HOUSING AUTHORITY OF THE CITY OF DANBURY FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2016

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2016 WITH REPORT OF INDEPENDENT AUDITORS

2 TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2016 Contents Page Report of Independent Auditors 1-3 Management's Discussion and Analysis 4-13 Financial Statements: Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position 16 Statement of Cash Flows Notes to Financial Statements Independent Auditors' 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 Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Independent Auditors' Report on Compliance for Each Major State Program and Report on Internal Control Over Compliance Supplementary Information: Schedule of Expenditures of Federal Awards 46 Notes to Schedule of Expenditures of Federal Awards Schedule of Expenditures of State Financial Assistance 49 Notes to Schedule of Expenditures of State Financial Assistance 50 Schedule of Findings and Questioned Costs Required Pension Information (Required Supplementary Information) 53 Financial Data Schedule 54-58

3 REPORT OF INDEPENDENT AUDITORS To the Board of Directors Housing Authority of the City of Danbury: Report on the Financial Statements We have audited the accompanying financial statements of the Housing Authority of the City of Danbury ("the Authority"), as of and for the year ended December 31, 2016, and the related notes to the 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. Auditors' 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 auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider 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 Hooper Avenue Suite Fax Toms River, NJ

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Housing Authority of the City of Danbury as of December 31, 2016, and the changes in its net position 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 and the required pension information be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the 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 financial statements, and other knowledge we obtained during our audit of the 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 financial statements that collectively comprise the Authority's financial statements. The schedule of expenditures of federal awards and the schedule of expenditures of state financial assistance are presented for the purpose of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and regulations established by the State of Connecticut, Office of Policy and Management, respectively, and are not a required part of the financial statements. The accompanying financial data schedule is also not a required part of the financial statements and is presented for the purposes of additional analysis as required by the U.S. Department of Housing and Urban Development. The schedule of expenditures of federal awards, schedule of expenditures of state financial assistance and financial data schedule are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the 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 schedule of expenditures of federal awards, schedule of expenditures of state financial assistance and financial data schedule are fairly stated, in all material respects, in relation to the financial statements as a whole. 2

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 20, 2017 on our consideration of the Housing Authority of the City of Danbury'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 Housing Authority of the City of Danbury's internal control over financial reporting and compliance. October 20, 2017 Toms River, New Jersey 3

6 MANAGEMENT'S DISCUSSION AND ANALYSIS

7 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Management s discussion and analysis (MD&A) is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the Authority s financial activity, and (c) identify changes in the Authority s financial position for the fiscal year ended December 31, Please read it in conjunction with the Authority s financial statements. Overview of the financial statements The Authority s financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The Authority s accounting records are structured as an enterprise fund with revenues recognized when earned, rather than when received. Expenses are recognized when incurred, not when they are paid. Capital assets are capitalized and depreciated over their estimated useful lives. The accounting for enterprise funds is similar to the accounting used by businesses. See the notes to the financial statements for a summary of the Authority s significant accounting policies. Following the MD&A are the basic financial statements of the Authority together with notes, which are essential to a full understanding of the data contained in the financial statements. The Authority s basic financial statements are designed to provide readers with a broad overview of the Authority s finances. The Statement of Net Position presents information similar to a Balance Sheet. The Statement of Net Position reports all financial and capital resources of the Authority. The statement is presented in the format where assets, minus liabilities, equal net position. Assets and liabilities are presented in order of liquidity, and are classified as current and non-current. Net position is reported in three broad categories: Investment in Capital Assets, Net of Related Debt: This component consists of all capital assets, reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted Net Position: This component consists of resources that are constrained by limitations placed on their use by creditors (such as debt covenants), grantors, contributors, laws, regulations, etc. Unrestricted Net Position: This component consists of resources that are not restricted and do not meet the definition of Net Assets invested in Capital Assets, Net of Related Debt. The Statement of Revenues, Expenditures, and Changes in Net Position presents information showing how the Authority s net position changed during the year. This statement includes operating revenues, such as rental income, operating expenses, such as administrative, utilities, maintenance, and depreciation, and non-operating revenue and expenses, such as grant revenue, investment income, interest expense, and gains or losses from the sale or disposition of capital assets. The focus of the statement is the change in Net Position, which is similar to net income or loss for a business entity. 4

8 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 The Statement of Cash Flows reports net cash and cash equivalents provided by or used by operating activities, non-capital financing activities, capital and related financing activities and investing activities. The Notes to Financial Statements provide additional information that is essential to a full understanding of the information included in the financial statements. In addition to the basic financial statements and accompanying notes, this report includes two types of supplementary information: required supplementary information and other supplementary information. Required supplementary information must be included to conform to generally accepted accounting principles. Management s discussion and analysis and the required pension schedules are the required supplementary information. Other supplementary information is not required by generally accepted accounting principles but is presented for additional analysis purposes or to meet other requirements. The financial data schedule is required by the U.S. Department of Housing and Urban Development (HUD). The schedule of expenditures of federal awards is required by the U.S. Office of Management and Budget and the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Program information Public and Indian Housing: The housing authority owns 365 units. Under the public and indian housing program, the Authority rents units that it owns to low-income households. The program is operated under an annual contributions contract with HUD, and HUD provides operating subsidy and capital funding to enable the Authority to provide housing at a rent that is based on 30% of household income. The conventional public housing program includes the capital fund program, which is the primary funding source for physical improvements to the Authority s properties. Section 8 Housing Choice Vouchers: HUD has contracted with the Authority for support 802 Housing Choice Vouchers. Under the housing choice voucher program, the Authority administers contracts with landlords that own rental property. The Authority subsidizes the family s rent through a housing assistance payment made to the landlord. The program is administered under an annual contributions contract with HUD. HUD provides an annual contribution funding to enable the Authority to structure a lease that sets the participant s rent at 30% of household income. Component Unit: The Authority includes two component units, HACD Corporation and DHA Housing Corporation. The HACD Corporation was incorporated as a not-for-profit entity to own, rehabilitate and rent 21 residential dwelling units to low and moderate-income families. It is also the general partner for the Fairfield Ridge/Mill Ridge Limited Partnership that operates and owns 30 units of low-income housing. The DHA Corporation is a not-for-profit entity that provides rental housing in a 98 unit apartment complex in Danbury that is managed by the Authority and shares a common board. State Programs: The Authority operates 415 units of housing under contract with the State of Connecticut Department of Economic Development consisting of 100 units of State Elderly Housing, 290 units of Moderate Rental Housing, and 25 units of state housing operating under a HUD HAP project. 5

