YW HOMES, INC. Financial Statements And Supplemental Data. For the Year Ended December 31, 2016

Transcription

1 Financial Statements And Supplemental Data For the Year Ended December 31, 2016

2 Table of Contents For the Year Ended December 31, 2016 Nature of Operations Independent Auditor's Report Financial Statements Statement of Financial Position. Statement of Activities Statement of Functional Expenses Statement of Cash Flows Notes to Financial Statements Supplemental Data Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards 16 Notes to Schedule of Expenditures of Federal Awards 17 Schedule of Findings and Questioned Costs 18

3 Nature of Operations For the Year Ended December 31, 2016 Nature of Operations - YW Homes, Inc. (the Organization) is a nonprofit corporation, organized in 1998, which promotes and provides affordable housing in the Jefferson and St. Clair counties, located in Alabama. The Organization is an affiliate of The Young Women's Christian Association of Birmingham (the YWCA). The Organization has received, from Jefferson County and the State of Alabama, the designation as a Community Housing Development Organization (CHDO). The Organization is supported primarily by the federal grants and contributions from an affiliated organization, the YWCA. Program Services - The housing program promotes and provides affordable housing to!ow/moderate income families.

4 SINCE 1922 BORLAND BENEFIELD INDEPENDENT AUDITOR'S REPORT To the Board of Trustees of YW Homes, Inc. We have audited the accompanying financial statements of YW Homes, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and. fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BORLANDBENEFIELD.COH INFO;i'HlO"LANDU'A C01'-i '.IJl c l: 2

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of YW Homes, Inc. as of December 31, 2016, and the changes in its net assets and its cash.flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that comprise YW Homes, lnc.'s basic financial statements. The accompanying supplemental data, including the financial data schedule and statement and certification of actual modernization costs, are preseated for purposes of additional analysis as required by the U.S. Department of Housing and Urban Development and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis in accordance with 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 also not a required part of the basic financial statements. The financial data schedule, statement and certification of actual modernization costs, and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the financial data schedule, statement and certification of actual modernization costs, and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 6, 2017 on our consideration of YW Homes, lnc.'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 YW Homes, lnc.'s internal control over financial reporting and compliance. b d,.)i 1~0 (':,. e_. Borland Benefield, P.C. Birmingham, Alabama July 6,

6 YW _HOMES, INC. Statement of Financial Position December 31, 2016 Assets Cash Certificates of deposit Receivables Mortgages receivable Property and equipment, net Deposits for replacement reserve Total Assets Liabilities and Net Assets Liabilities Accounts payable Construction advance Due to related party Security deposits held for tenants Prepaid rent Interest payable Mortgage loans Total Liabilities Net Assets Unrestricted Temporarily restricted Tota! Net Assets Total Liabilities and Net Assets $ 351,102 8, ,623 5,876,031 9,888 $ 6,256,131 $ 2,202 4,093,259 80,231 16,572 1,430 32,538 1,038,593 5,264, ,726 28, ,306 $ 6,256,131 See accompanying notes to financial statements. 4

7 Statement of Activities For the Year Ended December 31, 2016 Unrestricted Temporarily Restricted Total Support and Revenue Rental income $ 277,626 $ Grants 95,000 - Contributions 117,758 Program service fees 22,557 Interest income 251 Total Support and Revenue 513,192 Expenses Housing program 629,366 Administrative 60,746 Total Expenses 690,112 $ 277,626 95, ,758 22, , ,366 60, ,112 Change in Net Assets (176,920) (176,920) Net Assets, Beginning of Year 1,139,646 Net Assets, End of Year $ 962,726 $ 28,580 28,580 1,168,226 $ 991,306 See accompanying notes to financial statements. 5

8 Statement of Functional Expenses For the Year Ended December 31, 2016 Expenses.Housing Program Depreciation $ 256,878 $ Occupancy 188,907 Salaries, benefits and payroll taxes 103,434 Professional fees 38,966 Office supplies and expenses 29,970 Transportation 4,125 Client assistance 3,536 Conferences and meetings 3,004 Licenses and taxes 546 Total Expenses $ 629,366 $ Administrative 60,746 60,746 Total $ 256, , ,180 38,966 29,970 4,125 3,536 3, $ 690,112 See accompanying notes to financial statements. 6

