Housing Authority of the City of Odessa, Texas. Financial Report September 30, 2016

Transcription

1 Housing Authority of the City of Odessa, Texas Financial Report September 30, 2016

2 C O N T E N T S Page Independent Auditor's Report... 1 Management s Discussion and Analysis... 4 Financial Statements Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to Financial Statements Supplemental Data Financial Data Schedules 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 a Federal Program and Report on Internal Control Over Compliance in Accordance with the Uniform Guidance Schedule of Expenditures of Federal Awards Note to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Status of Prior Year Findings... 44

3 Independent Auditor s Report Board of Commissioners Housing Authority of the City of Odessa, Texas Odessa, Texas Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Housing Authority of the City of Odessa, Texas, (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 the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 400 WEST ILLINOIS, SUITE 1550, MIDLAND, TX P: F:

4 Board of Commissioners Housing Authority of the City of Odessa, Texas Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the Authority, as of September 30, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 4 10 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the Authority s basic financial statements. The accompanying financial data schedules shown on pages are presented for purposes of additional analysis and as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, 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 Title 2 U.S. Code of Federal Regulations CFR Part 200, Uniform Administration Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and is also presented for purposes of additional analysis and is not a required part of the basic financial statements. The financial data schedules, 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. 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 financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the financial data schedules and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. 2

5 Board of Commissioners Housing Authority of the City of Odessa, Texas Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 27, 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, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority s internal control over financial reporting and compliance. WEAVER AND TIDWELL, L.L.P. Midland, Texas April 27,

6 Management s Discussion and Analysis September 30, 2016 As management of the Housing Authority of the City of Odessa, Texas (the Authority), we offer readers of the Authority s financial statements this overview and analysis of the financial activities of the Authority for the year ended September 30, The management s discussion and analysis (MD&A) should be read in conjunction with the accompanying basic financial statements and the accompanying notes to those financial statements. Overview of the Housing Authority of the City of Odessa, Texas The Authority is a municipal housing authority organized under the laws of the state of Texas (Chapter 392 of the Texas Local Government Code) and by a resolution of the City Council of the City of Odessa, Texas. The Authority s purpose is to provide and promote safe and sanitary housing for lowincome persons residing in Odessa, Texas. A five-member Board of Commissioners (the Board), appointed by the City Council of the City of Odessa, Texas, governs the Authority. Highlights The Authority s efforts have centered on modernizing its inventory, creating new affordable housing communities, and redeveloping large, dilapidated public housing sites into modern, higher density, mixed income housing, financed through the use of federal, state and city funding; and private equity raised utilizing low-income housing tax credits. In order to further these efforts, the Authority will continue to apply for affordable housing grants as well as look outside of the normal Government funding (tax credit, bonds, etc.) whenever they are available. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Authority s basic financial statements. The Authority s basic financial statements are comprised of two components: (1) basic financial statements, and (2) notes to financial statements. The basic financial statements include the operations of the Authority and its blended component units. Basic Financial Statements The authority-wide financial statements are designed to be corporate-like in that all business type activities are consolidated into a column, which adds to a total for the entire Authority. The Statement of Net Position includes all of the Authority s assets and liabilities and provides information about the amounts and investments in assets and the obligations to the Authority s creditors. It also provides a basis of assessing the liquidity and financial flexibility of the Authority. The Statement of Revenues, Expenses and Changes in Net Position presents operating revenues and expenses, and non-operating revenue and expenses. The focus of the statement of revenue, expenses and changes in net position is the change in net position, which is similar to net income or loss. The Statement of Cash Flows provides information about the Authority s cash receipts, cash payments and changes in cash resulting from operations, non-capital financing, capital and related financing and investing activities. From the statement of cash flows, the reader can obtain information on the source and use of cash and the change in the cash and cash equivalents balance during the current fiscal year. 4

