Adda and Paul Safran Senior Housing (A project owned by Venice Senior Housing Corp.) HUD Project No. 122-EE127-WAH-NP

Transcription

1 (A project owned by Venice Senior Housing Corp.) Financial Statements (With Supplementary Information) and Independent Auditor's Report September 30, 2016

2 Index Page Mortgagor's Certification 2 Managing Agent's Certification 3 Independent Auditor's Report 4 Financial Statements Statement of Financial Position 6 Statement of Activities and Changes in Net Assets (Deficit) 8 Statement of Cash Flows 10 Notes to Financial Statements 11 Supplementary Information Statement of Financial Position Data 18 Statement of Activities and Changes in Net Assets (Deficit) Data 20 Statement of Cash Flows Data 24 Reserve for Replacements 26 Residual Receipts Reserve 26 Computation of Surplus Cash, Distributions and Residual Receipts 26 Changes in Fixed Asset Accounts 27 Detail of Accounts - Statement of Financial Position 28 Detail of Accounts - Statement of Activities 29 Other Information 30 Schedule of Expenditures of Federal Awards 31 Notes to Schedule of Expenditures of Federal Awards 32 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 33 Independent Auditor's Report on Compliance for Each Major Federal Program and on Internal Control over Compliance Required by the Uniform Guidance 35 Schedule of Findings and Questioned Costs 37 1

3

4

5 Independent Auditor's Report To the Board of Trustees Venice Senior Housing Corp. Report on the Financial Statements We have audited the accompanying financial statements of Adda and Paul Safran Senior Housing, which comprise the statement of financial position as of September 30, 2016, and the related statements of activities and changes in net assets (deficit) 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Adda and Paul Safran Senior Housing as of September 30, 2016, and the changes in its net assets (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 4

6 Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information on pages 18 to 30 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis 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 our opinion, the information is 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 December 21, 2016, on our consideration of Adda and Paul Safran Senior Housing's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Adda and Paul Safran Senior Housing's internal control over financial reporting and compliance. Los Angeles, California Taxpayer Identification Number: December 21, Lead Auditor: Michael J. Good, CPA 5

7 Statement of Financial Position September 30, 2016 Assets Current assets Cash - operations $ 20,703 Construction cash 10,652 Tenant accounts receivable 10 Accounts receivable - HUD 869 Accounts and notes receivable - entity 200,000 Prepaid expenses 1,597 Total current assets 233,831 Deposits held in trust - funded Tenant deposits 21,845 Restricted deposits and funded reserves Reserve for replacements 93,024 Residual receipts reserve 10,281 Total restricted deposits and funded reserves 103,305 Rental property Land 2,600,000 Buildings 7,436,128 Building equipment - portable 52,789 Furniture for project/tenant use 43,878 Furnishings 93,154 Office furniture and equipment 21,636 10,247,585 Less accumulated depreciation (2,544,905) Total rental property 7,702,680 Total assets $ 8,061,661 6

8 Statement of Financial Position September 30, 2016 Liabilities and Net Assets (Deficit) Current liabilities Accounts payable - operations $ 17,423 Accounts payable - Section 8 and other 1,089 Accrued wages payable 8,854 Accrued payroll taxes payable 4,337 Accrued property taxes payable 1,072 Miscellaneous current liabilities 9,880 Prepaid revenue 702 Total current liabilities 43,357 Deposits liability Tenant deposits held in trust (contra) 21,845 Long-term liabilities Notes payable 3,827,069 Mortgage payable - first mortgage 5,806,800 Accrued interest payable - other loans/notes 142,977 Total long-term liabilities 9,776,846 Total liabilities 9,842,048 Contingency - Net assets (deficit) Unrestricted (2,132,761) Temporarily restricted 352,374 Total net assets (deficit) (1,780,387) Total liabilities and net assets (deficit) $ 8,061,661 See Notes to Financial Statements. 7