9 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Financial position and analysis Table 1 compares the Authority s financial position for the fiscal years ended December 31, 2016 and 2015: Increase (Decrease) Percent Variance Assets Cash and cash equivalents $ 2,786,131 $ 1,185,502 $ 1,600, % Other current assets 427, ,276 (4,331) -1.00% Restricted cash and equivalents 2,181,338 2,438,651 (257,313) % Other Noncurrent assets 23,987,850 23,386, , % Total assets 29,383,264 27,443,136 1,940, % Deferred outflow of resources 692, , , % Total assets and deferred outflow of resources 30,075,780 27,838,053 2,237, % Liabilities Current liabilities 920,611 1,465,461 ( ) % Noncurrent liabilities 9,297,850 8,107,469 1,190, % Total liabilities 10,218,461 9,572, % Deferred inflow of resources 764, , , % Total liabilities and deferred inflow of resources 10,983,427 9,768,140 1,215, % Net position Net investment in capital assets 16,251,333 16,176,890 74, % Restricted net position 911,349 1,402,430 (491,081) % Unrestricted net position 1,929, ,593 1,439, % Total net position $ 19,092,353 $ 18,069,913 $ 1,022, % Cash and Cash Equivalents increased by $1,600,629 or % primarily due to reduced capital purchases and an increase in operating revenues. Restricted Cash and Equivalents decreased by $257,313 or 10.55% due to decreased restricted balances required to pay current portion of Energy Performance Contract debt in the prior year. Current Liabilities decreased by $544,850 or 37.18% due to payables in the prior year from improvements related to the Energy Performance Contract. Noncurrent Liabilities increased by $1,190,381 or 14.68% due increased borrowings related to State and Local construction loan and an increase in the Authority s net pension liability. 6

10 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Table 2 focuses on the changes in Net Position: Increase (Decrease) Percent Variance Operating revenue & expense Operating revenue $ 18,354,386 $ 17,901,046 $ 453, % Operating expenses 17,543,900 17,166, , % Operating income 810, ,151 76, % Non-operating revenues & expenses (120,290) (30,916) (89,374) % Capital grants 332, ,174 (438,930) % Increase (decrease) in net position 1,022,440 1,474,409 (451,969) % Net position, beginning of year 18,069,913 16,595,504 1,474, % Net position, end of year $ 19,092,353 $ 18,069,913 $ 1,022, % Table 3 presents a summary of the Authority s revenue by source: Increase (Decrease) Percent Variance Tenant revenue Tenant charges $ 4,022,036 $ 4,054,051 $ (32,015) -0.79% Total tenant revenue 4,022,036 4,054,051 (32,015) -0.79% Other revenues HUD PHA operating subsidy 1,183,663 1,017, , % N/C S/R section 8 grants 962, ,350 14, % Housing choice vouchers 8,871,286 8,318, , % Public housing capital fund 300, ,312 (526,594) % ROSS grant - 34,212 (34,212) % Continuum of care 333, ,164 41, % Section 8 housing assistance payments 162, , % Other government grants 1,891,124 2,182,746 (291,622) % Investment income % CDBG grant 148, , % Special item - 41,362 (41,362) % Other revenue 810, ,785 (188,197) % Total other revenues 14,665,410 14,659,749 5, % HUD PHA Operating Subsidy Grants increased by $166,075 or 16.32% due to increased funding for Operating Subsidy from HUD. Housing Choice Voucher Grants increased by $553,274 or 6.65% due to increased needs to fund Housing Assistance Payments for tenants related to an increase in unit months leased. 7

11 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Public Housing Capital Fund decreased by $526,594 or 63.65% due to decreased draws for capital improvements. ROSS Grant decreased by $34,212 or 100% due to the closing of the ROSS grant in the prior year as the full budget has been advanced and expended. Continuum of Care increased by $41,977 or 14.42% due to increased needs to fund Housing Assistance Payments for tenants. Other government grants decreased by $291,622 or 13.36% due to the elimination of housing assistance payments paid to the state and local properties by the Authority. Other Revenue decreased $188,197 or 18.84% due lower energy rebate checks received in the current year. Table 4 presents a summary of the Authority s expenses: Increase (Decrease) Percent Variance Administrative $ 3,080,881 $ 2,841,156 $ 239, % Tenant services 75,826 76,349 (523) -0.69% Protective services 31,270 25,215 6, % Utilities 1,067,321 1,208,812 (141,491) % Maintenance 2,082,456 2,153,638 (71,182) -3.31% Insurance expense 302, ,935 11, % General expense 343, ,269 84, % Housing assistance payments 9,476,429 9,276, , % Depreciation 1,083,777 1,036,101 47, % Extraordinary maintenance 25,733-25, % Interest expense 95,373 72,496 22, % Total expenses $ 17,665,006 $ 17,239,391 $ 425, % Administrative expenditures increased $239,725 or 8.44% due to increased operating expenses in the component unit entities as well as an increase in the net pension liability. Utilities expenditures decreased by $141,491 or 11.70% due to efforts by the Authority to reduce usage at properties and office and initial benefits of Energy Performance Contract improvements. General Expense increased by $84,750 or 32.81% due to escrow costs for the Energy Performance Contract and an increase in bad debt expense. 8

12 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Housing assistance payments increased $200,009 or 2.16% due to increased unit months leased from the prior year. Interest expense increased $22,877 or 31.56% due to additional debt incurring interest in connection with Energy Performance Contract. Budgetary Analysis The Authority adopts a consolidated annual operating budget for all programs. The budget for Low Income Public Housing and Housing Choice Voucher are adopted on the basis of accounting prescribed by HUD, which differs in some respects from generally accepted accounting principles. Low Income Public Housing (Table 5) Operating revenue Budget Actual Variance Favorable (Unfavorable) Percent Variance Favorable (Unfavorable) Rental income $ 1,698,552 $ 1,654,467 $ (44,085) -2.60% Operating subsidy 1,019,688 1,300, , % Capital fund operations 50, , , % Other income 24, , ,771 1,331.03% Total revenue 2,792,640 3,488, , % Expenses Administrative 1,050, ,193 81, % Tenant services 6,750 18,702 (11,952) % Utilities 591, ,766 (74,828) % Maintenance 926, ,837 41, % Protective Services 14,550 12,838 1, % Insurance 108, ,688 4, % General Expenses 5,500 74,371 (68,871) -1,252.20% Depreciation - 590,966 (590,966) % Extraordinary maintenance - 25,733 (25,733) % Interest 70,360 70,362 (2) 0.00% Total expenses 2,773,604 3,416,456 (642,852) % Income (over)/under expense $ 19,036 $ 71,563 $ 52, % 9

13 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 HUD Operating Subsidy revenue was over budget by $281,011 or 27.56% due to higher than expected subsidy from proration. Capital Fund Operations was over budget by $133,682 or % primarily due higher than expected draws and additional capital fund grants. Other Income was over budget by $324,771 or 1,331.03% primarily due to cash received for rebate outside of expectations. Administrative expenses were under budget by $81,940 or 7.80% due to reduced asset management fees based on prior year excess cash limits. Tenant Services expenses were over budget by $11,952 or % due to additional funds needed to cover expenses that were in excess of ROSS Grant funding. Utilities expenses were over budget by $74,828 or 12.64% due to greater than expected fluctuations in weather. General Expenses was over budget by $68,871 or 1,252.20%. This is due to Energy Performance Contract escrow costs. Depreciation Expense was over budget by $590,966 or 100%. This is due to depreciation not being included with the budgeting for expenses. Housing Choice Voucher (Table 6) Percent Budget Actual Variance Favorable (Unfavorable) Variance Favorable (Unfavorable) Revenue HAP revenues $ 7,512,684 $ 8,142,735 $ 630, % Admin fee 638, ,551 89, % Interest income (335) % Other income 1,575 46,676 45,101 2,863.56% Total revenue 8,153,213 8,917, , % Expenses Administrative 620, ,121 (27,492) -4.43% Insurance 15,400 8,559 6, % General expense 4,500 35,900 (31,400) % Depreciation (489) % HAP expense 7,512,684 8,200,771 (688,087) -9.16% Total expenses 8,153,213 8,893,840 (740,627) -9.08% Income (over)/under expense $ - $ 24,122 $ 24, % 10

