HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE RUSSELLVILLE, ARKANSAS

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE REPORT ON AUDIT OF FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA FOR THE TWELVE MONTHS ENDED JUNE 30, 2016 CYNTHIA L WARREN CPA, P.C. Eufaula, Oklahoma 74432

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE JUNE 30, 2016 TABLE OF CONTENTS FINANCIAL SECTION: Independent Auditor's Report 3 Management's Discussion and Analysis 5 Financial Statements: Exhibit A - Statement of Net Position 11 Exhibit B - Statement of Revenues, Expenses and Changes in Net Position 12 Exhibit C - Statement of Cash Flows 13 Notes to the Financial Statements 15 Supplementary Data: Schedule of Expenditures of Federal Awards 22 Financial Data Schedule 23 Schedule of Actual Modernization Cost 28 INTERNAL CONTROL & COMPLIANCE SECTION: Independent Auditor's Report on the 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 29 Independent Auditor's Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance Required by the Uniform Guidance 31 Schedule of Findings and Questioned Costs 33 Schedule of Summary Status of Prior Audit Findings 34 2

CYNTHIA L WARREN CPA, P.C. ==================================================================== P.O. Box 189 (918) 452-2116 Eufaula, OK 74432 Fax (918) 452-3509 Board of Commissioners Housing Authority of the City of Russellville Russellville, Arkansas INDEPENDENT AUDITOR'S REPORT Report on the Financial Statements I have audited the accompanying financial statements of the Housing Authority of the City of Russellville as of June 30, 2016, and for the year then ended, as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Housing Authority of the City of Russellville as of June 30, 2016, and the changes in its financial position and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 3

Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 5 through 11 be presented to supplement the financial statements. Such information, although not a required 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 operations, economic, or historical context. I have applied certain limited procedures on 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 method of preparing the information and comparing the information for consistency with management's responses to my inquiries, the financial statements, and other knowledge I obtained during my audit of the financial statements. I do not express an opinion or provide any assurance on the information because the limited procedures do not provide sufficient evidence to express an opinion or provide any assurance. Other Information My audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental information, the Financial Data Schedule and Schedule of Actual Modernization Cost, is presented for purposes of additional analysis as required by the by the U.S. Department of Housing and Urban Development, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The 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 my opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. Report Issued in Accordance with Government Auditing Standards In accordance with Government Auditing Standards, I have also issued a report dated March 17, 2017 on my consideration of the Housing Authority of the City of Russellville's internal control over financial reporting and my tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the internal control over financial reporting and compliance. Cynthia L Warren CPA, P.C. Eufaula, Oklahoma March 17, 2017 4

Russellville Housing Authority Management s Discussion and Analysis (MD & A) June 30, 2016 Our discussion and analysis of the financial performance for the Russellville Housing Authority provides an overview of the financial activities for the fiscal year ended June 30, 2016. Please read the MD&A in conjunction with the Housing Authority s financial statements. Financial Highlights Assets: As of June 30, 2016, total assets were $5,509,912 as compared to $5,450,634, as of June 30, 2015, an increase of $59,278. Current assets increased $102,380 while capital assets decreased $43,102. Liabilities: Total liabilities increased $9,283 due to increases in current liabilities of $8,371 and noncurrent liabilities of $912. Revenues: In 2016, total revenue increased $15,586, as compared to 2015, due to increases in tenant revenue. Expenses: Total expenses increased $72,638 due mainly to increases in routine maintenance, Housing Assistance Payments (HAP), and depreciation expenses. Overview of the Financial Statements This annual report includes this Management Discussion and Analysis report, the Basic Financial Statements, the Notes to the Financial Statements and the Financial Data Schedule (FDS) (as referenced in the section of Supplemental Information Required by HUD). The financial statements are presented as fund level financial statements because the Housing Authority only has proprietary funds. The financial statements report information using accounting methods similar to those used by private sector companies. These statements offer short-term and long-term financial information about the Housing Authority s activities. The Statement of Net Position includes assets and liabilities plus provides information about the nature and amounts of investments in resources (assets) and obligations to the Housing Authority s creditors (liabilities). It also provides the basis for evaluating the capital structure to include assessing liquidity and financial flexibility. 5