7 The Authority s Major Funds Housing Authority of the City of Odessa, Texas Management s Discussion and Analysis September 30, 2016 The Authority operates the following programs: Housing Choice Voucher Program a HUD-funded program, which provides rent subsidies to families residing in privately-owned rental properties. Capital Improvement Programs HUD-funded programs that include the Capital Fund Program and the Capital Fund Financing Program, which provide funds for new construction and the rehabilitation of existing housing units. Public Housing Program a HUD-funded program. Under this program, the Authority manages and maintains more than 73 public housing rental units for eligible low-income families. Section 8 New Construction HUD funded program. Under this program, the Authority manages 108 rental units for eligible seniors and people with disabilities. State and Local Program an Independent program. Under this program, the Authority oversees and manages all programs. Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the fund financial statements. The notes to the financial statements begin on page 16 of this report. Financial Analysis General Over time, net position may serve as a useful indicator of a government s financial position. During the current year, the Authority s assets exceeded liabilities by $5,753,665. The Authority s investment in capital assets (e.g., land, building and improvements, furniture and equipment) less related accumulated depreciation is 45.9% of net position. The Authority uses these capital assets to provide services and housing to its clients. Consequently, these assets are not available for future spending. Restricted net position represents amounts that may only be spent in accordance with grant requirements. Restricted net position totaled $57,098 or.9% of total net position. 5

8 Management s Discussion and Analysis September 30, 2016 Presented below is the Authority s Condensed Net Position for fiscal year 2016 compared to fiscal year The statement reflects the economic resources of the Authority, as well as its economic obligations at the end of the fiscal years shown. This information reflects the financial condition of the Authority on an accrual basis Variance % Change Assets Current assets $ 2,078,127 $ 2,197,292 $ (119,165) -5.42% Capital assets 2,657,998 2,626,338 31, % Other noncurrent assets 1,193,284 1,244,085 (50,801) -4.08% Total assets $ 5,929,409 $ 6,067,715 $ (138,306) -2.28% Liabilities and Net Position Current liabilities $ 123,119 $ 309,150 $ (186,031) % Noncurrent liabilities 52,625 39,037 13, % Total liabilities 175, ,187 (172,443) % Net Position Investment in capital assets 2,657,998 2,626,337 31, % Restricted net position 57,098 51,342 5, % Unrestricted net position 3,038,569 3,041,849 (3,280) -0.11% Total net position 5,753,665 5,719,528 34, % Total Liabilities and Net Position $ 5,929,409 $ 6,067,715 $ (138,306) -2.28% Current Assets and Current Liabilities Condensed Net Position During 2016, current assets decreased by $119,165 or 5.42%, due primarily to a decrease in cash and federal dollars in transit at year-end. Other non-current assets decreased by $50,801 or 4.08%, due primarily to a decrease in non-current accounts receivable. Net capital assets increased $31,660 or 1.21% in 2016 compared to This increase is attributable to a small amount of assets being purchased in 2016 and the depreciation remaining relatively the same as Current liabilities decreased by $186,031 or 60.17% in 2016 compared to 2015 due to less services accrued for near yearend. Noncurrent liabilities increased by $13,588 or 34.81%. 6

9 Management s Discussion and Analysis September 30, 2016 Revenue, Expenses, and Changes in Net Position Presented below is the condensed revenue, expenses, and changes in net position information for 2016 compared to The information reflects the results of operations for the entity and displays the sources of revenue, the nature of expenses for the year, and the resulting change in net position. All of the current year s revenue and expenses are accounted for on an accrual basis. Condensed Revenues, Expenses, and Changes in Net Position Variance % Change Operating revenues: Tenant $ 351,368 $ 346,051 $ 5, % Operating grants 7,443,764 7,385,870 57, % Other income 307, , , % Total operating revenues 8,102,337 7,929, , % Operating expenses: Administrative salaries and related benefits 1,089, , , % General 581, ,279 (134,917) % Housing assistance program 6,269,537 6,017, , % Program and capital expense 102, , % Depreciation 118, ,925 1, % Other general expense 142,405 11, , % Total operating expenses 8,303,813 7,821, , % Operating (loss) income (201,476) 107,815 (309,291) % Nonoperating revenue: Interest income 65,613 89,315 (23,702) % Incentive management fee (OSHP I) 170,000 80,000 90, % Total nonperating revenue 235, ,315 66, % Change in net position 34, ,130 (242,993) % Net position, beginning of year 5,719,528 5,442, , % Net position, end of year $ 5,753,665 $ 5,719,528 $ 34, % 7