9 Statement of Cash Flows For the Year Ended December 31, 2016 Cash Flows From Operating Activities Cash received from programs Cash received from developer fees & other income Cash received from contributions and grants Cash paid to suppliers and employees Security deposits received Interest received Net Cash Provided by Operating Activities Cash Flows From Investing Activities Collections on mortgages receivable Acquisition of property and equipment Net Cash (Used) by Investing Activities Cash Flows From Financing Activities Debt principal payments Change in due to related party Net Cash (Used) by Financing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Reconciliation of Change in Net Assets to Net Cash Flows From Operating Activities Change in net assets Adjustments to reconcile change in net assets: Depreciation Loss on disposal of assets Change in operating assets and operating liabilities: Receivables Accounts payable Prepaid rent Security deposits held for tenants Net Cash Provided by Operating Activities $ 277,626 37, ,758 {376,160} 3, ,833 1,627 (7,609) (5,982) (10,000) 4,094 (5,906} 142, ,157 $ 351,102 $ (176,920) 256,878 13, , ,318 $ 154,833 See accompanying notes to financial statements. 7

10 Notes to Financial Statements For the Year Ended December 31, 2016 Note 1 - Summary of Significant Accounting Policies Financial Statement Presentation - YW Homes, Inc. (the Organization) reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. The Organization currently does not have any net assets that are permanently restricted. Basis of Accounting - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with Generally Accepted Accounting Principles. Cash and Cash Equivalents - The Organization indudes cash equivalents (defined as investments, having a maturity of three months or less) ln cash flows each year. The carrying amou_nt reported in the Statement of Financial Position approximates fair value because of the short maturity of those instruments. Cash equivalents exclude cash restricted for. mortgage reserves. The balance in the operating account as of December 31, 2016, was $351,102. Accounts Receivable - Management believes all accounts are currently collectible; therefore, there is no allowance for doubtful accounts. The carrying amount reported in the Statement of Financial Position approximates fair value because of the short maturity of those instruments. Recoveries of previously written-off accounts are netted against the amount written-off for the period. Mortgages Receivable - Mortgages receivable are recorded as assets in the financial statements at their principal amounts, net of amounts. deemed uncollectible. This amount approximates fair value. At December 31, 2016, management feels that all amounts are collectible. Interest is amortized to income using the effective interest method over the remaining mortgage periods, adjusted for anticipated prepayments. Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual terms. The Organization's practice is to charge off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the bc;irrower's failure to meet repayment terms, the borrower's deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, or for other reasons. Mortgage loans are placed on nonaccrual when management believes, after considering economic conditions, business conditions and collection efforts, that the loans are impaired or collection of interest is doubtful. Property and Equipment - Property and equipment is carried at cost, less accumulated depreciation, and includes expenditures that substantially increase the useful lives of exlsting property and equipment. Donated property and equipment is recorded at fair value as of the date of gift. Maintenance, repairs and minor renovations are charged to expense as incurred. When property and equipment is retired or otherwise disposed, the related costs and accumulated depreciation are removed from the respective accounts, and the gain or loss on the disposition is credited or charged to income. The Organization provides for depreciation using the straight-line method designed to amortize costs over estimated useful lives as follows: Buildings Furniture and Equipment 39 Years 5-10 Years Land and Real Estate Held for Future Development - Land and real estate held for future development is carried at cost or appraised value. A developer's fee is recorded upon the completion and transfer of a home. See independent auditor's report. 8

11 Notes to Financial Statements (continued) For the Year Ended December 31, 2016 Note 1 - Summary of Significant Account Policies (continued} Unrestricted Donations - Unconditional promises to give that are expected to be received within one year of the date of the promise are recorded at net realizable value. Unconditional promises to give that are expected to be collected later than one year from the date of promises to give are recorded at the present value of their estimated future cash flows. The discounts on those cash flows are computed using a riskfree rate of return applicable to the period over which the promises will be received. Amortization of the discounts is recognized as contribution revenue. Rental Income - The Organization considers rental income as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Organization and the tenants of the property are operating leases. Under the regulatory agreement, the Organization may not increase rents charged to the tenants without approval of the Department of Housing and Urban Development (HUD). Expense Allocation - The costs of providing various programs and other activities have been summarized on a functional basis in the Statement of Activities and in the Statement of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Estimates - The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes -The Organization is described in Section 509(a)(2) of the Internal Revenue Code. The Organization is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The Organization believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements.. As of December 31, 2016, the Organization had no uncertain tax positions that qualify for disclosure in the financial statements. The Organization files an annual Form 990 with the Internal Revenue Service and its tax returns for the year 2013 and subsequent years remain subject to examination by tax authorities. Note 2 - Certificates of Deposit The certificates of deposit were in the amount of $8,067 at December 31, 2016, bearing interest of 0.2% and maturities of twelve months. The entire balance is restricted per the AHFA loan agreement. At yearend, interest of $251 had been earned on the certificates. The carrying amount reported in the Statement of Financial Position approximates fair value. Note 3 - Property and Equipment Property and equipment at December 31, 2016, consisted of the following: Land Building Furniture and equipment Property and Equipment Less: accumulated depreciation Property and Equipment, net $ 233,280 7,300,954 51,048 7,585,282 {1,709,251) $5,876,031 See independent auditor's report. 9