For accounting and financial reporting purposes, the Housing Authority is considered a special purpose government engaged solely in business-type activities. As such, the accounting and financial reporting treatment is similar to enterprise funds of a general purpose government. Enterprise funds account for activities similar to those found in the private business sector where the determination of net income is necessary or useful to sound financial administration. Enterprise funds are reported using the full accrual method of accounting in which all assets and all liabilities associated with the operation of these funds are included on the balance sheet. The focus of enterprise funds is on income measurement which, together with the maintenance of equity, is an important financial indicator. All of the current year s revenues and expenses are accounted for in the Statement of Revenues, Expenses, and Changes in Fund Net Position. This statement measures the success of operations over the past year and can be used to determine whether the Housing Authority has successfully recovered all its costs through its user fees and other charges, profitability and credit worthiness. The Statement of Cash Flows reports cash receipts, cash payments, and net changes in cash resulting from operating, investing, and financing activities plus provides answers to such questions as where did cash come from, what was cash used for, and what was the change in the cash balance during the reporting period. The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. The section Supplemental Information Required by HUD contains the Financial Data Schedule (FDS). HUD has established Uniform Financial Reporting Standards that require the Housing Authority to submit financial information electronically to HUD using the FDS format. This financial information has been electronically transmitted to the Real Estate Assessment Center (REAC) for the year-ended June 30, 2016. Financial Analysis One of the most important questions asked about the Authority s finances; Is the Housing Authority as a whole better off, or worse off, as a result of the achievements of the reported fiscal year? The information presented in this Management s Discussion and Analysis is to assist the reader in answering this question. The basic financial statements are the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. The Statement of Net Position provides a summary of assets and liabilities as of the close of business on June 30, 2016. The Statement of Revenues, Expenses, and Changes in Fund Net Position summarize the revenues, and sources of those revenues, generated and the expenses incurred in operating the Housing Authority for the year ended June 30, 2016. Russellville Housing Authority has a low rent program that provides housing for qualified tenants, a capital fund program that the Housing Authority uses for improvements to its low rent property, and a Section 8 Housing Choice Voucher program that provides rental assistance to qualified individuals living in private housing. The following analysis focuses 6

on the net position and the change in net position as a whole and not the individual programs. Net Position June 30, % of 2016 2015 Change Change Current Assets $ 1,175,355 $ 1,072,975 $ 102,380 9.54% Capital Assets, Net 4,334,557 4,377,659 (43,102) -0.98% Total Assets $ 5,509,912 $ 5,450,634 $ 59,278 1.09% Current Liabilities 94,811 86,440 8,371 9.68% Noncurrent Liabilities 10,534 9,622 912 9.48% Total Liabilities $ 105,345 $ 96,062 $ 9,283 9.66% Net Position: Investment in Capital Assets 4,334,557 4,377,659 (43,102) -0.98% Restricted Net Position 388 1,302 (914) -70.20% Unrestricted Net Position 1,069,622 975,611 94,011 9.64% Total Net Position $ 5,404,567 $ 5,354,572 $ 49,995 0.93% Assets: Current assets are resources that are reasonably expected, based on the plans and intentions of the Authority, to be converted into cash or its equivalent during the current operating cycle. As of June 30, 2016, current assets were $1,175,355 as compared to $1,072,975, as of June 30, 2015, an increase of $102,380. The change consisted of increases in cash/cash equivalents of $96,637, investments of $2,702, inventories of $1,138, total receivables of $1,040, and prepaid expenses of $863. Liabilities: Current liabilities are current debts that are owed by the Authority and due within 12 months. It is expected that current liabilities will consume current financial resources to satisfy debt. As of June 30, 2016, current liabilities were $94,811 as compared to $86,440, as of June 30, 2015, an increase of $8,371. The change consisted of increases in vendor payables of $5,870, payment in lieu of taxes (PILOT) of $4,383, accrued wage/payroll taxes payable of $1,688, and accrued compensated absences of $102 with decreases in unearned revenue (tenant prepaid rents) of $1,907 and tenant security deposits of $1,765. 7

Noncurrent liabilities are debts that are owed but not due within 12 months. It is not expected that these liabilities will consume the Authority s current financial resources to satisfy the debt. Noncurrent liabilities consisted of $10,534 in noncurrent accrued compensated absences which increased $912 from 2014 to 2015. Noncurrent accrued compensated absences are liabilities for wages such as vacation and benefits earned but not yet taken. Net Position: As of June 30, 2016, the Housing Authority had $5,404,567 invested in total net position. Of this amount, $1,069,622 of unrestricted net position may be used to meet the Authority s future ongoing expenses and obligations. Restricted net position of $388 was available for Section 8 Housing Assistance Payments (HAP). The remainder of $4,334,557 represents the investment in capital assets of land, buildings, furnishings, leasehold improvements, equipment, and construction in progress. Capital Assets (Net of Accumulated Depreciation) June 30, % of 2016 2015 Change Change Land $ 1,101,696 $ 1,101,696 $ 0 0.00% Buildings 5,093,873 4,997,068 96,805 1.94% Furniture & Equipment - Dwell 195,812 191,713 4,099 2.14% Furniture & Equipment - Admin 187,823 174,235 13,588 7.80% Leasehold Improvements 1,199,527 1,166,767 32,760 2.81% Construction in Progress 354,752 331,107 23,645 7.14% Subtotal 8,133,483 7,962,586 170,897 2.15% Accumulated Depreciation (3,798,926) (3,584,927) (213,999) 5.97% Net Capital Assets $ 4,334,557 $ 4,377,659 $ (43,102) -0.98% Capital Assets: Capital assets are long-term tangible assets obtained as a result of past transactions, events, or circumstances and include buildings, equipment, and improvements to buildings and land. Net capital assets decreased $43,102 due to annual depreciation exceeding capital purchases. During the year, $96,805 was capitalized into building improvements and $32,760 was capitalized into leasehold (site) improvements. Dwelling equipment increased $4,099 due to the purchase of heating/cooling (HVAC) units. Administrative equipment increased $13,588 due to purchases of five computers and a 2016 Dodge Ram truck (totaling $35,584) which were minimized by disposals of a water jet and a ½ ton truck (totaling $21,996). Construction in progress increased $23,645 due mainly to projects related to the 2015 Capital Grant program. 8