10 Management s Discussion and Analysis September 30, 2016 Operating Revenue and Expenses Operating revenues increased by $172,565 or 2.18% over the previous year, while operating expenses also increased by $481,856 or 6.16%. The primary source of revenue, other than HUD funding, is rental income, which increased by $5,317 or 1.54% over the prior year due to the current economic stability of the region. The primary reason for the increase of $481,856 or 6.16% in operating expenses was an increase in housing assistance payments. This increase is in line with the increase in revenue and HUD funding. Revenue by Source - Business -Type Activities Variance % Change Dwelling rentals $ 351,368 $ 346,051 $ 5, % Program grants 7,443,764 7,385,870 57, % Interest income 65,613 89,315 (23,702) % Other revenue 477, , , % Total revenue $ 8,337,950 $ 8,099,087 $ 238, % Expenses by Use - Business -Type Activities Variance % Change Administrative $ 1,089,078 $ 959,578 $ 129, % General 581, ,279 (134,917) % Housing assistance payments 6,269,537 6,017, , % Program and capital expense 102, , % Depreciation 118, ,925 1, % Other general expenses 142,405 11, , % Total expenses 8,303,813 7,821, , % Change in net position 34, ,130 (242,993) % Net position - beginning of year 5,719,528 5,442, , % Net position - end of year $ 5,753,665 $ 5,719,528 $ 34, % Net Position The change in net position from 2015 to 2016 was a decrease of $242,993 or 87.68% from the prior year. The Authority s net position was $5,753,665 at September 30, 2016 and is comprised of investment in capital assets of $2,657,998, restricted net position of $57,098 and unrestricted net position of $3,038,569. The balance in unrestricted net position represents resources available to meet the Authority s ongoing obligation to tenants, citizens, and creditors. 8

11 Capital Assets Net Capital Assets Housing Authority of the City of Odessa, Texas Management s Discussion and Analysis September 30, 2016 At the end of fiscal year 2016, the Authority had invested $2,657,998 in a broad range of capital assets, including land, buildings and improvements, furniture, equipment, and construction in progress. The schedule below reflects the changes in capital assets, net of depreciation, during fiscal year Authority's Capital Assets (Net of Depreciation) Variance % Change Land $ 780,620 $ 780,621 $ (1) 0.00% Building and improvements 7,411,878 7,143, , % Furniture and equipment 763, ,108 (18,425) -2.36% Construction in progress - 152,898 (152,898) % Accumulated depreciation (6,298,183) (6,233,138) (65,045) 1.04% Capital assets $ 2,657,998 $ 2,626,338 $ 31, % Net capital assets increased by $31,660 or 1.21% in Additions totaled $302,903 while depreciation totaled $118,449. The majority of the additions are attributed to the purchase of equipment and construction finished on various repair of the Third Edition Apartments. Additional information on the Authority s capital assets can be found in Note 11 on page 23 of this report. Economic Factors and Events Affecting the Operation of the Housing Authority of the City of Odessa Texas: Several factors have affected the financial position of the Authority in the current fiscal year which includes but is not limited to the following: Budgeted federal dollars for the Housing Authority has continued to decrease due to the nation s economic financial condition which has resulted in decreased HAP s & Operating Subsidy Funding. As a result of the reductions, we have had to use funds from HUD Held HAP s due to the rising cost of rents in the area. In addition to the above, because of the continued proration of the Housing Choice Voucher Administrative Fees we have not hired any new staff and will continue to allow attrition to run its course. At this point in 2017, the market has softened, the fair market rents have changed (all areas) and the local market rents have decreased. But in spite of the market, we will continue to assist families as funding will allow. Also, for the current fiscal year, the Authority has once again achieved High Performer Ratings for the both Housing Choice Voucher and Public Housing Programs. Due to the Contingency Resolution from HUD, it is unknown what the financial condition will be and therefore we cannot project future program revenues. 9

12 Requests for Information Housing Authority of the City of Odessa, Texas Management s Discussion and Analysis September 30, 2016 This financial report is designed to provide a general overview of the Authority s finances for all those with an interest in the entity s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the individuals listed below. Bernadine H. Spears Andrew Laabs Executive Director Finance Director Housing Authority of the City of Odessa Housing Authority of the City of Odessa 124 East 2 nd Street 124 East 2 nd Street Odessa, Texas Odessa, Texas bernie@odessahatx.com andrew@odessahatx.com Dora Rivera Section 8 Homeownership Director Housing Authority of the City of Odessa 124 East 2 nd Street Odessa, Texas dora@odessahatx.com 10