14 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 HAP revenue is over budget by $630,051 or 8.39% primarily due higher than anticipated funding from Section 8 for Housing Assistance Payments due to an increase in units leased. Admin fee is over budget by $89,932 or 14.08% primarily due higher than anticipated unit months leased. Other income was over budget by $45,101 or 2,863.56%. This was due to the Authority not considering portability income when preparing budgets. General expense was over budget by $31,400 or % primarily due to an increase in expenses related to operations not considered office expenses. HAP expense was over budget by $688,087 or 9.16% due to increased needs to fund Housing Assistance Payments for tenants. Capital assets (Table 7) Increase (Decrease) Percent Variance Land $ 2,305,535 $ 2,305,535 $ % Buildings 43,825,937 43,526, , % Furniture and equipment 1,320,028 1,241,367 78, % Construction in progress 9,131,683 7,824,807 1,306, % 56,583,183 54,898,263 1,684, % Less: accumulated depreciation (32,595,333) (31,511,556) (1,083,777) 3.44% Capital assets, net $ 23,987,850 $ 23,386,707 $ 601, % Acquisitions are capitalized at cost and depreciated using the straight-line method of depreciation. Capital funding available for 2017 is as follows: Grant Total Budget Expended through 12/31/16 Budget Remaining at 12/31/16 Capital Fund Program , ,110 8,915 Capital Fund Program , ,486 51,688 Capital Fund Program ,019 50, ,019 Capital Fund Program ,465 50, ,465 Capital Fund Program ,045 49,045 - Capital Fund Program ,741 81,741 - Capital Fund Program ,156 69,374 15,782 $ 949,869 11

15 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Analysis of Debt Activity The Authority s long-term debt during fiscal year 2016 consisted of the following: Loan payable to DECD in the amount of $697,746 bearing a 3% interest rate maturing on June 30, Quarterly payments of principal and interest are made in the amount of $5, December 31, 2015 $ 32,773 Current Year Debt Paid 21,699 December 31, 2016 $ 11,074 Mortgage Loan with Union Savings Bank. The loan number is and matures on November 1, Monthly payments of principal and interest total $1,168 with an adjustable interest rate of 3.125%. December 31, 2015 $ 137,200 Current Year Debt Paid $ 15,507 December 31, 2016 $ 121,693 Ives Manor mortgage payable to Connecticut Housing Finance Authority in the amount of $2,002,600 dated September Interest at 9% per annum and monthly installments of $15,477 are due through November 1, December 31, 2015 $ 299,126 Current Year Debt Paid $ 165,150 December 31, 2016 $ 133,976 Mortgage payable to Connecticut Housing Finance Authority in the maximum amount of $5,173,769 due in 30 years and secured by property. Principal paid based on surplus cash calculations. December 31, 2015 $4,256,954 Current Year Debt Advances $ 770,303 December 31, 2016 $5,027,257 Energy Performance Contract with the Connecticut Housing Finance Authority in the amount of $2,483,765 commencing June 22, Interest at 2.84% per annum and monthly installments of $14, are due monthly through July 1, December 31, 2015 $2,483,765 Current Year Interest Accrued $ 25,731 December 31, 2016 $2,509,496 12

16 Housing Authority of the City of Danbury Management s Discussion and Analysis December 31, 2016 Significant economic factors affecting the Authority are as follows: The Department of Housing and Urban Development (HUD) has historically been underfunded to meet the subsidy needs of public housing authorities (PHAs). We do not expect this consistent trend to change. The effects of recapture and sequestration on funding and reserve balance along with efforts to eliminate NRA in the Housing Choice Voucher program. Even if HUD was fully funded for both the Operating and Capital Funds, it is unlikely that Congress would appropriate adequate funding. Pressure on the federal budget will remain in the form of both record deficits and competing funding needs. Further, funding for the Departments of Defense and Homeland Security will probably result in reduced appropriations for all other domestic program spending. Changing cost of utility rates, supplies, and other costs may impact our budgets in future years. Request for Information This financial report is designed to provide a general overview of the Authority s accountability for all those interested. If you should have additional questions regarding the financial information, you can contact our office in writing at the following address: Housing Authority of the City of Danbury Attn: Jacqueline Elam, Chief Operating Officer 2 Mill Ridge Road Danbury, CT

17 FINANCIAL STATEMENTS

18 STATEMENT OF NET POSITION AS OF DECEMBER 31, 2016 ASSETS Current assets: Cash and cash equivalents $ 2,021,165 Tenant security deposits 179,735 Accounts receivable, net 379,192 Prepaid expenses 48,753 Total current assets 2,628,845 Non-current assets: Restricted cash 2,766,569 Capital assets, net 23,987,850 Total non-current assets 26,754,419 Total assets 29,383,264 DEFERRED OUTFLOWS OF RESOURCES State of Connecticut M.E.R.S. 692,516 Total assets and deferred outflows of resources $ 30,075,780 See accompanying notes to financial statements. 14

19 STATEMENT OF NET POSITION (continued) AS OF DECEMBER 31, 2016 LIABILITIES Current liabilities: Accounts payable $ 310,776 Accrued expenses 3,809 Accrued compensated absences 3,515 Tenant security deposits 179,735 Current portion of note payable 262,214 Prepaid tenant rents 100,887 Other current liabilities 59,675 Total current liabilities 920,611 Non-current liabilities: Note payable, excluding current portion 7,474,303 Accrued compensated absences, non-current 31,614 Accrued pension and OPEB liabilities 1,655,612 Accrued interest 66,979 Other non-current liabilities 69,342 Total non-current liabilities 9,297,850 Total liabilities 10,218,461 DEFERRED INFLOWS OF RESOURCES Grants received in advance 764,966 NET POSITION Net position: Net investment in capital assets 16,251,333 Restricted 911,349 Unrestricted 1,929,671 Total net position 19,092,353 Total liabilities, deferred inflows of resources and net position $ 30,075,780 See accompanying notes to financial statements. 15

20 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2016 Operating revenues: Tenant revenue $ 4,022,036 HUD grants 11,630,638 Other government grants 1,891,124 Other revenues 810,588 Total operating revenues 18,354,386 Operating expenses: Administrative 3,080,881 Tenant services 75,826 Protective services 31,270 Utilities 1,067,321 Ordinary maintenance and operations 2,082,456 Insurance 302,921 General 343,019 Housing assistance payments 9,476,429 Depreciation 1,083,777 Total operating expenses 17,543,900 Income from operations 810,486 Non-operating revenues (expenses): Investment income 816 Extraordinary maintenance (25,733) Interest expense (95,373) Net non-operating revenues (expenses) (120,290) Income before capital grants 690,196 Capital grants: Capital fund program 183,682 Community development block grant 148,562 Increase in net position 1,022,440 Total net position, beginning of year 18,069,913 Total net position, end of year $ 19,092,353 See accompanying notes to financial statements. 16