The Housing Authority had $319,730 in 2014, 2015, and 2016 Capital Grant revenue to draw down and spend in the future. Debt The Authority had no long term obligations such as notes or bonds payable. Expendable Fund Balance % of 2016 2015 Change Change Expendable Fund Balance $ 1,075,166 $ 981,381 $ 93,785 9.56% Number of Months Expendable Fund 16.30 15.78 0.52 3.28% Expendable Fund Balance: The expendable fund balance is a measure of the liquidity of the entity. If current assets, less materials inventory, are converted to cash and the Authority pays all current liabilities, the amount of cash remaining is the expendable fund balance. The Authority s expendable fund balance increased $93,785 due to increases in current assets (figures based on 2016 and 2015 FDS information). Number of Months Expendable Fund Balance: The number of months in expendable funds is a measure of how many months the Authority could operate under current conditions without any additional income. The number of months in expendable funds is calculated by dividing the total expenses for the year, less depreciation, by twelve (12) to arrive at the average monthly expenses. The expendable fund balance is divided by average monthly expense to arrive at the number of months expendable fund balance. The number of months expendable fund balance increased 0.52 months, from 15.78 to 16.30, due to increases in the expendable fund balance (figures based on 2016 and 2015 FDS information). 9

Changes in Net Position For the Year Ended June 30 % of 2016 2015 Change Change Revenue: Tenant Revenue $ 360,328 $ 316,614 $ 43,714 13.81% Federal Grants & Subsidy 1,119,558 1,174,924 (55,366) -4.71% Investment 2,837 2,277 560 24.59% Other Income 32,353 7,381 24,972 338.33% Gain/Loss on Sale of Capital Assets 1,706 0 1,706 100.00% Total Revenue 1,516,782 1,501,196 15,586 1.04% Expenses: Administrative 237,597 232,083 5,514 2.38% Utilities 77,481 78,023 (542) -0.69% Routine Maintenance 306,377 279,529 26,848 9.60% Protective Services 69,664 60,720 8,944 14.73% General 91,500 89,792 1,708 1.90% Non-Routine 9,156 6,287 2,869 45.63% Housing Assistance Payments 437,620 423,615 14,005 3.31% Depreciation 237,392 224,100 13,292 5.93% Total Operating Expenses 1,466,787 1,394,149 72,638 5.21% Increase (Decrease) in Net Position $ 49,995 $ 107,047 $ (57,052) -53.30% Net Position, Beginning 5,354,572 5,247,525 107,047 2.04% Net Position, Ending $ 5,404,567 $ 5,354,572 $ 49,995.93% Revenues: The Authority has two basic sources of revenues. Rents and other tenant charges and funds received from the Department of Housing and Urban Development (HUD) in the form of operating subsidies and capital improvement grants. Tenant revenue increased $43,714 from $316,614 in 2015 to $360,328 in 2016. Tenant rent revenue increased $43,278 due to increases in average monthly rental rates. Other tenant revenue increased $436. HUD revenue will often vary from year to year since it is dependent on the federal budget (operating subsidy) and availability and/or use of grant revenues. In 2016, Russellville Housing Authority s operating grants, Housing Assistance Payments, and Administrative Fees increased $14,758 while Capital Grant revenue decreased $70,124 that resulted in a net decrease of $55,366. Capital Grant revenue gets recognized as funds are expended. The Authority expended more Capital Grant revenue in 2015 than in 2016. Investment income increased $560 and other income increased $24,972 (due to insurance dividends and proceeds received in 2016). 10

In 2016, the Authority reported $1,706 in gains on the sale of capital assets as compared to no gains or losses, in 2015. Expenses: Administrative expenses increased $5,514 due to increases in administrative salaries of $13,764 and employee benefits of $1,979 while operating expenses decreased $10,228 and auditing fees decreased $1. Tenant services expense decreased $542 and general expenses increased $1,708 which had minimal effects on the 2016 financial statements. Routine maintenance expense increased $26,848 due to increases in maintenance contract costs of $21,236, labor of $5,964, and employee benefits of $3,417 with decreases in material expense of $3,769. Protective services expense increased $8,944 due to increases in security costs. Non-routine expense increased $2,869 due to more extraordinary repairs in 2016 as compared to 2015. Housing Assistance Payments (HAP) expense increased $14,005 due mainly to increases in average costs per unit leased. Depreciation expense increased $13,292 from $224,100 in 2015 to $237,392 in 2016. Economic Factors The Housing Authority is primarily dependent upon HUD for the funding of operations. The entity is affected by both federal budgetary decisions and by local economic conditions. Contacting the Housing Authority s Financial Management Our financial report is designed to provide our citizens, taxpayers, and creditors with a general overview of the Housing Authority s finances and to show accountability for the money it receives. If you have questions about this report or wish to request additional financial information contact Vicki Steele, Executive Director, Russellville Housing Authority, 115 South Denver Avenue, Russellville, AR, 72801-0825, telephone number (479) 968-5440. 11