13 Financial Statements

14 Statement of Net Position September 30, 2016 ASSETS CURRENT ASSETS Cash and cash equivalents Unrestricted $ 1,961,920 Restricted 101,016 Total cash and cash equivalents 2,062,936 Receivables Tenant 708 Note-current portion 12,506 Prepaid items and other current assets 1,977 Total current assets 2,078,127 CAPITAL ASSETS Land 780,620 Buildings and improvements 7,411,878 Furniture and equipment 763,683 Total capital assets 8,956,181 Less accumulated depreciation 6,298,183 Net capital assets 2,657,998 OTHER NONCURRENT ASSETS Note receivable-affiliate (OSHPII), less current portion 1,116,380 Other receivable-affiliate (OSHPII), net 76,904 Total other noncurrent assets 1,193,284 TOTAL ASSETS $ 5,929,409 The Notes to Financial Statements are an integral part of this statement. 11

15 LIABILITIES AND NET POSITION CURRENT LIABILITIES Accounts payable $ 39,655 Accrued liabilities 43,975 Tenant security deposits 39,489 Total current liabilities 123,119 NONCURRENT LIABILITIES Other liabilities 52,625 Total liabilities 175,744 NET POSITION Invesment in capital assets 2,657,998 Restricted 57,098 Unrestricted 3,038,569 Total net position 5,753,665 TOTAL LIABILITIES AND NET POSITION $ 5,929,409 12

16 Statement of Revenues, Expenses and Changes in Net Position Year Ended September 30, 2016 OPERATING REVENUES Intergovernmental $ 6,858,872 Dwelling rentals 351,368 Administrative fees 584,892 Other operating income 307,205 Total operating revenues 8,102,337 OPERATING EXPENSES Administrative salaries 858,997 Employee benefits 230,081 General expenses 581,362 Housing assistance payments 6,269,537 Depreciation 118,449 Program and capital expenses 102,982 Other general expense 142,405 Total operating expenses 8,303,813 OPERATING LOSS (201,476) NONOPERATING REVENUES Incentive management fee (OSHP) 170,000 Interest income 65,613 Total nonoperating revenues 235,613 Change in net position 34,137 NET POSITION, beginning of year 5,719,528 NET POSITION, end of year $ 5,753,665 The Notes to Financial Statements are an integral part of this statement. 13

17 Statement of Cash Flows Year Ended September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from tenants $ 366,055 Cash received from HUD 7,597,655 Cash received from other 210,470 Cash payments to suppliers for goods and services (685,866) Cash payments to employees (1,122,273) Cash payments to HAPS (6,269,537) Net cash provided by operating activities 96,504 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (296,917) Net cash used in capital and related financing activities (296,917) CASH FLOWS FROM INVESTING ACTIVITIES Interest income 65,613 Cash received from Odessa Senior Housing Partnership, incentive 170,000 Cash received from Odessa Senior Housing Partnership, note receivable 11,899 Net cash provided by investing activities 247,512 Net change in cash 47,099 CASH AND CASH EQUIVALENTS, beginning of year 2,015,837 (Cash and cash equivalents includes $97,559 in restricted cash) CASH AND CASH EQUIVALENTS, end of year $ 2,062,936 (Cash and cash equivalents includes $101,016 in restricted cash) The Notes to Financial Statements are an integral part of this statement. 14

18 Statement of Cash Flows (Continued) Year Ended September 30, 2016 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating loss $ (201,476) Adjustments to reconcile operating loss to net cash provided by operating activities Depreciation 118,449 Change in operating assets and liabilities: Receivables - tenant 12,980 Receivables - HUD 153,891 Accounts payable 5,855 Accrued liabilities (46,783) Other liabilities 13,588 Tenant security deposits 1,707 Total adjustments 297,980 Net cash provided by operating activities $ 96,504 The Notes to Financial Statements are an integral part of this statement. 15