21 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2016 Cash Flows from Operating Activities: Cash received from tenants $ 4,917,417 Cash received from grantors 13,555,691 Cash paid to suppliers (13,346,763) Cash paid to employees (2,310,063) Net cash flows provided by operating activities 2,816,282 Cash Flows from Capital and Related Financing Activities: Purchases of capital assets (1,684,920) Capital grants 332,244 Extraordinary maintenance (25,733) Interest paid on capital debt (95,373) Net cash flows used in capital and related financing activities (1,473,782) Cash Flows from Investing Activities: Interest received on investments 816 Net cash flows provided by investing activities 816 Net increase in cash and cash equivalents 1,343,316 Cash and cash equivalents, beginning of year 3,624,153 Cash and cash equivalents, end of year $ 4,967,469 Reconciliation of Cash and Cash Equivalents to the Statement of Net Position: Cash and cash equivalents $ 2,021,165 Tenant security deposits 179,735 Restricted cash 2,766,569 Cash and cash equivalents at end of year $ 4,967,469 See accompanying notes to financial statements. 17

22 STATEMENT OF CASH FLOWS (continued) FOR THE YEAR ENDED DECEMBER 31, 2016 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 810,486 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,083,777 Bad debts 32,613 Changes in assets, liabilities, and deferred inflows and outflows of resources: Accounts receivable (25,774) Prepaid expenses (2,508) Deferred outflows of resources (297,599) Accounts payable (327,351) Accrued expenses (61,313) Accrued compensated absences 5,566 Tenant security deposits 7,105 Prepaid tenant rent 79,441 Note payable, net 593,679 Net pension liability 552,711 Other current liabilities (204,559) Other liabilities 57,989 Deferred inflows of resources 512,019 Net cash provided by operating activities $ 2,816,282 See accompanying notes to financial statements. 18

23 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization The Housing Authority of the City of Danbury ("Danbury Housing Authority") or ("the Authority") is a governmental, public corporation created under federal and state housing laws for the purpose of engaging in the development, acquisition and administrative activities of the lowincome housing program and other programs with similar objectives for low and moderate income families residing in the City of Danbury, Connecticut. The Authority is responsible for operating certain low-rent housing programs in the City of Danbury under programs administered by the U.S. Department of Housing and Urban Development ("HUD"). These programs provide housing for eligible families under the United States Housing Act of 1937, as amended. The Authority is governed by a board of commissioners which is essentially autonomous but is responsible to HUD. An executive director is appointed by the Authority s board to manage the day-to-day operations of the Authority. The Authority maintains its accounting records by program. The following programs are operated by the Authority: B. Basis of Accounting / Financial Statement Presentation The Authority's financial statements are prepared in accordance with GASB 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments ("GASB 34"), as amended. GASB 34 requires the financial statements to be prepared using the economic resources measurement focus and the accrual basis of accounting and requires the presentation of a Statement of Net Position, a Statement of Revenues, Expenses, and Changes in Net Position, and a Statement of Cash Flows. GASB 34 also requires the Authority to include management discussion and analysis as part of Required Supplementary Information. The Authority has also adopted GASB 33, Accounting and Financial Reporting for Nonexchange Transactions ("GASB 33"). GASB 33 establishes accounting and financial reporting standards for nonexchange transactions including financial or capital resources. The Authority's primary source of nonexchange revenue relates to grant and subsidies. Grants and subsidies revenue are recognized at the time eligible program expenditures occur and/or the Authority has complied with the grant and subsidy requirements. On January 30, 2008, HUD issued PIH Notice which among other things clarifies HUD s reporting position that unused Housing Assistance Payments ("HAP") under proprietary fund reporting should be reported as restricted net assets (position), with the associated cash and investments also being reported on the Statement of Net Assets (Position) and HUD's Financial Data Schedule ("FDS") as restricted. Any unused administrative fees should be reported as unrestricted net assets (position), with the associated assets being reported on the FDS as unrestricted. 19

24 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. Basis of Accounting / Financial Statement Presentation (continued) Both administrative fee and HAP revenue continue to be recognized under the guidelines set forth in GASB 33. Accordingly, both the time and purpose restrictions as defined by GASB 33 are met when these funds are available and measurable, not when these funds are expended. The Housing Choice Vouchers program is no longer a cost reimbursement grant; therefore the Authority recognizes unspent administrative fee and HAP revenue in the reporting period as revenue for financial statement reporting. Any investment income earned on these funds is reflected in the net position account on which the investment income was earned. Investment income earned on HAP cash balances is credited to the HAP restricted net position account and investment income earned on administrative fee cash balances is credited to the unrestricted net position account. C. Reporting Entity In accordance with GASB 61, The Financial Reporting Entity - Omnibus, the Authority s basic financial statements include those of the Housing Authority of the City of Danbury and any component units. Component units are legally separate, tax-exempt organizations whose majority of officials are appointed by the primary government or the organization is fiscally dependent on the primary government and there is a potential for those organizations either to provide specific financial benefits to, or impose specific financial burdens on, the primary government. An organization has a financial benefit or burden relationship with the primary government if any one of the following conditions exist: 1. The primary government (Authority) is legally entitled to or can otherwise access the organization's resources. 2. The primary government is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization. 3. The primary government is obligated in some manner for the debt of the organization. Based upon the application of these criteria, the financial statements include the following component units: HACD Corporation HACD Corporation was incorporated by the Authority as a not-for-profit entity. The entity has a common board of directors and officers. HACD Corporation was established to own, rehabilitate and rent 21 residential dwelling units to low and moderate-income families. Also, HACD Corporation is the general partner of the Fairfield Ridge/Mill Ridge Limited Partnership (HUD project number is CT26-H ). The purpose of the partnership is to own and operate 30 units of low-income housing located in Danbury, CT. The partnership entered into a ground lease with the Authority for land the Authority owns in Danbury, CT. The partnership provides housing for low and moderate-income families pursuant to Section 8 of the Housing Act. 20

25 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Reporting Entity (continued) DHA Housing Corporation DHA Housing Corporation, a not-for-profit entity incorporated by the Authority, provides elderly rental housing in a 98 unit apartment complex in Danbury, Connecticut. This apartment complex is controlled by the Authority through common board members and officers. Its operations are regulated under the terms of an agreement with the Connecticut Housing Finance Authority (CHFA). Blended Presentation - The Authority's financial statements are presented utilizing the blended method because the Authority's governing body and the component units governing body are substantively the same; as such, a blended presentation of their financial statements is warranted. D. Description of Programs Public and Indian Housing Program The Public and Indian Housing Program is designed to provide low-cost housing. Under this program, HUD provides funding via an annual contributions contract. These funds, combined with the rental income received from tenants, are available solely to meet the operating expenses of the program. Section 8 Housing Choice Vouchers Program The Authority administers a program of rental assistance payments to private owners on behalf of eligible low-income families under Section 8 of the Housing and Urban Development Act of The program provides payments covering the difference between the maximum rental on a dwelling unit, as approved by HUD, and the amount of rent contribution by a participating family. Public Housing Capital Fund Program The purpose of the Capital Fund Program is to provide another source of funding to cover the cost of physical and management improvements and rehabilitation on existing low-income housing and improving the central office facilities. Funding for this program is provided by grants from HUD. Section 8 New Construction and Substantial Rehabilitation The objective of the Section 8 project-based rental assistance programs is to aid low and very low-income families in obtaining decent, safe, and sanitary rental housing through the provision of housing assistance payments to participating owners on behalf of eligible tenants. 21