Exhibit A HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE STATEMENT OF NET POSITION JUNE 30, 2016 ASSETS Current Assets: Cash and Cash Equivalents $ 251,253 Cash and Cash Equivalents, Restricted for Security Deposits 16,575 Cash and Cash Equivalents, Restricted for Housing Assistance Payments 388 Tenant Accounts Receivable, Net 6,015 Accrued Interest Receivable 374 Investments 866,005 Prepaid Expenses 29,755 Inventory 4,990 Total Current Assets 1,175,355 Noncurrent Assets: Capital Assets, Non-depreciable 1,456,448 Capital Assets, Net of Depreciation 2,878,109 Total Capital Assets 4,334,557 Total Assets $ 5,509,912 LIABILITIES Current Liabilities: Accounts Payable, Vendors $ 23,664 Due to Other Government - PILOT Taxes 26,393 Accrued Wages and Payroll Taxes Payable 4,681 Accrued Compensated Absences 1,171 Unearned Revenues 1,308 Other Current Liabilities 21,019 Tenant Security Deposits 16,575 Total Current Liabilities 94,811 Long-term Liabilities: Accrued Compensated Absences 10,534 Total Liabilities 105,345 NET POSITION Invested in Capital Assets 4,334,557 Restricted - Housing Assistance Payments 388 Unrestricted 1,069,622 Total Net Position 5,404,567 Total Liabilities and Net Position $ 5,509,912 The accompanying notes to the financial statements are an integral part hereof. 12

Exhibit B HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2016 Operating Revenue: Tenant Revenue $ 360,328 Operating Grants and Subsidies 960,856 Other Income 32,353 Total Operating Revenue 1,353,537 Operating Expenses: Housing Assistance Payments 437,620 Administration 237,597 Utilities 77,481 Maintenance 315,533 Protective Services 69,664 General Expense 91,500 Depreciation 237,392 Total Operating Expenses 1,466,787 Operating Income (Loss) (113,250) Non-operating Revenue (Expense) Investment Income 2,837 Gain (Loss on Disposal of Capital Assets 1,706 Net Income (Loss) Before Capital Grants (108,707) Capital Grants 158,702 Change in Net Position 49,995 Total Net Position, Beginning 5,354,572 Total Net Position, Ending $ 5,404,567 The accompanying notes to the financial statements are an integral part hereof. 13

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2016 Exhibit C Page 1 of 2 Cash Flows from Operating Activities: Receipts from Tenants $ 355,547 Receipts from Operating Grants 960,985 Receipts from Other Operating Activities 32,353 Payments to Employees (323,184) Payments to Suppliers and Vendors (435,627) Payments for Housing Assistance (437,620) Payments for PILOT Taxes (22,010) Net Cash Provided (Used) by Operating Activities 130,444 Cash Flows from Capital and Related Financing Activities: Receipts from Capital Grants 158,702 Sale of Land, Structures and Equipment 1,703 Purchases of Land, Structures and Equipment (194,287) Net Cash Provided (Used) by Capital and Related Financing Activities (33,882) Cash Flows from Investing Activities: Receipts of Interest Income 2,777 Purchase of Investments (2,702) Net Cash Provided (Used) from Investing Activities 75 Net Increase (Decrease) in Cash and Cash Equivalents 96,637 Cash and Cash Equivalents, Beginning 171,579 Cash and Cash Equivalents, Ending $ 268,216 Reconciliation to Statement of Net Position Cash and Cash Equivalents 251,253 Cash and Cash Equivalents, Restricted 16,963 $ 268,216 The accompanying notes to the financial statements are an integral part hereof. 14

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2016 Exhibit C Page 2 of 2 Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities: Operating Income (Loss) $ (113,250) Adjustments to reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation 237,392 Change in Assets and Liabilities: Accounts Receivable and Due from Other Governments (980) Prepaid Expenses (863) Inventory (1,138) Accounts Payable 10,253 Tenant Security Deposits (1,765) Accrued Liabilities 2,702 Unearned Revenues (1,907) Total Adjustments 243,694 Net Cash Provided (Used) by Operating Activities $ 130,444 Non-cash Capital Items: Disposal of Capital Assets (cost of $23,390, book value of $0) The accompanying notes to the financial statements are an integral part hereof. 15