9 Statement of Activities and Changes in Net Assets (Deficit) Year Ended September 30, 2016 Revenue Rental $ 532,992 Vacancies (3,883) Net rental revenue 529,109 Financial 84 Other 9,560 Total revenue 538,753 Expenses Administrative 203,921 Utilities 57,252 Operating and maintenance 86,439 Taxes and insurance 86,268 Nursing home/assisted living/board and care/other elderly care expenses 47,174 Total cost of operations before depreciation and amortization 481,054 Income (loss) before depreciation and amortization 57,699 Depreciation and amortization 201,669 Change in unrestricted net assets $ (143,970) 8

10 Statement of Activities and Changes in Net Assets (Deficit) Year Ended September 30, 2016 Unrestricted Temporarily restricted Total Net assets (deficit), September 30, 2015 $ (1,988,791) $ 158,449 $ (1,830,342) Other changes in net assets Donation - 200, ,000 Release of temporarily restricted net assets - (6,075) (6,075) Change in net assets (143,970) - (143,970) Net assets (deficit), September 30, 2016 $ (2,132,761) $ 352,374 $ (1,780,387) See Notes to Financial Statements. 9

11 Statement of Cash Flows Year Ended September 30, 2016 Reconciliation of change in unrestricted net assets to net cash provided by operating activities Change in unrestricted net assets $ (143,970) Adjustments to reconcile change in unrestricted net assets to net cash provided by operating activities Depreciation and amortization 201,669 Bad debts 1,292 Recognition of grant revenue (6,075) Changes in asset and liability accounts (Increase) decrease in assets Tenant accounts receivable (1,302) Accounts receivable - HUD (23) Prepaid expenses 6,434 Tenant security deposits funded (402) Increase (decrease) in liabilities Accounts payable (19,845) Accrued liabilities 1,914 Tenant security deposits held in trust 402 Prepaid revenue (366) Other adjustments (include detail) Miscellaneous current liabilities 1,947 Total adjustments 185,645 Net cash provided by operating activities 41,675 Cash flows from investing activities Net deposits to reserve for replacements (9,396) Net deposits to residual receipts reserve (4) Net purchases of fixed assets (19,087) Net cash used in investing activities (28,487) Net increase in cash 13,188 Cash, beginning 18,167 Cash, end $ 31,355 Significant noncash investing and financing activities Purchase of fixed assets recorded in accounts payable $ 443 Donation temporarily restricted for capital improvements $ 200,000 See Notes to Financial Statements. 10

12 Notes to Financial Statements September 30, 2016 Note 1 - Organization Adda and Paul Safran Senior Housing (the "Project") is owned by the Venice Senior Housing Corp. (the "Corporation"), which was incorporated pursuant to the General Nonprofit Corporation Law of the State of California to provide low cost housing for the elderly. The Project consists of 64 units located in Venice, California, and is operated under Section 202 of the National Housing Act. Surplus cash, as defined by the U.S. Department of Housing and Urban Development ("HUD"), is required to be deposited into a residual receipts reserve. Note 2 - Summary of significant accounting policies Basis of presentation The Corporation presents its financial statements in accordance with the accounting guidance for nonprofit entities. Under this guidance, the Corporation is required to report 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. Furthermore, information is required to segregate program service expenses from management and general expenses. The Corporation conforms to accounting guidance on revenue recognition for nonprofit entities. Under this guidance, contributions received, if any, are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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. Accounts receivable and bad debts Tenant receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. GAAP requires that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. Rental property Rental property is carried at cost. Depreciation is computed using the straight-line method and is provided over the estimated useful lives of the depreciable assets, generally ranging from five to forty years. Impairment of long-lived assets The Corporation reviews its rental property for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When recovery is reviewed, if the undiscounted cash flows estimated to be generated by the property are less than its carrying amount, management compares the carrying amount of the property to its fair value in order to determine whether an impairment loss has occurred. The amount of the impairment loss is equal to the excess of the asset's carrying value over its estimated fair value. No impairment loss has been recognized during the year ended September 30,

