 Depreciation 378,104 Total operating income 45,025 NON-OPERATING REVENUES Interest on general fund investment 1,338 Income before capital grant 46,363 Capital grants 410,463 CHANGE IN NET ASSETS 456,826 NET ASSETS, BEGINNING OF YEAR 9,106,799 NET ASSETS, END OF YEAR $ 9,563,625 The accompanying notes are an integral part of the financial statements. 10

13 STATEMENT OF CASH FLOWS Year Ended December 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from HUD $ 4,747,924 Cash received from tenants 712,406 Cash received from others 472,966 Cash paid for administrative and general (728,422) Cash paid for housing, operating and tenant services (640,152) Cash paid for housing assistance payments (4,416,030) Net cash provided by operating activities 148,692 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of land, structures and equipment (446,612) Net payments on transactions with related parties (15,341) Capital grants 322,808 Principal payments on mortgages payable (26,332) Net cash used in capital and related financing activities (165,477) CASH FLOWS FROM INVESTING ACTIVITIES Interest income 1,338 DECREASE IN CASH AND CASH EQUIVALENTS (15,447) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,091,327 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,075,880 CASH FLOWS FROM OPERATING ACTIVITIES Operating income $ 45,025 Adjustments to reconcile cash and cash equivalents provided by operating activities: Depreciation 378,104 Effects of changes in operating assets and liabilities: Restricted assets (274,392) Accounts receivable 2,595 Prepaid expenses 3,422 Accounts payable (13,343) Security deposits and other liabilities (357) Deferred revenue (1,471) Accrued liabilities 9,109 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 148,692 The accompanying notes are an integral part of the financial statements. 11

14 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Housing Authority of the Village of Oak Park, (the Authority ) was organized pursuant to Housing Statutes of the State of Illinois. The Authority's purpose is to provide low-income housing for residents of the Village of Oak Park, Illinois. The Authority provides rental support to 681 apartment units under its management. The financial statements include the PHA-owned housing program under annual contributions contract C-1002 and the Housing Choice Voucher Program, as authorized under Section 8 of the Housing and Community Development Act of 1974 and as funded under annual contributions contracts IL-103-VO and IL-103-DV. Significant accounting policies followed by the Authority are presented below. Summary of HUD Programs The accompanying basic financial statements include the activities of several housing programs subsidized by HUD at the Authority. A summary of each significant program is provided below. Low Rent Public Housing - The Authority owns, operates and maintains a 198-unit Public Housing property in the Village of Oak Park, Mills Park Tower. Under the Low Rent Housing Assistance Program, low-income tenants pay reduced monthly rents, which are determined by their need for assistance (calculated as a percentage of family income, adjusted for family composition and other allowances). Funding of the program operations and development is provided by tenant rentals, federal annual contributions, operating subsidies, and various other HUD related grants. Capital Fund Programs - Funds from the capital fund programs provided by HUD are used to maintain and improve the Public Housing portfolio. Substantially all additions to land, structures and equipment for these properties are accomplished through the capital grant funds. Housing Choice Voucher Program - Section 8 of the Housing and Community Development Act of 1974, provides Housing Assistance Payments on behalf of lower-income families to participating housing owners. Under this program, the landlord-tenant relationship is between a housing owner and a family, rather than the Authority and a family as in the Public Housing Program. HUD contracts with the Authority to enter into contracts with owners to either make assistance payments or to pay the difference between the approved contract rent and the actual rent paid by the lower-income families. Housing Assistance Payments made to landlords and some participants are funded through federal housing assistance contributions from HUD. Reporting Entity The accompanying basic financial statements include the accounts of all Authority operations. The Authority is the lowest level of government over which the Authority s commission and executive director exercise oversight responsibility. These statements do not include any City agencies and the Authority is not a component unit of the City under the definition of GASB

15 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Reporting Entity (continued) The Authority has one blended component unit. The component unit, Oak Park Housing Development Corporation, has no assets or liabilities at December 31, Accounting Method The Authority maintains its accounting records using the accrual method of accounting. Description of Funds The Authority s accounts are maintained in accordance with the principles of enterprise fund accounting to ensure the observance of limitations and restrictions on the resources available. Enterprise funds may elect to apply either Governmental Accounting Standards Board (GASB) or Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, if such standards are not in conflict. The Authority has elected not to apply FASB pronouncements issued after November 30, Budgets Budgets are prepared on an annual basis for each program and are used as a management tool throughout the accounting cycle. Budgets are not, however, legally adopted nor required in the basic financial statement presentation. Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist primarily of cash on deposit, certificates of deposit, money market accounts, and investment grade commercial paper that are readily convertible into cash and purchased with original maturities of three months or less. Restricted Cash The Authority's restricted cash balances are reported as "restricted" when the balances are not available for appropriation or expenditure or because they are legally segregated for a specific future use. Restricted cash and escrow accounts are not considered cash equivalents. Restricted cash as of December 31, 2011 consists of Section 8 HAP equity. 13