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Page 1 of 7 NOTE 1 - REPORTING ENTITY The agency was created under the provisions of the laws of the State of Arkansas. The purpose of the agency is to administer Public Housing Programs authorized by the United States Housing Act. The governing board is appointed by the Mayor of the City of Russellville. The governing board employs executives; authorizes contracts of subsidy with the U.S. Department of Housing and Urban Development (Annual Contributions Contract) pursuant to that agency's regulations and statutory authorizations; and causes the agency to construct, own, and operate public housing facilities. The Housing Authority's financial statements include all organizations, activities, and functions that comprise the Housing Authority. Component units are legally separate entities for which the Housing Authority is financially accountable. Financial accountability is defined as the ability to appoint a voting majority of the organization's governing body and either (1) the Housing Authority's ability to impose its will over the organization or (2) the potential that the organization will provide a financial benefit to, or impose a financial burden on, the Housing Authority. As of June 30, 2016, and for the fiscal year then ended, the Housing Authority had no component units required to be blended in these financial statements or discretely presented. Programs Administered by the Authority The Housing Authority administers an annual contributions contract to provide low-income housing with primary financial support from the U.S. Department of Housing and Urban Development (HUD). Contracts administered by the Housing Authority are as follow: Public Housing - The Housing Authority owns, operates and maintains 182 units of Public Housing. The properties were acquired through bonds and notes guaranteed by HUD and through grants, subject to the terms of an Annual Contributions Contract with HUD. Revenues consist primarily of rents and other fees collected from tenants, and an Operating Subsidy from HUD. Capital Fund Program - Funds from the Capital Fund Program provided by HUD are used to maintain and improve the Housing Authority. Substantially all additions to land, structures and equipment of the Housing Authority are accomplished through these capital fund grants. Housing Choice Vouchers - The Housing Authority administers Housing Choice Vouchers to assist lowincome families, elderly and disabled to afford decent, safe and sanity housing in the private market. Revenues consist primarily of Annual Contribution for Housing Assistance Payments from HUD. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Measurement Focus The Housing Authority's financial statements are presented on the full accrual basis in accordance with accounting principles generally accepted in the United States of America. Revenues are recognized when earned and become measurable and expenses are recognized when incurred, if measurable. 16

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Page 2 of 7 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued The Housing Authority applies all Governmental Accounting Standards Board (GASB) pronouncements as well as Financial Accounting Standards Board (FASB) statements and interpretations, and the Accounting Principles Board (APB) of the Committee on Accounting Procedures unless those pronouncements conflict with or contradict GASB pronouncements. The Housing Authority has adopted GASB Statement #63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The objective of this Statement is to provide guidance for reporting deferred outflows of resources, deferred inflows of resources, and net position in a statement of financial position and related disclosures. The adoption of GASB 63 has had no material effect on the Authority s financial statements. For accounting and financial reporting purposes, the Housing Authority of the City of Russellville is considered a special purpose government engaged solely in business-type activities. As such, the accounting and financial reporting treatment is similar to enterprise funds of a general purpose government. Enterprise funds are accounted for on the economic resources measurement focus and report all assets and liabilities, both current and noncurrent, in the Statement of Net Position. Net Position are segregated into Investment in Capital Assets, Restricted and Unrestricted components, to the extent applicable. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates. Budgetary Process The Housing Authority adopts an operating budget for each fiscal year which is approved by the Board of Commissioners with revisions being prepared as needed. However, the budget does not establish legal spending limits and is instead designed to serve as a financial plan. Cash and Cash Equivalents Cash and Cash Equivalents consist of amounts deposited in checking, money market and investments accounts with an original maturity of three months or less. Cash equivalents, if any, are carried at fair value. Investments Investments consist of certificates of deposit, which are considered money market type investments as defined by the Governmental Accounting Standards Board. The investments are reported at cost, which approximates fair market value. 17

Page 3 of 7 HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Restricted Cash and Cash Equivalents Restricted Cash and Cash Equivalents consist of amounts deposited in a checking account for the restricted purpose of Housing Choice Voucher payments. These funds were obtained from excess funding of Housing Choice Voucher payments. Prepaid Expenses Certain payments to vendors reflect costs applicable to future periods. These payments are recorded as prepaid expenses. Inventory Inventory balances consist of expendable supplies held for consumption. The inventory is valued at cost. The Housing Authority uses the first-in, first-out basis in determination of cost. Capital Assets Capital assets acquired are valued at historical cost. It is the policy of the Housing Authority to capitalize all assets with a cost of $500 or greater. Donated capital assets are valued at the estimated fair value at the date of the donation. Depreciation of all exhaustible capital assets is charged as an expense against operations. Accumulated depreciation is reported on the statement of Net Position. Depreciation is provided over the estimated useful lives using the straight-line method. Estimated useful lives, in years, for depreciable assets are as follow: Buildings and Improvements Equipment 15-40 years 3-5 years Compensated Absences It is the Housing Authority's policy to allow employees to accumulate earned but unused vacation and sick pay benefits up to certain limits. These amounts accrued, for which the employee is vested that would be paid upon termination, are charged to expense and a corresponding liability is established when earned. The portion of the liability that is anticipated to be paid within the next fiscal year is reported as a current liability, while the remainder is reported as a long-term liability. Operating and Non-operating Revenues and Expenses The statement of revenues, expenses, and changes in Net Position distinguishes operating revenues and expenses from non-operating. Operating revenues and expenses generally include revenues resulting from the providing of housing services to tenants, including housing assistance grants and subsidies, and the costs associated with providing those services, including depreciation of capital assets. These activities are consistent with those classified as operating activities in the statement of cash flows. All other revenues and expenses are classified as either non-operating revenues and expenses or separately reported activities, such as capital grants, that are reported following operating income or loss. 18