26 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Description of Programs (continued) Continuum of Care Program The Continuum of Care Program is designed to promote community-wide commitment to the goal of ending homelessness; provide funding for efforts by nonprofit providers, and State and local governments to quickly re-house homeless individuals and families while minimizing the trauma and dislocation caused to homeless individuals, families, and communities by homelessness; promote access to and effect utilization of mainstream programs by homeless individuals and families; and optimize self-sufficiency among individuals and families experiencing homelessness. Section 8 Housing Assistance Payments Program The Section 8 Housing Assistance Payments Program's objective is to provide rental assistance to very low income individuals and families enabling them to live in affordable, decent, safe and sanitary housing. Community Development Block Grant The primary objective of the Community Development Block Grants (CDBG)/Entitlement Grants program (large cities and urban counties) is to develop viable urban communities by providing decent housing, a suitable living environment, and expanded economic opportunities, principally for persons of low and moderate income. State & Local Activities The State Programs consist of the operations of low rent public housing properties totaling 415 units of housing under contract with the State of Connecticut Department of Housing (DOH). The properties consist of 100 units of State Elderly housing (Projects E-2, E-16), 290 units of Moderate Rental housing (Projects MR-22-22A, MR-41 and MR-57) and 25 units of state housing (Project CT26-H ) operating under a HUD HAP contract. Additional programs administered through the State of Connecticut consisted of the following: Rental Assistance Program No O An assistance agreement was entered into in August 2014, by and between the State of Connecticut and the Housing Authority of the City of Danbury, wherein the State of Connecticut agreed to pay the required share of the cost of a Rental Assistance Payments Program for State Elderly, not to exceed $90,502. Resident Service Coordinator Program No O An assistance agreement was entered into in July 2015, by and between the State of Connecticut and the Housing Authority of the City of Danbury, wherein the State of Connecticut agreed to pay the required share of the cost of a Resident Service Coordinator Program, not to exceed $18,

27 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Description of Programs (continued) Resident Service Coordinator Program No _ An assistance agreement was entered into in July 2016, by and between the State of Connecticut and the Housing Authority of the City of Danbury, wherein the State of Connecticut agreed to pay the required share of the cost of a Resident Service Coordinator Program, not to exceed $20,950. Other State & Local activities consist of the accounting of management fees and other contract services fee revenue and related expenses not attributable to the programs previously defined. E. Cash and Cash Equivalents HUD requires housing authorities to invest excess funds in obligations of the United States, Certificates of Deposit or any other federally insured investment. HUD also requires that deposits be fully collateralized at all times. Acceptable collateralization includes FDIC insurance and the market value of securities purchased and pledged to the political subdivision. Pursuant to HUD restrictions, obligations of the United States are allowed as security for deposits. Obligations furnished as security must be held by the Authority or with an unaffiliated bank or trust company for the account of the Authority. For the statement of cash flows, cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less at time of purchase. It is the Authority's policy to maintain collateralization in accordance with HUD requirements. F. Accounts Receivable, Net Rents are due from tenants on the first day of each month. As a result, tenants' accounts receivable balances primarily consist of rents past due and vacated tenants. Also included in accounts receivable are those amounts that tenants owe the Authority as payment for committing fraud or misrepresentation. These charges usually consist of retroactive rent and other amounts that may be determined by a formal written agreement or by a court order. An allowance for doubtful accounts is established to provide for all accounts, which may not be collected in the future for any reason. Collection losses on accounts receivable are charged against the allowance for doubtful accounts. The Authority recognizes a receivable from HUD and from other governments for amounts billed but not received and for amounts unbilled, but earned as of year-end. G. Allowance for Doubtful Accounts Management evaluates the collectability of outstanding receivables on a regular basis and establishes an allowance for doubtful accounts based on its assessment of outstanding accounts. 23

28 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) H. Prepaid Expenses Prepaid expenses represent amounts paid as of year-end that will benefit future operations. I. Capital Assets, Net Capital assets are stated at cost. Expenditures for repairs and maintenance are charged directly to expense as they are incurred. Expenditures determined to represent additions or betterments are capitalized. Upon the sale or retirement of fixed assets, the cost and related accumulated depreciation is eliminated from the accounts and any related gain or loss is reflected in the Statement of Revenues, Expenses and Changes in Net Position. Depreciation is calculated using the straight-line method based on the estimated useful lives of the following asset groups: Furniture and Equipment 5-15 Years Building Years The Authority has established a capitalization threshold of $5,000. J. Deferred Outflows of Resources In addition to assets, the statement of net financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources until that time. K. Compensated Absences Compensated absences represent amounts to which employees are entitled to based on accumulated leave earned in accordance with the Authority's Personnel Policy. Employees are provided with ten vacation days for the first four years of service, fifteen days per year after four years of service, twenty days after nine years of service, and twenty five days after nineteen years of service. Annual vacation time may be accumulated and rolled over up to a maximum 5 days with management approval. Employees may be compensated for accumulated vacation leave in the event of retirement or termination from service at the current salary for a maximum of ten days. L. Taxes The Authority is a unit of local government and is exempt from real estate, sales and income taxes. 24

29 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) M. Prepaid Tenant Rents The Authority's prepaid tenant rents primarily consist of the prepayment of rent by residents applicable to future periods. N. Deferred Inflows of Resources In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources until that time. O. Inter-program Receivables and Payables Inter-program receivables/payables are current, and are the result of the use of the Public Housing Program as the common paymaster for shared costs of the Authority. Cash settlements are made periodically, and all inter-program balances net to zero. In accordance with GASB 34, interprogram receivables and payables are eliminated for financial statement purposes. P. Equity Classifications Equity is classified as net position and displayed in three components: Net investment in capital assets - Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction or improvement of those assets. Restricted net position - Consists of resources with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. Unrestricted net position - All other resources that do not meet the definition of "restricted" or "net investment in capital assets." Q. Operating Revenues and Expenses The Authority defines its operating revenues as income derived from charges to residents and others for services provided as well as government subsidies and grants used for operating purposes. Operating expenses are costs incurred in the operation of its program activities to provide services to residents and others. The Authority classifies all other revenues and expenses as non-operating. 25

30 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) R. Use of Management 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 certain 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. Significant estimates include the allowance for doubtful accounts, accrued expenses and other liabilities, depreciable lives of properties and equipment, and contingencies. Actual results could differ significantly from these estimates. S. Economic Dependency The Section 8 Housing Choice Vouchers and Public and Indian Housing programs of the Authority are economically dependent on operating grants and subsidies from HUD. The programs operate at a loss prior to receiving the grants. T. Budgets and Budgetary Accounting The Authority is required by contractual agreements to adopt annual, appropriated operating budgets for all its programs receiving federal expenditure awards. All budgets are prepared on a HUD basis, which is materially consistent with accounting principles generally accepted in the United States of America. All appropriations lapse at HUD's program year end or at the end of grant periods. U. Risk Management The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omission, injuries to employees; and natural disaster. There have been no significant reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage except for deductibles for the previous three years. 26