16 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts Receivable, net Accounts receivable consist of revenues earned during the fiscal year and not yet received. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management s assessment of the collectability of specific tenant accounts and amounts due from HUD and the aging of the accounts receivable. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts. The Authority considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be written off when that determination is made. Capital Assets Capital assets for the PHA-owned housing program, Section 8 housing assistance programs, and the office building that cost $500 or more are recorded at cost and depreciated under the straight-line method. Contributed assets are recorded at fair market value at the date of contribution. Repairs and maintenance are recorded as expenses; renewals and betterments are capitalized. The useful lives for purposes of computing depreciation are: Buildings Land improvements Building improvements Furniture and equipment 40 years 40 years 20 to 40 years 5 to 15 years All costs incurred in connection with the acquisition of the property, including interest and real estate taxes during the period of rehabilitation, are capitalized. Compensated Absences It is the Authority s policy to permit full-time employees to accumulate earned but unused vacation benefits, based on tenure with the Authority. In accordance with the provisions of GASB Statement No. 16, Accounting for Compensated Absences, the estimated liability for vested leave benefits is recorded when it is earned as an expense; the cumulative unpaid amount is reported as a current liability. 14

17 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net Assets Certain assets including cash and investments may be classified as restricted net assets on the Statement of Net Assets because their use is restricted for specific purposes. It is the Authority s policy to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. The Authority's net assets are divided into three components: Invested in capital assets, net of related debt - consists of the historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets. Restricted net assets - consists of net assets that are restricted by the Authority's creditors (for example, through debt covenants) by the state enabling legislation (through restrictions on shared revenues), by grantors (both federal and state), and by other contributors. Unrestricted net assets - all other net assets are reported in this category. Income Taxes The Authority qualifies as a tax-exempt governmental entity, accordingly, no provision for federal or state income tax is required. The Authority is not subject to federal or state income taxes nor is it required to file federal and state income tax returns. Subsidies Subsidies received from the Department of Housing and Urban Development or other grantor agencies, whether for capital expenditures or operating purposes, are recorded as income. NOTE 2 - CONCENTRATIONS OF CREDIT RISK The Authority maintains its cash in bank deposit accounts which, at times, may exceed the federally insured limit of $250,000. The Authority has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. The only bank accounts that exceed Federal Deposit Insurance Corporation limits are deposits at JPMorgan Chase Bank. The Authority has entered into an agreement with JPMorgan Chase Bank whereby any amounts that exceed federally insured limits will be collateralized by the bank using U.S. Government or Agency securities. 15

18 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 3 - CAPITAL ASSETS A summary of the Authority's capital assets for the year ended December 31, 2011 follows: Beginning Balance Increases Decreases Ending Balance Capital assets, not being depreciated: Land $ 914,000 $ - $ - $ 914,000 Capital assets being depreciated: Buildings 5,955, ,036-6,066,738 Modernization costs 5,911, ,411-6,322,898 Land improvements 39, ,846 Furniture and equipment 525,204 11, ,024 Total capital assets being depreciated 12,432, ,267-12,966,506 Less accumulated depreciation for: Buildings 2,105, ,394-2,285,915 Modernization costs 1,713, ,248-1,897,485 Land improvements 9,073 1,381-10,454 Furniture and equipment 430,680 12, ,761 Total accumulated depreciation 4,258, ,104-4,636,615 Total capital assets, being depreciated, net 8,173, ,163-8,329,891 Total capital assets, net $ 9,087,728 $ 156,163 $ - $ 9,243,891 16

19 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 4 - DEBT Long-term debt consists of the following: Beginning Balance Increases Decreases Ending Balance Mortgage payable, secured by the office building property, monthly payments are $5,198, which includes interest at a variable rate of 5.04% at December 31, 2008 which is subject to change every five years. Final payment is due June 29, $ 810,311 $ - $ 22,042 $ 788,269 Mortgage payable, secured by the 324 N. Austin Ave. property, monthly payments are $1,089, which includes interest at 5.00%, final balloon payment of $165,147 due June ,186-4, ,896 Acquisition loan payable to the Village of Oak Park for the property at 324 N. Austin Ave., secured by that property, due upon the earlier of the sale of the property or June 16, 2023, with no interest. 50, ,000 Total $1,035,497 $ - $ 26,332 1,009,165 Less current portion 27,209 Long-term debt $ 981,956 17