Page 4 of 7 HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 3 - CASH, CASH EQUIVALENTS, AND INVESTMENTS It is the Housing Authority's policy to invest in those securities which are authorized by HUD. Such investments generally consist of obligation of the U.S. government and its agencies and instrumentalities, collateralized or insured certificates of deposit, or other bank deposits, and certain other commercial instruments. The deposits and investments held at June 30, 2016, and reported at fair value, are as follows: TYPE Deposits: Carrying Value Demand Deposits $ 268,041 Cash on Hand 175 268,216 Investments: Certificates of Deposit 866,005 Total Deposits and Investments $ 1,134,221 Reconciliation to Statement of Net Position: Cash and Cash Equivalents $ 251,253 Cash and Cash Equivalents, Restricted 16,963 Investments 866,005 $ 1,134,221 Custodial Credit Risk - HUD regulations and State law governs the requirements for managing custodial credit risk. Such regulations and law require uninsured deposits to be secured with collateral having market value at least equal to the amount of uninsured deposits. Deposits in financial institutions, reported as components of cash, cash equivalents, and investments, had a bank balance of $1,135,403 at June 30, 2016, which was fully insured by depository insurance or secured with collateral held by the Housing Authority's agent in its name. Investment Interest Rate Risk - The Housing Authority's investment policy mandates that investing be performed in accordance with HUD regulations and State Statutes. The investment policy has no formal limitation of investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Nonnegotiable certificates of deposit are not subject to interest rate risk, therefore their maturity dates are not provided. 19

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Page 5 of 7 NOTE 3 - CASH, CASH EQUIVALENTS, AND INVESTMENTS, Continued Investment Credit Risk - The Housing Authority's investment policy limits its investment choices to those allowed by HUD regulations and state laws as follows: A. U.S. Treasury Bills B. U.S. Treasury Notes and Bonds C. Obligations of Federal Government Agencies D. Securities of Federal Government Agencies E. Insured Money Market Deposit Accounts F. Municipal Depository Fund G. Super NOW Accounts H. Certificates of Deposit I. Repurchase Agreements J. Sweep Accounts K. Separate Trading of Registered Interest and Principal of Securities L. Mutual Funds that meet the HUD criteria. Concentration of Investment Credit Risk - The Housing Authority places no limit on the amount it may invest in any one issuer. At June 30, 2016, the Housing Authority had limited concentration of credit risk because the investments consist of Certificates of Deposit. NOTE 4 - ACCOUNTS RECEIVABLE All receivables from tenants are for rentals and service charges. These receivables are shown net of an allowance for uncollectible amounts. The total accounts receivable balance is $6,515 less an allowance of $500 for a net accounts receivable of $6,015 at June 30, 2016. 20

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Page 6 of 7 NOTE 5 - CAPITAL ASSETS A summary of Capital Assets as presented in the Statement of Net Position is as follows: Non-depreciable Capital Assets: Balance Balance 6/30/2015 Increases Decreases 6/30/2016 Land $ 1,101,696 $ 0 $ 0 $ 1,101,696 Construction in Progress 331,107 23,645 0 354,752 1,432,803 23,645 0 1,456,448 Depreciable Capital Assets: Buildings and Improvements 6,163,835 129,565 0 6,293,400 Furniture & Equipment 365,948 41,077 (23,390) 383,635 Less Accumulated Depreciation: 6,529,783 170,642 (23,390) 6,677,035 Buildings and Improvements 3,304,059 214,493 0 3,518,552 Furniture & Equipment 280,865 22,899 (23,390) 280,374 3,584,924 237,392 (23,390) 3,798,926 Net Depreciable Capital Assets 2,944,859 (66,750) 0 2,878,109 Total $ 4,377,662 $ (43,105) $ 0 $ 4,334,557 Depreciation expense for the year ending June 30, 2016 is $237,392. NOTE 6 - ACCRUED COMPENSATED ABSENCES Accrued Compensated Absences consists of employee vacation and sick pay benefits which have been earned but not used. These benefits total $11,705 of which $1,171 is current and $10,534 is long-term. The current portion is anticipated to be used in the next twelve months with the long-term portion anticipated to be used after the next twelve months. The following is a summary of the long-term portion. Balance Balance Due Within 6/30/2015 Increases Decreases 6/30/2016 One Year Accrued Compensated Absences $ 10,691 $ 13,325 $ 12,311 $ 11,705 $ 1,171 NOTE 7 - COMMITMENTS AND CONTINGENCIES The Housing Authority has an active construction project as of June 30, 2016. This capital project is a modernization of the housing units. This project is being funded by the Capital Fund Program. As of June 30, 2016, $354,752 had been spent on this project. 21