12 Notes to Financial Statements (continued) For"the Year Ended December 31, 2016 Note 3 - Property and Equipment (continued) Depreciation expense for the year ended December 31, 2016, was $256,878. Note 4- Debt and Contingencies During 1999, the Organization entered into an agreement with Jefferson County, Alabama to become a Community Housing Development Organization. As a part of this agreement, the Organization has agreed to develop and/or rehabilitate a minimum of 20 and a maximum of 50 homes that qualify as affordable housing under the standards established by HUD until June 22, The primary responsibilities of the Organization are to market the service and identify eligible homebuyers, assist eligible buyers in securing outside financing, select and secure the purchase of property sites, design the homes to be built, and select contractors to build the homes,. as well as to handle the overall project management. During 2002, the Organization entered into another contractual agreement with Jefferson County to build low income rental housing. As stated in the agreement, the Organization will construct rental units for $653,325. The construction costs will convert to a mortgage loan through Jefferson County HOME program. The terms of the mortgage loan are that of the remaining $580,091 owed, $353,325 will be forgivable on N.ovember 16, 2024, if the Organization abides by the terms of the agreement. As of December 31, 2016, payment of $226,766 is payable at a 0% interest rate. As of December 31, 2005, the Organization purchased affordable rental properties for low income individuals financed by Alabama Housing Financing Authority (AHFA) acting solely in the capacity as the administrator of the State of Alabama's HOME Investment Partnership Program in the amount of $458,502. The total amount outstanding is $458,502 and is forgivable in 20 years, as long as the Organization abides by the terms to provide housing to low income individuals. If the terms are not met, the principal plus.5% interest is due in a balloon payment in Loan maturities for the year ending December 31, 2016, each of the five years and thereafter are as follows: Thereafter $ 10,000 10,000 10,000 10,000 10, ,593 $1,038,593 The Organization purchased three apartment buildings to rehabilitate for low income individuals through the HUD HOME grant program administered by the City of Birmingham. As of December 31, 2016, the outstanding loan advance is $4,093,259. When the loan advance converts to permanent financing, it will have a 20 year term with 0% interest. The loan wil! be forgiven if the Organization is compliant with the terms of the agreement. Note 5 - Related Party Transactions The Organization is an affiliate of the Young Women's Christian Association of Birmingham (the YWCA). The Executive Director of the YWCA serves as the President of the Board of Directors of the Organization. See independent auditor's report. 10

13 Notes to Financial Statements (continued) For the Year Ended December 31, 2016 Note 5 - Related Party Transactions (continued) During 2016, the Organization did not receive any in-kind contributions from the YWCA. The YWCA owns the building in which the Organization's offices are located. The Organization does not pay rent for use of this space. The Organization pays an annual management fee to the YWCA in the amount of $57,013, of which $4,934 remains outstanding at December 31, A portion of several YWCA employees' salaries, payroll taxes and benefits in the amount of $164,181 was paid for administrative and program services. At December 31, 2016, the Organization had an outstanding balance payable to the YWCA in the amount of $75,296. Note 6 - Donated Land As of December 31, 2016, all of the existing restrictions on the Organization's net assets were temporary. Temporarily restricted net assets at year-end consisted of donated land in the amount of $28,580. Since 2000, the Organization has received donated land on which affordable housing will be constructed. This land, worth $28J>16, had not been used as of December 31, Note 7 - Current Vulnerabilities to Certain Concentrations The Organization is subject to a heavily regulated environment. T he operations of the rental property are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies. Such administrative directives, rules and regulations are subject to change. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrati_ve burden, to comply with a change. The Organization maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. At December 31, 2016, the Organization did not have any bank deposit accounts that exceeded FDIC coverage. The qrganization has not experienced any loss in such accounts. Note 8 - Fair Value of Financial Instruments The Organization has a number of financial instruments, none of which are held for trading purposes. The Organization estimates that the fair value of all financial instruments at December 31, 2016, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying Statement of Financial Position. The estimated fair value amounts have been determined by the Organization using available market information and appropriate valuation methodologies. Considerable judgment is not necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Organization could realize in a current market exchange. Note 9-Subsequent Events The Organization has evaluated subsequent events through July 6, 2017, the date the financial statements were available to be issued. See independent auditor's report. 11