20 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 4 - DEBT (continued) At December 31, 2011, the aggregate maturities of the mortgages payable for the succeeding years are as follows: Principal Interest Total 2012 $ 27,209 $ 48,239 $ 75, ,954 43, , ,938 37,438 62, ,225 36,151 62, ,577 34,799 62, , , , , , , ,810 46, , ,996 1,191 31,187 Total $ 1,009,165 $ 503,652 $ 1,512,817 NOTE 5 - ANNUAL SUBSIDIES Annual subsidies are received from the federal government for the operations of the PHAowned housing program. Operating Subsidies Operating subsidies approved for the operations of owned housing were $435,054 for the year ended December 31, Section 8 Housing Assistance The annual contributions for the Section 8 programs are as follows: IL-103-VO IL-103-DV Total Housing assistance payments $ 3,659,632 $ 367,964 $ 4,027,596 Administrative fees 384,517 49, ,736 Hard to house fees Independent public accountant audit costs Totals $ 4,044,149 $ 418,383 $ 4,462,532 18

21 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 6 - RENTAL INCOME The Authority signed a lease agreement dated September 1, 2005 with Catholic Charities of Chicago. The lease is for five years and requires minimum monthly rent payments of $2,083, increasing to $2,345 in year five of the lease. Beginning July 1, 2010, the lease has been extended for an additional 10 years, with an initial base rent of $2,974, increasing by 3% annually on the lease anniversary date. The Authority is responsible for payment of all real estate taxes, if any, utilities, insurance and required repairs. Rental income for the year ended December 31, 2011 was $36,228. The Authority signed a lease agreement with Heartland Health Outreach, formerly Vital Bridges NFP, Inc., for the property at 324 N. Austin Ave. The lease was for five years, expiring on December 31, 2011, and required minimum monthly rent payments of $2,500 with annual increases every May 1st. On January 1, 2012, the lease was been extended through December 31, The Authority is responsible for payment of real estate taxes and required repairs. Rental income for the year ended December 31, 2011 was $39,900. The Authority leases antenna space on one of its buildings under an operating lease with Sparkplug Central, Inc. The original lease commenced September 1997 and renewed on July 18, The renewed lease is for five years and requires minimum annual rent payments of $6,000. Rental income for the year ended December 31, 2011 was $6,000. The Authority leases the Mills Park Tower living room annex under an operating lease with Atrium Healthcare Services, LLC. The purpose of the lease is for Atrium to operate its home care services to the Mills Park Tower tenants. The lease began on February 1, 2010 and lasts for a period of three years. The lease requires minimum monthly rent payments with annual increases every February 1st. The Authority is responsible for payment of real estate taxes and required repairs. Rental income for the year ended December 31, 2011 was $9,864. The Authority is the lessor of dwelling units to low-income residents of Mills Park Tower. The rents under the leases are determined generally by the resident's income as adjusted for eligible deductions regulated by HUD, although the resident may opt for a flat rent. Leases may be cancelled by the lessee at any time or renewed every year. The Authority may cancel the leases only for cause. Revenues associated with these leases are recorded in the accompanying financial statements and related schedules within tenant revenue. Primarily all of the capital assets of the Authority are for these leasing activities except for administrative offices and equipment. 19

22 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 6 - RENTAL INCOME (continued) Future minimum rental income under these leases (including the Authority's lease with related party in Note 9) are as follows: 2012 $ 205, , , , ,998 Thereafter 156,992 Total $ 846,663 NOTE 7 - PAYMENTS IN LIEU OF TAXES Payments in lieu of taxes are paid to the Village of Oak Park for the Mills Park Tower and 324 N. Austin properties, based upon a specific formula set out in the Cooperation Agreement between the Authority and the Village. The amounts accrued at December 31, 2011 are included in long-term accrued liabilities. A summary of changes is as follows: Beginning Balance Increases Decreases Ending Balance Mills Park Tower $ 66,179 $ 19,578 $ (18,861) $ 66, N. Austin 7,572 3,992 (1,935) 9,629 Total $ 73,751 $ 23,570 $ (20,796) $ 76,525 NOTE 8 - PENSION PLAN Plan Description The Authority's defined benefit pension plan for regular employees provides retirement and disability benefits, postretirement increases, and death benefits to plan members and beneficiaries. The employer plan is affiliated with the Illinois Municipal Retirement Fund (IMRF), an agent multiple-employer plan. Benefit provisions are established by statute and may only be changed by the General Assembly of the State of Illinois. IMRF issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained on-line at 20