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Page 7 of 7 NOTE 7 - COMMITMENTS AND CONTINGENCIES, Continued The activities of the Housing Authority are currently funded in large part by the Federal Government and future operations of the Authority are reliant on continuation of this funding from the Federal Government. The entity is subject to possible examinations by federal regulators who determine compliance with terms, conditions, laws and regulations governing grants given to the entity in the current and prior years. These examinations may result in required refunds by the entity to the federal grantors and/or program beneficiaries. Although these amounts cannot be determined at this time, the Housing Authority expects such amounts to be immaterial. NOTE 8 - RISK MANAGEMENT The Housing Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets, errors and omissions injuries to employees; and natural disasters for which the Housing Authority purchases commercial insurance. Management believes this coverage is sufficient to preclude any significant uninsured losses to the Housing Authority. Settled claims have not exceeded coverage in any of the past three fiscal years. NOTE 9 - RETIREMENT The Housing Authority participates in a defined contribution plan administered by Lafayette Life. Through this plan, the Housing Authority provides pension benefits for all of its full-time employees. Plan provisions and changes to plan contributions are determined by the Board of Commissioners of the Housing Authority. The Housing Authority contributed $15,158 and participants contributed $9,786 for a total of $24,944. These contributions reflect rates of annual covered payroll of 8.5% and 5.5% for employer and participants, respectively. Contributions for the year ending June 30, 2015 total $22,922. NOTE 10 - ECONOMIC DEPENDENCY The Housing Authority receives a significant portion of its revenue from funds provided through federal grants. The grant amounts are appropriated each year at the federal level. If significant budget cuts occur at the federal level, the amount of funds the Housing Authority receives could be reduced substantially and have an adverse effect on its operations. Although management expects decreases in funding, significant adverse changes in services provided are not expected to occur by the Housing Authority. 22

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016 Federal Federal Federal Grantor/Program Title CFDA # Expenditures U.S. Department of Housing and Urban Development Direct Program: Public & Indian Housing 14.850 $ 415,055 Public Housing Capital Fund Program 14.872 173,653 Section 8 Housing Choice Vouchers 14.871 530,850 Total $ 1,119,558 The accompanying notes to the financial statements are an integral part of this schedule. NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 1 - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal award activity of the Housing Authority of the City of Russellville under programs of the federal government for the year ended June 30, 2016. The information in this schedule is presented in accordance with the 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). Because the Schedule presents only a selected portion of the operations of the entity, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Housing Authority of the City of Russellville. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 23

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE FINANCIAL DATA SCHEDULE JUNE 30, 2016 Page 1 of 4 Project Total 14.871 Housing Choice Vouchers Subtotal Total 111 Cash - Unrestricted $165,393 $85,860 $251,253 $251,253 113 Cash - Other Restricted $388 $388 $388 114 Cash - Tenant Security Deposits $16,575 $16,575 $16,575 100 Total Cash $181,968 $86,248 $268,216 $268,216 126 Accounts Receivable - Tenants $6,515 $6,515 $6,515 126.1 Allowance for Doubtful Accounts -Tenants -$500 -$500 -$500 129 Accrued Interest Receivable $370 $4 $374 $374 120 Total Receivables, Net of Allowances for Doubtful Accounts $6,385 $4 $6,389 $6,389 131 Investments - Unrestricted $843,363 $22,642 $866,005 $866,005 142 Prepaid Expenses and Other Assets $29,041 $714 $29,755 $29,755 143 Inventories $5,253 $5,253 $5,253 143.1 Allowance for Obsolete Inventories -$263 -$263 -$263 150 Total Current Assets $1,065,747 $109,608 $1,175,355 $1,175,355 161 Land $1,101,696 $1,101,696 $1,101,696 162 Buildings $5,093,873 $5,093,873 $5,093,873 163 Furniture, Equipment & Machinery - Dwellings $195,812 $195,812 $195,812 164 Furniture, Equipment & Machinery - Administration $180,459 $7,364 $187,823 $187,823 165 Leasehold Improvements $1,199,527 $1,199,527 $1,199,527 166 Accumulated Depreciation -$3,793,103 -$5,823 -$3,798,926 -$3,798,926 167 Construction in Progress $354,752 $354,752 $354,752 160 Total Capital Assets, Net of Accumulated Depreciation $4,333,016 $1,541 $4,334,557 $4,334,557 180 Total Non-Current Assets $4,333,016 $1,541 $4,334,557 $4,334,557 290 Total Assets and Deferred Outflow of Resources $5,398,763 $111,149 $5,509,912 $5,509,912 24

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE FINANCIAL DATA SCHEDULE JUNE 30, 2016 Page 2 of 4 Project Total 14.871 Housing Choice Vouchers Subtotal Total 312 Accounts Payable <= 90 Days $22,472 $1,192 $23,664 $23,664 321 Accrued Wage/Payroll Taxes Payable $4,211 $470 $4,681 $4,681 322 Accrued Compensated Absences - Current Portion $938 $233 $1,171 $1,171 333 Accounts Payable - Other Government $26,393 $26,393 $26,393 341 Tenant Security Deposits $16,575 $16,575 $16,575 342 Unearned Revenue $1,308 $1,308 $1,308 345 Other Current Liabilities $21,019 $21,019 $21,019 310 Total Current Liabilities $71,897 $22,914 $94,811 $94,811 354 Accrued Compensated Absences - Non Current $8,439 $2,095 $10,534 $10,534 350 Total Non-Current Liabilities $8,439 $2,095 $10,534 $10,534 300 Total Liabilities $80,336 $25,009 $105,345 $105,345 508.4 Net Investment in Capital Assets $4,333,016 $1,541 $4,334,557 $4,334,557 511.4 Restricted Net Position $388 $388 $388 512.4 Unrestricted Net Position $985,411 $84,211 $1,069,622 $1,069,622 513 Total Equity - Net Assets / Position $5,318,427 $86,140 $5,404,567 $5,404,567 600 Total Liabilities, Deferred Inflows of Resources and Equity - Net $5,398,763 $111,149 $5,509,912 $5,509,912 25