14 SINCE 1922 BORLAND BENEFIELD INDEPENDENT AUDITOR'S REPORT ON INTE NAL 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 Trustees of YW Homes, Inc. Birmingham, Alabama 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 YW Homes, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated July 6, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered YW Homes, lnc.'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 opinion on the financial statements, but not for the. purpose of expressing an opinion on the effectiveness of YW Homes, lnc.'s internal control. Accordingly, we do not express an opinion on the effectiveness of YW Homes, lnc.'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. Complianc~ and Other Matters As part of obtaining reasonable assurance about whether YW Homes, lnc.'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. BORLANDBENEFIELD.COM NFO'.,iBORLANDCPA COi" JOS R02 72J;, HIGHLAfff> AV[ N~ t - -,v AL:'.i,B.:-,:v - ~~-= --:-::: 12

15 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 results of that testing, and. not to provide an opinion on the effectiveness of the organization'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 organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Borland Benefield, P.C. Birmingham, Alabama July 6,

16 SINCE 1922 BORLAND BENEFIELD INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Trustees of YW Homes, Inc. Birmingham, Alabama Report on Compliance for Each Major Federal Program We have audited YW Homes, lnc.'s compliance with the types of compliance requirements described in the 0MB Compliance Supplement that could have a direct and material effect on each of yw Homes, lnc.'s major federal programs for the year ended December 31, YW Homes, lnc.'s major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of YW Homes, lnc.'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 YW Homes, lnc.'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 YW Homes, lnc.'s compliance. Opinion on Each Major Federal Program In our opinion, YW Homes, Inc. 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, BORLANDBENEFIELD.COM N s(),g)b0rlan DCPA.COM '.' HIC,H1AND AvfNu~ sr,un-. B 2 Rlr! M HG Ht, M ALABAMA

17 Report on Internal Control Over Compliance Management of YW Homes, Jnc. 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 YW Homes, Inc. 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 YW Homes, lnc.'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 feder a1 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. 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. Borland Benefield, P.C. Birmingham, Alabama July 6,

18 Schedule of Expenditures of Federal Awards For the Year Ended December 31, 2016 Federal Grantor/Pass-Through Grantor/Program or Title U.S. Department of Housing and Urban Development Passed through City of Birmingham, Alabama HOME Investment Partnerships - construction advance Total Expenditures of Federal Awards Federal CFDANo Revenue Recognized Federal Expenditures..;..$ - $ 4,093,259 =$=~~=- $ 4,093,259 16

19 NOTE A - BASIS OF ACCOUNTING YW HOMES, INC. Notes to Schedule of Expenditures of Federal Awards.For the Year Ended December 31, 2016 The accompanying combined schedule of expenditures of federal awards (the Schedule) includes the federal award activity of YW Homes, Inc. under programs of the federal government for the year ended December 31, 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 YW Homes, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Y\/1/ Homes, Inc. NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1) 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. 2) YW Homes, Inc. has elected not to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance. NOTE C - FEDERAL LOAN PROGRAMS The federal loan program, HOME Investment Partnerships, listed subsequently is administered directly by the City of Birmingham, Alabama. Balances and transactions relating to these programs are included in YW Homes, Inc. basic financial statements. Loans outstanding at the beginning of the year and loans received during the year are included in the federal expenditures presented in the Schedule. The balance of loans outstanding at December 31, 2016 consists of: CFDA Number Program Name HOME Investment Partnerships Outstanding Balance December $4,093,259 17

20 Section I - Summary of Auditor's Results YW Homes, Inc. Schedule of Findings and Questioned Costs For the Year End.ed December 31, 2016 Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness( es) identified? yes X no Significant deficiencies identified that are not considered to be material weaknesses? yes X no Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major programs: Material weakness(es) identified? yes X no Significant deficiencies identified that are n~t considered to be material weaknesses? yes X no Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR section (a) of the Uniform Guidance? yes X no Identification of major programs: U.S. Department of Housing and Urban Development CFDA# HOME Investment Partnerships Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? ~yes no Section II - Financial Statement Findings None Reported Section 111- Federal Award Findings and Questioned Costs None Reported Prior Audit Findings There were no audit findings noted in the prior year. 18