23 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 8 - PENSION PLAN (continued) Funding Policy As set by statute, the employer regular plan members are required to contribute 4.50% of their annual covered salary. The statute requires employers to contribute the amount necessary, in addition to member contributions, to finance the retirement coverage of its own employees. The employer annual required contribution rate for calendar year 2011 was 4.54%. The employer also contributes for disability benefits, death benefits and supplemental retirement benefits, all of which are pooled at the IMRF level. Contribution rates for disability and death benefits are set by the IMRF Board of Trustees, while the supplemental retirement benefits rate is set by statute. Annual Pension Cost For 2011, the Authority's annual pension cost of $4,782 for the regular plan was equal to the employer's required and actual contributions. Fiscal Year Ending Three-Year Trend Information for the Regular Plan Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation 12/31/11 $ 4, % $ - 12/31/10 5, % - 12/31/09 1, % - 12/31/08 1, % - The required contribution for 2011 was determined as part of the December 31, 2009, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions at December 31, 2009, included: (a) 7.5% investment rate of return (net of administrative and direct investment expenses), (b) projected salary increases of 4.0% a year, attributable to inflation, (c) additional projected salary increases ranging from 0.4% to 10.0% per year depending on age and service, attributable to seniority/merit, and (d) postretirement benefit increases of 3% annually. The actuarial value of the employer plan assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period with a 20% corridor between the actuarial and market value of assets. The employer regular plan's over funded actuarial accrued liability at December 31, 2009 is being amortized as a level percentage of projected payrolls on an open 30-year basis. 21

24 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 8 - PENSION PLAN (continued) Funded Status and Funding Progress As of December 31, 2011, the most recent actuarial valuation date, the regular plan was % funded. The actuarial accrued liability for benefits was $231,388, and the actuarial value of assets was $268,676, resulting in an over funded actuarial accrued liability (UAAL) of $37,288. The covered payroll for 2011 (annual payroll of active employees covered by the plan) was $105,325. Because the plan is overfunded, there is no ratio of the UAAL to the covered payroll. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. NOTE 9 - RELATED PARTY TRANSACTIONS The Authority shares common administrative offices and staff with the Oak Park Residence Corporation. Administrative salaries and employee benefits are allocated to individual programs based on usage of personnel. These financial statements reflect the following items from the previously mentioned affiliated company at December 31, 2011: Statement of Financial Position: C-1002 (MPT) Accounts receivable - Oak Park Residence Corporation $ 5,998 IL-103-VO (Voucher) Accounts receivable - Oak Park Residence Corporation 1,850 Total accounts receivable $ 7,848 Statement of Activities and Changes in Net Assets: Payments to the office building for office rent and reimbursements: Oak Park Residence Corporation $ 108,060 In addition to the amounts above, the Office Building has a balance due to Oak Park Residence Corporation of $1,005 at December 31, This amount is included in Security deposits and other liabilities on the Statement of Net Assets. 22

25 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 9 - RELATED PARTY TRANSACTIONS The Authority's lease agreement with the Oak Park Residence Corporation was renewed on January 1, 2010 for an additional five years with a monthly base rent of $9,860 that is increased 3% each year after During 2010, there was a lease amendment that changed the allocation of space at the office building. Commencing on July 1, 2010, the amount of office space allocated to the Oak Park Residence Corporation decreased from 10,841 to 9,901 square feet. Accordingly, the rent for the office space decreased to $9,005 for the remainder of 2010 and The rental income was $108,060 for the year ended December 31, Beginning in 2012, the rent payments increase 3% each year until the lease term ends in Future minimum rental income under this lease is as follows: 2012 $ 111, , ,080 Total $ 344,023 Payments to Oak Park Residence Corporation: Allocation of administration salaries, employee benefits and other reimbursements are as follows: C-1002 (MPT) IL-103-VO Voucher Office Building Total Salaries $ 196,202 $ 240,052 $ - $ 436,254 Employee benefits 81,349 98, ,630 Rent 3,956 32,741-36,697 Utilities 3,848 5,647-9,495 Computer expense 1,629 6,165-7,794 Office supplies Postage 1,266 6,213-7,479 Telephone 1,023 4,521-5,544 Office equipment 4,209 5,000-9,209 Management fees - - 9,928 9,928 Totals $ 294,107 $ 398,973 $ 9,928 $ 703,008 Housing assistance payments made by the Authority to buildings owned by Oak Park Residence Corporation $ 673,910 23