19 Notes to Financial Statements Note 1. Summary of Significant Accounting Policies Nature of Organization and Operations The Housing Authority of the City of Odessa, Texas (the Authority), was organized in accordance with the Authority of Article 1269K, Vernon's Texas Civil Statutes. It qualifies as a Public Housing Agency, and is authorized to transact business and exercise its powers pursuant to the "Housing Authority Law" of the state of Texas. The Authority provides housing to low-income tenants, subject to regulation by the United States Department of Housing and Urban Development (HUD) as to rental charges and operating methods. The Authority is also subject to Section 8 Housing Assistance Payments agreements with HUD. Substantially all of the Authority's revenues are received from HUD. The governing body of the Authority is the Board of Commissioners (Board) which consists of five members appointed by the City Council of the City of Odessa who have decision making authority. The Board appoints an Executive Director to administer the daily affairs of the Authority. The Authority is not considered a component unit of the City of Odessa, but the Authority has two component units as discussed below. The Authority's primary program is its Section 8 rent subsidy, which includes the Voucher and Landmark projects. The Authority's other program is Third Edition, a Public Housing project. Reporting Entity Accounting principles generally accepted in the United States of America require that these financial statements present the Authority (the primary government) and its component units. Component units generally are legally separate entities for which the primary government is considered to be financially accountable. Financial accountability ordinarily involves meeting both of the following criteria: the primary government is accountable for the potential component unit (i.e., the primary government appoints the voting majority of its board) and the primary government is able to impose its will upon the potential component unit, or there is a possibility that the potential component unit may provide specific financial benefits or impose specific financial burdens on the primary government. Additionally, the primary government may determine, in management s professional judgment, that the inclusion of an entity that does not meet the financial accountability criteria is necessary to prevent the reporting entity s financial statements from being misleading. Blended component units are, in substance, part of the primary government s operations, even though they are legally separate entities; and are appropriately presented as funds of the primary government. The Authority has been instrumental in the creation of four non-profit corporations. Two of these, the Odessa Housing Development Corporation No. 1 and the Odessa Housing Development Corporation No. 2 do not meet the qualifications necessary to be considered component units of the Authority. The other two, the Odessa Elderly Housing Corporation and the Odessa Creative Housing Solutions Corporation, are considered to be component units of the Authority as discussed below. 16

20 Notes to Financial Statements Individual Component Unit Disclosures Blended Component Units: 1. The Odessa Elderly Housing Corporation (OEHC) OEHC is a non-profit corporation created pursuant to the provisions of the Texas Non-Profit Corporation Act for the purpose of acting as the instrumentality of the Authority to acquire a housing project or projects. A majority of the Corporation s board is appointed by the Authority s board and the Authority s board can impose will. Additional information for this blended component unit is included in Note The Odessa Creative Housing Solutions Corporation (OCHSC) OCHSC is a non-profit corporation created pursuant to the provisions of the Texas Non-Profit Corporation Act for the purpose of providing affordable housing to persons of low and moderate income. Three of the five board members must be appointed from the Authority s Board of Directors. Additional information for this blended component unit is included in Note 6. Basis of Accounting The Authority s financial statements are presented on the full accrual basis in accordance with accounting principles generally accepted in the United States of America. Proprietary Fund Types Proprietary fund activities are accounted for on a flow of economic resources measurement focus and the accrual basis of accounting. This measurement focus includes all assets and liabilities on the statement of net position. Operating statements using this focus present a net total assets view of increases (revenues) and decreases (expenses) in the Authority. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. Operating expenses for the proprietary funds include the cost of personnel and contractual services, supplies and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expense. Transactions resulting in nonoperating revenues and expenses are normally created by such items as cash flows from capital and related financing activities, noncapital financing activities, investing activities, and include most nonexchange and exchange-like revenues. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 17

21 Notes to Financial Statements Cash and Cash Equivalents For purposes of the statements of cash flows, the Authority considers highly liquid debt instruments which have an original maturity of less than three months to be cash equivalents. The pledge of approved securities is waived only to the extent of the depository bank s dollar amount of Federal Deposit Insurance Corporation (FDIC) insurance. Restricted cash accounts are restricted for program specific expenses, tenant deposits and homeowner escrow funds. Notes Receivable Notes receivable is stated as the amount of unpaid principal, plus unpaid accrued interest, less an allowance for credit losses. The allowance, in the amount of $179,058 at September 30, 2016, is based on management s estimate of the amount necessary to absorb the loss on the loans. Management s estimate is based on estimated fair value of any underlying collateral, and current economic conditions that may affect the borrower s ability to repay. When management determines that it is probable that principal and interest on those loans will not be collected according to their contractual terms, the impairment of the loan is recognized in the allowance account based on the present value of expected future cash flows discounted at the loan s effective rate. Cash collections on loans that are impaired are credited to the loan receivable balance. Accrued unpaid interest is added to the balance annually. Property and Equipment Property and equipment are stated at cost and depreciation is recorded using the straight-line method. All items of equipment that cost more than $1,000 and have a useful life of more than one year are capitalized. Buildings and improvements Furniture and equipment years 5 years Net Position Net position represents the difference between assets and liabilities. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. The Authority did not have any borrowings or unspent proceeds at September 30, Net position is reported as restricted when there are limitations imposed on its use either through the enabling legislations adopted by the Authority or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. When an expense is incurred for purposes for which both restricted and unrestricted net position are available, restricted resources are applied first. 18