31 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 2. CASH ON DEPOSIT At December 31, 2016, the Authority had funds on deposit in checking, money market accounts and certificates of deposit. For the fiscal year ended December 31, 2016, the carrying amount of the Authority's cash (including restricted cash) was $4,967,469, and the bank balances were $5,396,869. Of the bank balances, $1,161,955 was covered by federal depository insurance and the remaining $4,234,914 was collateralized with the pledging financial institution as of December 31, Description Amount Insured: FDIC $ 1,161,955 Collateralized: Collateralized amount held by pledging financial institution 4,234,914 $ 5,396,869 Custodial credit risk is the risk that, in the event of a bank failure, the government's deposits may not be returned to it. As of December 31, 2016, the Authority's bank balances were not exposed to custodial credit risk. NOTE 3. ACCOUNTS RECEIVABLE, NET Accounts receivable consists of the following at December 31, 2016: Description Amount Accounts receivable - HUD $ 222,179 Accounts receivable - other governments 8,233 Accounts receivable - tenants, net 58,481 Accounts receivable - misc. 90,299 $ 379,192 A. Accounts receivable - HUD Accounts receivable - HUD represents amounts due to the Authority for unreimbursed expenditures in the Capital Fund and the Section 8 Housing Choice Vouchers programs. This amount totaled $222,179, as of December 31, The Authority considers this amount fully collectable and accordingly, has made no allowance for doubtful accounts. 27

32 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 3. ACCOUNTS RECEIVABLE, NET (continued) B. Accounts receivable - other government Accounts receivable - other government consists of amounts due to the Authority for unreimbursed expenditures related to governmental grants. As of December 31, 2016, these amounts totaled $8,233. The Authority considers this amount to be fully collectable and accordingly, has made no allowance for doubtful accounts. C. Accounts receivable - tenants, net As of December 31, 2016, accounts receivable - tenants, net is shown net of an allowance for doubtful accounts of $16,118. D. Accounts receivable - miscellaneous Account receivable - miscellaneous consists of amounts due from other housing authorities for HAP port-ins and administrative fees. The Authority considers these amounts fully collectable and accordingly, has made no allowance for doubtful accounts. NOTE 4. RESTRICTED CASH AND TENANT SECURITY DEPOSITS Restricted cash and tenant security deposits consist of the following at December 31, 2016: Description Amount CHFA reserves - Ives Manor $ 893,251 Field observation escrow 18,098 Mod rental redevelopment escrow 160,632 EPC reserve account 402,700 Tenant security deposits 179,735 FSS Escrow 69,342 Grants received in advance 764,966 Glen Apartments construction reserve 457,580 $ 2,946,304 CHFA reserves are funds held by CHFA on behalf of the Authority's component unit, DHA Housing Corporation. Under the terms of the regulatory agreement, the component unit is required to set aside specified amounts for future project expenditures. These restricted deposits are held in a separate account in trust and generally are not available for operating purposes. 28

33 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 4. RESTRICTED CASH AND TENANT SECURITY DEPOSITS (continued) The Authority's component unit was required to fund a Field Observation Escrow as part of CHFA's loan to fund The Glen Apartments. The Field Observation Escrow is restricted for payment of a CHFA field observer to monitor project compliance. Mod Rental Redevelopment reserves are restricted for use by the component unit for the rehabilitation of units. EPC Reserve account represents unspent proceeds from the Authority's Energy Performance Contract with CHFA. The amount is restricted for energy efficient expenditures related to the upgrade of Authority fixtures. Tenant security deposits represent amounts held in escrow on behalf of tenants to cover any unpaid rent or damages to the Authority owned unit. Family Self Sufficiency (FSS) program escrows are restricted for Housing Choice Voucher program participants upon successful completion of the FSS program. Glen Apartments Construction reserve represents unspent loan proceeds held by the component unit which are restricted for replacement of property at The Glen Apartments. NOTE 5. CAPITAL ASSETS, NET A summary of the changes in capital assets during the year ended December 31, 2016 is as follows: Description December 31, 2015 Additions Dispositions Transfers December 31, 2016 Non-depreciable: Land $ 2,305,535 $ - $ - $ - $ 2,305,535 Construction in progress 7,824,807 1,306, ,131,683 Total 10,130,342 1,306, ,437,218 Depreciable: Buildings 43,526, , ,825,937 Furniture and equipment 1,241,367 78, ,320,028 Total 44,767, , ,145,965 Total capital assets 54,898,263 1,684, ,583,183 Less: accumulated depreciation (31,511,556) (1,083,777) - - (32,595,333) Net capital assets $ 23,386,707 $ 601,143 $ - $ - $ 23,987,850 Depreciation expense for the year ended December 31, 2016 totaled $1,083,

34 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 6. PAYMENTS IN LIEU OF TAXES (PILOT) Under Federal, State and local law, the Authority's programs are exempt from income, property and excise taxes. The public housing properties of the Authority are not required to pay PILOT to the City of Danbury, Connecticut. The Authority is required to pay a payment in lieu of taxes (PILOT) on their State Elderly-Glen property and pay actual real estate taxes on their 25 unit State property. During the year ended December 31, 2016, PILOT / real estate tax expense for these properties amounted to $128,720. NOTE 7. REPAYMENT AGREEMENT WITH HUD In 2012, it was determined that the Authority utilized Public and Indian Housing reserves for non-program activities. In April of 2013, the Authority entered into a repayment agreement with HUD to repay the Public and Indian Housing Program over a ten year period. The total amount owed back to the Public and Indian Housing Program was $596,033. Annual installments of $59,603 out of non-hud, non-federal funds, must be paid back to the Public and Indian Housing Program over the next ten years. As of December 31, 2016, $357,620 remains payable to the Public and Indian Housing Program. NOTE 8. OTHER LONG TERM OBLIGATIONS For the year ended December 31, 2016, the following changes occurred in the Authority's longterm obligations: Balance at December 31, 2015 Additions Retirements Balance at December 31, 2016 Due in One Year Accrued compensated absences $ 29,563 $ 137,088 $ (131,522) $ 35,129 $ 3,515 Net pension liability 450,121 1,601,962 (396,471) 1,655,612 - Loans payable 7,209, ,282 (243,603) 7,803, ,214 Other 7, ,017 (7,200) 129,017 59,675 $ 7,696,701 $ 2,705,349 $ (778,796) $ 9,623,254 $ 325,404 NOTE 9. RETIREMENT PLAN Organization Connecticut's Municipal Employees Retirement System (CMERS) is the public pension plan offered by the State of Connecticut for municipal employees in participating municipalities. The plan was established in 1947 and is governed by Connecticut Statute Title 7, Chapter 113. CMERS is a multiemployer pension plan administered by the Connecticut State Retirement Commission. The State Retirement Commission is responsible for the administration of the Connecticut Municipal Employees Retirement System (CMERS). The State Treasurer is responsible for investing CMERS funds for the exclusive benefit of CMERS members. 30