26 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 10 - RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; theft of, damages to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. As part of the Authority's risk management program, certain commercial insurance policies are purchased. There were no significant reductions of insurance coverage from prior years and actual settlements did not exceed insurance coverage for each of the past three years. NOTE 11 - COMMITMENTS AND CONTINGENCIES Grants and Contracts The Authority participates in various federally-assisted grant programs that are subject to review and audit by the grantor agencies. Entitlement to these resources is generally conditional upon compliance with the terms and conditions of grant agreements and applicable federal regulations, including the expenditure of resources for allowable purposes. Any disallowance resulting from a federal audit may become a liability of the Authority. As of the date of this report, management is not aware of any such disallowance. The Authority operates in a heavily regulated environment. The operations of the Authority are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related costs and the additional administrative burden to comply with the changes. NOTE 12 - FINANCIAL DATA SCHEDULE As required by HUD, the Authority prepares its financial data schedule in accordance with HUD requirements in a prescribed format. The schedule's format excludes depreciation expense, housing assistance payments and extraordinary maintenance expenses from operating activities, includes investment revenue, HUD capital grants revenue, gains and losses on the disposal of fixed assets and interest expense in operating activities, and reflects tenant revenue and bad debt expense separately, which differs from the presentation of the basic financial statements. 24

27 NOTES TO FINANCIAL STATEMENTS December 31, 2011 NOTE 13 - CASH FLOW DISCLOSURES Cash paid for interest was $49,425 for the year ended December 31, There was no cash paid for taxes during the year ended December 31, During the year ended December 31, 2011, the Authority incurred costs for kitchen modernizations of $87,655 that are included in accounts payable at year end. These costs will be paid with Capital Fund monies that were not yet received as of December 31, NOTE 14 - SUBSEQUENT EVENTS Management evaluated subsequent events through September 24, 2012, the date the financial statements were available to be issued. Events or transactions occurring after December 31, 2011 but prior to September 24, 2012, that provided additional evidence about conditions that existed at December 31, 2011, have been recognized in the financial statements for the year ended December 31, Events or transactions that provided evidence about conditions that did not exist at December 31, 2011, but arose before the financial statements were available to be issued have not been recognized in the financial statements for the year ended December 31, This information is an integral part of the accompanying financial statements. 25

28 REQUIRED SUPPLEMENTARY INFORMATION 26

29 SCHEDULE OF FUNDING PROGRESS December 31, 2011 Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) Entry Age (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) Covered Payroll (c) UUAL as a Percentage of Covered Payroll ((b-a)/c) 12/31/11 $268,676 $231,388 $ (37,288) $105, % 12/31/10 256, ,660 (46,470) , % 12/31/09 230, ,210 (42,113) , % On a market value basis, the actuarial value of assets as of December 31, 2011 is $254,876. On a market basis, the funded ratio would be %. 27

30 SUPPLEMENTARY INFORMATION 28

31 COMBINING SCHEDULE OF NET ASSETS December 31, 2011 ASSETS (MPT) (Voucher) Office C-1002 IL-103-VO Building Eliminations Total CURRENT ASSETS Cash and cash equivalents $ 705,022 $ 136,156 $ 234,702 $ - $ 1,075,880 Cash - restricted - 424, ,801 Accounts receivable - tenants 3, ,083 Accounts receivable - HUD 87, ,655 Accounts receivable - other , ,738 Accounts receivable - Oak Park Residence Corporation 5,998 1, ,848 Prepaid expenses 5,464-1,770-7,234 Prepaid insurance 6, ,584 Total current assets 813, , ,214-1,669,823 CAPITAL ASSETS Land and land improvements 853, , ,846 Modernization costs 6,322, ,322,898 Structures and equipment 4,741,199 57,475 1,805,088-6,603,762 11,917,943 57,475 1,905,088-13,880,506 Less accumulated depreciation 3,675,663 46, ,524-4,636,615 Total capital assets 8,242,280 11, ,564-9,243,891 OTHER ASSETS Accounts receivable - Housing Authority of the Village of Oak Park 359, (359,735) - TOTAL ASSETS $ 9,415,129 $ 629,947 $ 1,228,373 $ (359,735) $ 10,913,714 29