22 Notes to Financial Statements Note 2. Cash and Cash Equivalents Deposits State statutes require that all deposits in financial institutions including demand deposits, interest-bearing demand deposits, money market accounts, or time deposits with state banks organized under state law and national banks having their principal offices in the state be fully collateralized by U.S. Government Obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a major market value of not less than the principal s amount of the Deposits. The Authority s deposits were not fully insured or collateralized as required by state statutes at September 30, Of the carrying balance of $2,062,936 the Federal Depository Corporation (FDIC) covered $250,000 and $1,750,000 was covered by collateral held by the pledging bank s agent for the Authority in the Authority s name. At year-end, the bank amount of the Authority s deposits was $2,092,551, which includes $1,546,500 in a money market savings account and caused the Authority to be under collateralized by $92,551 at September 30, Governmental Accounting Standards Board (GASB) established and modified disclosure requirements related to investment risks: credit risks, custodial risk, interest rate risk and foreign currency risk. The Authority only holds funds in checking, CD and money market accounts at its depository bank. Investments State statutes and U.S. Department of Housing and Urban Development authorize the Authority s investments. The Authority is authorized to invest only in fully approved and fully collateralized by other approved investments which include U.S. Treasury and U.S. Agencies, commercial paper and repurchase agreements. The Authority is authorized to use demand accounts and certificates of deposit. Interest Rate Risk In compliance with the Authority s investment policy, as of September 30, 2016, the Authority minimized the interest rate risk related to the decline in market value of securities due to rising interest rates in the portfolio by: 1) limiting the elective duration of security types not to exceed two years, 2) monitoring credit ratings of portfolio positions to assure compliance with rating requirements imposed by the Public Funds Investment Act, however the Authority may not invest in the aggregate more than fifteen percent (15%) of its monthly average fund balance, excluding bond proceeds, reserves, and other funds held for debt service. Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Authority s investments are money market funds which are not insured or guaranteed by the FDIC or any other government agency. Although money market funds strive to preserve the value of the investment at $1 per share, it is possible to lose money by investing in a money market fund. As of September 30, 2016, the Authority had $1,546,500 invested in JP Morgan Chase Prime Money Market Funds. The Department of Housing and Urban Development requires that these funds be rated no less than AAA by a nationally recognized institution. The Authority s investments were rated AAAm. Note 3. Accrued Employee Benefits Payable Employees are granted vacation in varying amounts. In the event of termination, an employee is paid for accumulated vacation days up to 160 hours of vacation. Accumulated vacation pay is accrued and aggregates $39,340, including a current portion of $2,658, for employees of the Authority as of September 30, 2016, and is included in accrued and other liabilities. 19