35 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Plan description Municipalities may designate which departments (including elective officers if so specified) are to be covered under the Municipal Employees Retirement System. This designation may be the result of collective bargaining. Only employees covered under the State Teachers Retirement System may not be included. There are no minimum age or service requirements. Membership is mandatory for all regular full time employees of participating departments except Police and Fire hired after age 60. The plan has 4 sub plans as follows: General employees with social security General employees without social security Policemen and firemen with social security Policemen and firemen without social security Benefit provisions The plan provides retirement, disability and death benefits. General Employees Employees are eligible to retire at age 55 with 5 years of continuous service, or 15 years of active non-continuous aggregate service. Employees under the age of 55 are eligible to retire with 25 years of service under certain conditions. Police Officers and Firefighters Compulsory retirement age for police and fire members is age 65. Normal Retirement: For members not covered by social security, the benefit is 2% of average final compensation times years of service. For members covered by social security, the benefit is 1.5% of the average final compensation not in excess of the year's breakpoint plus 2% of average final compensation in excess of the year's breakpoint, times years of service. The maximum benefit is 100% of average final compensation and the minimum benefit is $1,000 annually. Both the minimum and the maximum include workers' compensation and social security benefits. If any member covered by social security retires before age 62, the benefit until age 62 is reached or a social security disability award is received, is computed as if the member is not under social security. Early Retirement: Employees are eligible after 5 years of continuous or 15 years of active aggregate service. The benefit is calculated on the basis of average final compensation and service to date of termination, deferred to normal retirement age, or an actuarially reduced allowance may begin at the time of separation. 31

36 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Benefit provisions (continued) Disability Retirement: Employees are eligible for service-related disability benefits from being permanently or totally disabled from engaging in the service of the municipality provided such disability has arisen out of and in the course of employment with the municipality. Disability due to hypertension or heart disease, in the case of firemen and policemen, is presumed to have been suffered in the line of duty. Disability benefits are calculated based on compensation and service to the date of the disability with a minimum benefit (including workers' compensation benefits) of 50% of compensation at the time of disability. Employees are eligible for non-service-related disability benefits with 10 years of service and being permanently or totally disabled from engaging in gainful employment in the service of the municipality. Disability benefits are calculated based on compensation and service to the date of the disability. Pre-Retirement Death Benefit: The plan also offers a lump sum return of contributions with interest or surviving spouse benefit depending on length of service. Contributions Employer Participating municipalities make annual contributions consisting of a normal cost contribution, a contribution for the amortization of the net unfunded accrued liability and a prior service amortization payment which covers the liabilities of the system not met by member contributions. Employees: For employees not covered by social security, each person is required to contribute 5% of compensation. For employees covered by social security, each person is required to contribute 2 1/4% of compensation up to the social security taxable wage base plus 5% of compensation, if any, in excess of such base. Relationship to financial statements The components associated with pension expense and deferred outflows and inflows of resources have been determined based on fiduciary net position as audited by the State of Connecticut Auditors of Public Accounts as part of the State of Connecticut Comprehensive Annual Financial Report as of and for the year ended June 30, CMERS is included in the State of Connecticut audit as a pension trust fund. 32

37 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Summary of significant accounting policies A. Basis of presentation The schedules presented in the report: schedules of employer allocations schedules of net pension liability (asset) and pension expense by employer schedule of changes in proportional share schedules of change in proportional share of the net pension liability and deferred outflows and inflows schedules of deferred inflows and deferred outflows - investment gains and losses June 30, 2014 through June 30, 2016, net schedules of deferred inflows and deferred outflows of resources by employer, and schedules of sensitivity analysis by employer The schedules are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The schedules present amounts that are elements of financial statements of CMERS or its participating employers. Accordingly, they do not purport to be a complete presentation of the net position or changes in net position of CMERS or its participating employers. GASB 68, Accounting and Financial Reporting for Pensions -an amendment of GASB Statement No. 27, requires participating employers to recognize their proportional share of the collective net pension liability, deferred outflow of resources, deferred inflows of resources and pension expense. The schedules have been prepared to provide employers with their proportional share of these amounts. Contributions from employers are recognized when legally due, based upon statutory requirements. The preparation of the schedules requires management to make a number of estimates and assumptions relating to the reported amounts. Due to the inherent nature and uncertainty of these estimates, actual results could differ and the differences may be material. B. Allocation methodology The schedules of employer allocations were calculated based upon the 2016 actuarial (expected) payroll amounts reported by participating employers. Expected payroll adjusts actual payroll for known changes in the status of employees, annualized salaries for partial year employees and anticipated salary increases. The employer allocations were then applied to the net pension liability, pension expense, deferred inflows, sensitivity analysis and the deferred inflow amounts to be recognized in fiscal years subsequent to the reporting date to determine the amount applicable to each employer. Based upon the employer's payroll as compared to the total, an employer allocation percentage is calculated to six decimal places and is used to allocate the elements noted above. 33

38 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Actuarial assumptions and related disclosures Actuarial assumptions The total pension liability was determined by an actuarial valuation as of June 30, 2016, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3.25% Salary Increase %, including inflation Investment rate of return 8.00%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Table for annuitants and nonannuitants (set forward one year for males and set back one year for females). The actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period July 1, June 30, Future Cost-of-Living adjustments for members who retire on or after January 1, 2002 are 60% of the annual increase in the CPI up to 6%. The minimum annual COLA is 2.5%, the maximum is 6%. Long-term rate of return The long-term expected rate of return on pension plan investments was determined using a lognormal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the plan's target asset allocation as of June 30, 2016 are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Large cap U.S. equities 16% 5.8% Developed non- U.S. equities 14% 6.6% Emerging markets (non- U.S.) 7% 8.3% Core fixed income 8% 1.3% Inflation linked bond fund 5% 1.0% Emerging market bond 8% 3.7% High yield bonds 14% 3.9% Real estate 7% 5.1% Private equity 10% 7.6% Alternative investments 8% 4.1% Liquidity fund 3% 0.4% Total 100% 34

39 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Discount rate The discount rate used to measure the total pension liability was 8.00%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability, calculated using the discount rate of 8.00% as well as what the net pension liability would be if it were calculated using a discount rate that is 1- percentage-point lower or 1-percentage-point higher than the current rate: 1% Decrease (7.00%) Current Discount (8.00%) 1% Increase (9.00%) Net pension liability $ 2,607,710 $ 1,655,612 $ 843,011 Components of schedules of pension amounts by employer Net pension liability The participating employers' share of the collective net pension liability is calculated using the employer allocation percentage. Difference between expected and actual experience The difference between expected and actual experience for economic and demographic factors is amortized over the average of the expected remaining service life of active and inactive plan members. For 2016, this was 4.89 years. In the year that the difference occurs, the amount is amortized and recognized as pension expense. The balance is recorded as a deferred inflow or outflow and recognized in future periods. The collective difference between expected and actual experience as of June 30, 2016 is $50,327,714. Amortization of $10,292,396 is recognized as pension expense and the remaining amount is shown as a deferred outflow of resources. Each employer's proportional share of these collective amounts is presented on the schedules of deferred inflows and deferred outflows of resources by employer. 35