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE FINANCIAL DATA SCHEDULE JUNE 30, 2016 Page 3 of 4 Project Total 14.871 Housing Choice Vouchers Subtotal Total 70300 Net Tenant Rental Revenue $338,640 $338,640 $338,640 70400 Tenant Revenue - Other $21,688 $21,688 $21,688 70500 Total Tenant Revenue $360,328 $0 $360,328 $360,328 70600 HUD PHA Operating Grants $430,006 $530,850 $960,856 $960,856 70610 Capital Grants $158,702 $158,702 $158,702 71100 Investment Income - Unrestricted $2,819 $18 $2,837 $2,837 71500 Other Revenue $31,928 $425 $32,353 $32,353 71600 Gain or Loss on Sale of Capital Assets $1,706 $1,706 $1,706 70000 Total Revenue $985,489 $531,293 $1,516,782 $1,516,782 91100 Administrative Salaries $97,453 $31,471 $128,924 $128,924 91200 Auditing Fees $4,394 $4,056 $8,450 $8,450 91400 Advertising and Marketing $1,617 $1,617 $1,617 91500 Employee Benefit contributions - Admin $40,422 $13,705 $54,127 $54,127 91600 Office Expenses $8,070 $7,270 $15,340 $15,340 91700 Legal Expense $1,045 $1,045 $1,045 91800 Travel $568 $669 $1,237 $1,237 91810 Allocated Overhead 91900 Other $15,803 $11,054 $26,857 $26,857 91000 Total Operating - Administrative $169,372 $68,225 $237,597 $237,597 93100 Water $6,894 $6,894 $6,894 93200 Electricity $49,842 $49,842 $49,842 93300 Gas $10,688 $10,688 $10,688 93600 Sewer $10,057 $10,057 $10,057 93000 Total Utilities $77,481 $0 $77,481 $77,481 94100 Ordinary Maintenance and Operations - Labor $104,461 $104,461 $104,461 94200 Ordinary Maintenance and Operations - Materials and Other 94300 Ordinary Maintenance and Operations Contracts 94500 Employee Benefit Contributions - Ordinary Maintenance $47,913 $47,913 $47,913 $115,629 $115,629 $115,629 $38,374 $38,374 $38,374 94000 Total Maintenance $306,377 $0 $306,377 $306,377 26

HOUSING AUTHORITY OF THE CITY OF RUSSELLVILLE FINANCIAL DATA SCHEDULE JUNE 30, 2016 Page 4 of 4 Project Total 14.871 Housing Choice Vouchers Subtotal Total 95200 Protective Services - Other Contract Costs $69,664 $69,664 $69,664 95000 Total Protective Services $69,664 $0 $69,664 $69,664 96110 Property Insurance $33,613 $1,222 $34,835 $34,835 96120 Liability Insurance $2,744 $2,744 $2,744 96130 Workmen's Compensation $2,699 $2,699 $2,699 96140 All Other Insurance $8,987 $8,987 $8,987 96100 Total insurance Premiums $48,043 $1,222 $49,265 $49,265 96300 Payments in Lieu of Taxes $26,393 $26,393 $26,393 96400 Bad debt - Tenant Rents $15,842 $15,842 $15,842 96000 Total Other General Expenses $42,235 $0 $42,235 $42,235 96900 Total Operating Expenses $713,172 $69,447 $782,619 $782,619 97000 Excess of Operating Revenue over Operating Expenses $272,317 $461,846 $734,163 $734,163 97100 Extraordinary Maintenance $9,156 $9,156 $9,156 97300 Housing Assistance Payments $437,233 $437,233 $437,233 97350 HAP Portability-In $387 $387 $387 97400 Depreciation Expense $236,919 $473 $237,392 $237,392 90000 Total Expenses $959,247 $507,540 $1,466,787 $1,466,787 10000 Excess (Deficiency) of Total Revenue Over (Under) Total Expenses $26,242 $23,753 $49,995 $49,995 11030 Beginning Equity $5,292,185 $62,387 $5,354,572 $5,354,572 11170 Administrative Fee Equity $85,752 $85,752 $85,752 11180 Housing Assistance Payments Equity $388 $388 $388 11190 Unit Months Available 2147 1886 4033 4033 11210 Number of Unit Months Leased 2046 1884 3930 3930 11270 Excess Cash $901,634 $901,634 $901,634 11620 Building Purchases $148,907 $148,907 $148,907 11630 Furniture & Equipment - Dwelling Purchases $5,493 $5,493 $5,493 11650 Leasehold Improvements Purchases $4,302 $4,302 $4,302 27