23 Notes to Financial Statements Note 4. Commitments and Contingencies The Authority participates in numerous federal grant programs that are governed by various rules and regulations of the grantor agency. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agency; therefore, to the extent that the Authority has not complied with the rules and regulations governing the grants, if any, refunds of any money received may be required and the collectability of any related receivable at September 30, 2016, may be impaired. In the opinion of the Authority, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provisions has been recorded in the accompanying financial statements for such contingencies. Generally, unused balances are returned to the grantor at the close of specified project periods. Note 5. Retirement Benefits Effective February 1, 1990 the Authority adopted the Housing-Renewal and Local Agency Retirement Plan. All regular and full-time employees begin participating in the Plan on the first day of the month following their date of employment and after attaining age eighteen. All employees who were participants in the City of Odessa's plan are automatically participants in this plan. The plan is a defined contribution plan which requires contributions from the employer of 8.5% beginning February 1, The employees are required to contribute 6% of their compensation. Employees may elect to contribute amounts in excess of the 6% mandatory contribution. The total amount of voluntary employee contributions shall not exceed 10% of the total cash compensation paid to the employee during the period. Employee contributions to the plan are non-forfeitable and became effective April 1, Employees vest in the plan at a rate of 20% per each full year of employment. The normal retirement date for the plan is the first day of the month following or coincident with the participant's fifty-fifth birthday. The total assets of the plan held for the benefit of the plan participants as of September 30, 2016 were $1,956,635. Loan payments on the plan were $15,563, and the outstanding loan balance was $26,328 as of September 30, Actual contributions to the plan for the period which began October 1, 2015 and ended September 30, 2016 totaled $77,716. Note 6. Blended Component Units Odessa Elderly Housing Corporation As discussed in Note 1, the Odessa Elderly Housing Corporation (OEHC) is a component unit of the Authority. The Odessa Elderly Housing Corporation is the general partner in the Odessa Senior Housing Partnership Ltd. (OSHP), owner of Key West Senior Village, a low-income housing tax credit project. OEHC owns 0.01% of OSHP. OSHP and the transactions, balances, and guaranties existing between it and the Authority are discussed in Note 9. OEHC s operations and account balances as of and for the year ended September 30, 2016 contain no significant financial activity, and thus no financial information is included in the Authority s financial statements, except that during fiscal year 2016, OSHP paid an incentive management fee of $170,000 to OEHC which in turn paid these funds to OHA. The incentive management fee is recorded as nonoperating revenues in the statement of revenues, expenses and changes in net position. 20

24 Notes to Financial Statements Odessa Creative Housing Solutions Corporation As discussed in Note 1, the Odessa Creative Housing Solutions Corporation (OCHSC) is a non-profit corporation created in September of 2000 pursuant to the provisions of the Texas Non-Profit Act for the purpose of providing affordable housing to persons of low and moderate income. Three of the five board members must be appointed from the Authority s Board of Directors. OCHSC s operations and account balances as of and for the year ended September 30, 2016 contain no significant financial activity, and thus no financial information is included in the Authority s financial statements. Note 7. Flexible Benefit Plan The Authority established for their employees a Flexible Benefits Plan. This plan is intended to constitute a "cafeteria plan" under Section 125 of the Internal Revenue Code. The plan offers certain non-taxable insurance and medical benefits. All full-time employees older than 21 years of age and who normally work 30 or more hours per week are eligible to participate. The employer may at its sole discretion provide a non-elective contribution to provide benefits for each participant under the plan. Note 8. Risk Management The Government is exposed to various risks of loss related to torts; theft, damage, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority controls these risks through its membership in the Texas Municipal League Intergovernmental Risk Pool (TML), an intergovernmental risk pool whose members consist of over 1900 local government units in Texas. The Authority pays premiums to TML for its employees health and life insurance as well as its liability insurance coverage. The pool is self-sustaining through member premiums. At September 30, 2016, the Authority had no liability for any outstanding claims since all were fully covered by the risk pool. Note 9. Related Party Transactions Odessa Senior Housing Partnership, Ltd. Odessa Senior Housing Partnership, Ltd. (OSHP) was formed on March 11, 1999 by the Odessa Elderly Housing Development Corporation, as the general partner, and the Authority, as the Initial Limited Partner. The Partnership Agreement was subsequently amended and restated on March 1, 2001, to admit three other limited partners and to remove the Initial Limited Partner. The Partnership was formed for the purpose of providing a low-income housing tax credit project under Section 42 of the Internal Revenue Code through the development, construction, financing, operation and leasing of real property. The Partnership holds a leasehold interest in the property consisting of approximately acres of land located in Odessa, Texas (the Project). The Project includes 30 buildings containing 120 apartment units. The business of the Partnership is limited to the construction, ownership, maintenance, financing, operation, leasing and management of the Project. 21