40 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Changes in actuarial assumptions The collective amount due to changes in actuarial assumptions as of June 30, 2016 is $0. There were no changes in actuarial assumptions as compared to the June 30, 2015 actuarial valuation. Changes in employer proportional share The collective amount due to changes in employer proportional share as of June 30, 2016 is $0. The changes in proportional share impacts individual employers. Net difference between projected and actual investment earnings on pension plan investments Deferred outflows and inflows related to differences between projected and actual earnings on plan investments are netted and amortized over a closed five year period. The collective amount of the net difference between projected and actual investment earnings as of June 30, 2016 compared to the plan's expected rate of return of 8.00% was $166,290,460. Amortization of $9,140,792 is recognized as pension expense and the remaining amount is shown as a deferred inflow of resources. Each employer's proportional share of these collective amounts is presented on the schedules of deferred inflows and deferred outflows of resources by employer. Deferred outflows and deferred inflows of resources At December 31, 2016, the Authority reported deferred outflows of resources and deferred inflows of resources from the following sources. Deferred Outflows of Resources Deferred Inflows of Resources Contributions subsequent to measurement date $ 117,273 $ - Net difference between projected and actual earnings on plan investments - - Differences between the actual contribution and proportionate share 7,088 - Change in proportion 52,163 - Differences between expected and actual experience 35,619 - Investments 480,374 - Total $ 692,517 $ - 36

41 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 9. RETIREMENT PLAN (continued) Amounts to be recognized in subsequent fiscal years: Year ending December 31: Amount 2017 $ 245, , , ,568 $ 692,516 NOTE 10. LOANS PAYABLE Loans payable at December 31, 2016 consisted of the following: Description Amount Elderly Housing Rehab loan #034-HRE-7 payable to the Connecticut Department of Economic Development (DCED) in quarterly payments of $5,599 including interest at 3%. The loan matures on June 30, $ 11,074 Mortgage loan with Union Savings Bank. The loan matures on November 1, Monthly payments of principal and interest total $1,168 with an adjustable interest rate currently at 3.125%. The loan is secured by real property. 121,693 Ives Manor mortgage payable to Connecticut Housing Finance Agency in the amount of $2,002,600 dated September Interest at 9% per annum. Monthly installments of $15,477 are due through November 1, ,976 Mortgage payable to Connecticut Housing Finance Agency in connection with the development of The Glen Apartments. The loan, in the maximum amount of $5,173,769, matures on September 30, 2044 and is secured by a first mortgage on the property. Principal is payable annually to the extent that the property has "Surplus Cash". Fifty percent of surplus cash will go towards principal on the loan and fifty percent will be placed in replacement reserves. 5,027,257 37

42 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 10. LOANS PAYABLE (continued) Description Amount The Authority has entered into an Energy Performance Contract (EPC) with the Connecticut Housing Finance Authority (CHFA) in the amount of $2,483,764. Commencing on June 22, 2015 and continuing until June 30, 2016 ("Interest Deferral Period"), interest shall accrue at a per annum rate of 2.84%. No payments of principal or interest shall be required during this period. Thereafter, principal and interest at a per annum rate of 2.84% shall be due and payable in monthly installments of $14, beginning in August of The loan shall be due and payable on July 1, ,442,517 Total loans payable 7,736,517 Less: current portion 262,214 Loans payable, excluding current portion $ 7,474,303 Annual debt service for principal and interest over the next five years and in five year increments thereafter is as follows: Year Principal Interest Total 2017 $ 262,214 $ 70,706 $ 332, ,228 85, , ,702 82, , ,227 80, , ,973 77, , , , , , , , ,261 44, , ,191,213-5,191,213 $ 7,803,496 $ 880,112 $ 8,683,608 NOTE 11. RESTRICTED NET POSITION Restricted net position consists of the following at December 31, 2016: Description Amount CHFA reserves $ 893,251 Mod Rental Redevelopment Escrow 18,098 $ 911,349 38

43 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTE 11. RESTRICTED NET POSITION (continued) CHFA reserves are funds held by CHFA on behalf of the Authority's component unit. Under the terms of the regulatory agreement, the component unit is required to set aside specified amounts for future project expenditures. These restricted deposits are held in a separate account in trust and generally are not available for operating purposes. The Authority was required to fund a Field Observation Escrow and Mod Rental Redevelopment Escrow as part of CHFA's loan to fund The Glen Apartments. The Field Observation Escrow is restricted for payment of a CHFA field observer to monitor project compliance and the Mod Rental Escrow is restricted for rehabilitation of units. NOTE 12. CONTINGENCIES The Authority receives financial assistance from HUD in the form of grants and subsidies. Entitlement to the funds is generally conditional upon compliance with terms and conditions of the grant agreements and applicable regulations, including the expenditure of the funds for eligible purposes. Substantially, all grants, entitlements and cost reimbursements are subject to financial and compliance audits by HUD. As a result of these audits, costs previously reimbursed could be disallowed and require payments to HUD. As of December 31, 2016, the Authority estimates that no material liabilities will result from such audits. NOTE 13. SUBSEQUENT EVENTS Events that occur after the financial statement date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the financial statement date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the financial statement date require disclosure in the accompanying notes to the financial statements. Management evaluated the activity of the Authority through October 20, 2017 (the date the financial statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements. 39

44 INDEPENDENT AUDITORS' 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 To the Board of Directors Housing Authority of the City of Danbury: We have audited, in accordance with the 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, the financial statements of the Housing Authority of the City of Danbury ("the Authority"), as of and for the year ended December 31, 2016, and the related notes to the financial statements, which collectively comprise the Authority's financial statements, and have issued our report thereon dated October 20, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified Hooper Avenue Suite Fax Toms River, NJ

45 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. October 20, 2017 Toms River, New Jersey 41

46 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors Housing Authority of the City of Danbury: Report on Compliance for Each Major Federal Program We have audited the Housing Authority of the City of Danbury's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Housing Authority of the City of Danbury's major federal programs for the year ended December 31, The Housing Authority of the City of Danbury's major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of the Housing Authority of the City of Danbury's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Housing Authority of the City of Danbury's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Housing Authority of the City of Danbury's compliance Hooper Avenue Suite Fax Toms River, NJ

47 Opinion on Each Major Federal Program In our opinion, the Housing Authority of the City of Danbury complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Report on Internal Control Over Compliance Management of the Housing Authority of the City of Danbury is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Housing Authority of the City of Danbury's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Housing Authority of the City of Danbury's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. October 20, 2017 Toms River, New Jersey 43

48 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR STATE PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE To the Board of Directors Housing Authority of the City of Danbury: Report on Compliance for Each Major State Program We have audited the Housing Authority of the City of Danbury's compliance with the types of compliance requirements described in the Office of Policy and Management's Compliance Statement that could have a direct and material effect on each of the Housing Authority of the City of Danbury's major state programs for the year ended December 31, The Housing Authority of the City of Danbury's major state programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its state programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of the Housing Authority of the City of Danbury's major state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the State Single Audit Act (C.G.S. Sections to 4-236). Those standards and the State Single Audit Act require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major state program occurred. An audit includes examining, on a test basis, evidence about the Housing Authority of the City of Danbury s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major state program. However, our audit does not provide a legal determination of Housing Authority of the City of Danbury s compliance Hooper Avenue Suite Fax Toms River, NJ

49 Opinion on Each Major State Program In our opinion, the Housing Authority of the City of Danbury complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major state programs for the year ended December 31, Report on Internal Control Over Compliance Management of Housing Authority of the City of Danbury is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Housing Authority of the City of Danbury s internal control over compliance with the types of requirements that could have a direct and material effect on each major state program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major state program and to test and report on internal control over compliance in accordance with the State Single Audit Act, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Housing Authority of the City of Danbury s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a state program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a state program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a state program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the State Single Audit Act. Accordingly, this report is not suitable for any other purpose. October 20, 2017 Toms River, New Jersey 45