25 Tax Credit Guaranty Housing Authority of the City of Odessa, Texas Notes to Financial Statements Pursuant to the Tax Credit Guaranty Agreement, OSHP and the Authority have guaranteed the payment when due, necessary, or required of all Credit Adjuster Advances incurred pursuant to Article 3.7 of the Partnership Agreement. Any sums so advanced shall not be repaid. No amounts have been advanced during the year ended September 30, Odessa Senior Housing Partnership Phase II Ltd. Odessa Senior Housing Partnership Phase II, Ltd. (OSHPII) was formed on December 11, 2007 by the Odessa Elderly Housing Development Corporation. This phase was formed for a 36-unit Section 42 (LIHTC) senior project to be known as Key West Village Phase II to be located in Odessa, Texas. Loans and Receivables As of September 30, 2016, the Authority has a note receivable balance of $1,128,886 and an accounts receivable balance of $76,905 net of allowance of $179,058, for funds invested in the application process of the project. The expenses incurred are being recorded as other receivable affiliate (OSHPII). The notes receivable balance consists of two separate notes. The first is a note entered into in August 2009 in the amount of $557,000 with a 4% annual interest rate to provide construction and permanent financing for a 36 unit development for low income seniors. Payments are only received when the borrower has positive cash flow. The note matures on August 31, As of September 30, 2016, no principal payments had been received. Interest received totaled $28,918 as of September 30, The second note was entered into in November 2011 in the amount of $624,261 with interest accruing at 5% per annum and is receivable in 167 monthly installments of $3,405 until it matures on November 22, As of September 30, 2016, the outstanding balance receivable was $571,886. Interest received totaled $36,250 as of September 30, Operating Deficit Guaranty (ODG) The Partnership Agreement for the Odessa Senior Housing Partnership, Ltd. contains an ODG whereby the OEHC and the Authority have guaranteed to loan the Partnership any funds required to fund operating deficits of the Partnership during the Operating Deficit Guaranty Period. During the Operating Deficit Guarantee Period, the General Partner will immediately provide operating loans to pay any operating deficits. As of September 30, 2016, no operating loans have been required. 22

26 Notes to Financial Statements Note 10. Operating Leases The Authority leases small office equipment under various operating lease agreements. Total rent expenses for these leases were $6,343 for the fiscal year ended September 30, Future minimum lease payments under non-cancelable operating leases are as follows: Operating Leases 2017 $ 6, , ,842 Total future minimum rental payments $ 15,528 Note 11. Changes in Capital Assets Activity in the capital assets for the Authority for the year ended September 30, 2016 is as follows: Balance Deletions and Balance 9/30/2015 Additions Reclassifications 9/30/2016 Landmark Land $ 303,919 $ - $ - $ 303,919 Buildings 2,662,669 76,050-2,738,719 Furniture, fixtures and equipment 210,804 12, ,476 Total 3,177,392 88,722-3,266,114 Third Edition Land 272, ,000 Buildings 4,162, ,979-4,354,504 Construction in progress 152,898 - (152,898) - Furniture, fixtures and equipment 389,667 7,823 (3,543) 393,947 Total 4,977, ,802 (156,441) 5,020,451 Administration Land 204, ,702 Buildings and improvements 318, ,655 Furniture, fixtures and equipment 110,848 1,169 (43,771) 68,246 Total 634,205 1,169 (43,771) 591,603 Section 8 HCV Furniture, fixtures and equipment 70,789 7,224-78,013 Total 70,789 7,224-78,013 Total capital assets 8,859, ,917 (200,212) 8,956,181 Accumulated depreciation (6,233,138) (118,449) 53,404 (6,298,183) Total net capital assets $ 2,626,338 $ 178,468 $ (146,808) $ 2,657,998 23

27 Notes to Financial Statements Note 12. New Pronouncements Statement No. 80, Blending Requirements for Certain Component Units - An Amendment of GASB Statement No. 14 the objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. The requirements of this Statement are effective for reporting periods beginning after June 15, Statement No. 83, Certain Asset Retirement Obligations This Statement address accounting and financial reporting for certain asset retirement obligations (AROS). Specifically, it requires the measurement of an ARO to be based on the best estimate of the current value of outlays expected to be incurred. The requirements of this Statement are effective for reporting periods beginning after June 15, Statement No. 85, Omnibus 2017 The objective of this Statement is to address practice issues that have been identified during implementation and application of certain GASBS statements. This statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits. The requirements of this Statement are effective for reporting periods beginning after June 15, The Authority s management is reviewing the implementation process of these standards by gathering required information. 24