13 Notes to Financial Statements September 30, 2016 Income taxes The Corporation has applied for and received a determination letter from the Internal Revenue Service ("IRS") to be treated as a tax exempt entity pursuant to Section 501(c)(3) of the Internal Revenue Code and did not have any unrelated business income for the year ended September 30, Due to its tax exempt status, the Corporation is not subject to income taxes. The Corporation is required to file and does file tax returns with the IRS and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Corporation has no other tax positions which must be considered for disclosure. The Corporation is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes it is no longer subject to income tax examination for years prior to Rental income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Corporation and the tenants of the property are operating leases. Functional expenses The costs of providing various programs and other activities are summarized on a functional basis as follows: Program services HUD-assisted elderly housing project $ 602,811 Supportive services Management and general Legal $ 425 Accounting and auditing expenses 15,456 Management fees 64,031 79,912 $ 682,723 Cash and cash equivalents For purposes of the statement of cash flows, the Project considers petty cash, cash in bank, and short-term investments purchased with a maturity of three months or less to be cash and cash equivalents. In addition, the Project excludes tenant deposits held in trust, replacement reserve, and residual receipts reserve, as these amounts are limited in use. Note 3 - Mortgage payable Capital advance mortgage The Project was granted a capital advance mortgage from HUD in an amount not to exceed $5,806,800 under Part 889 of Section 202 of the Housing Act of 1959, as amended by Section 811 of the National Affordable Housing Act, to construct 64 units for elderly housing. This advance matures on December 1, 2042, bears no interest, and repayment is not required so long as the housing remains available for very-low-income elderly persons for not less than 40 years. Failure to keep the housing available for elderly persons (or disabled persons) would result in HUD billing the owner for the entire capital advance outstanding plus interest since the date of the first advance. The mortgage is secured by a deed of trust on the property. As of September 30, 2016, the mortgage payable balance is $5,806,

14 Notes to Financial Statements September 30, 2016 HUD regulates and limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. All surplus cash must be deposited into a residual receipts reserve, which is to be used for unexpected contingencies of the Project or specific programs as approved in advance by HUD. As of September 30, 2016, there was no surplus cash and a residual receipts reserve balance of $10,281. In addition, HUD requires the Project to maintain a reserve for replacements to be used for the replacement of major items. The reserve for replacements is increased by monthly deposits of $2,195 per month. As of September 30, 2016, the replacement reserve balance is $93,024. Note 4 - Notes payable Notes payable consist of the following at September 30, 2016: City of Los Angeles On October 25, 1996, the Project entered into a loan agreement with the City of Los Angeles (the "City") in the amount of $1,877,840. This loan accrued interest at a rate of 5% until the loan was rolled into a new loan agreement with the City on September 12, On that date, the City waived all but $161,592 of the accrued and unpaid interest on the loan. As of September 30, 2016, there is $142,977 in accrued and unpaid interest associated with this loan agreement. On September 12, 2001, the Project entered into a new loan agreement with the City. The Project agreed to develop and maintain affordable housing for the elderly until at least The City agreed to provide up to $3,662,069 to the Project (including the amount loaned to the Project in 1996) to fund the purchase of the land and predevelopment and construction costs in return for a residual receipts note payable. This note bears no interest, and annual principal payments to amortize the note over 40 years are due in the amount of 50% of the Project's residual receipts as defined in the agreement. The first payment was due April 1, 2004, and annually thereafter until the loan is paid in full or otherwise terminated, provided residual receipts are available. $ 3,662,069 Affordable Housing Program ("AHP") On January 28, 2003, the Project entered into a loan agreement with AHP through Federal Home Loan Bank of San Francisco (the "Bank"). Under the agreement, the Bank agreed to provide a subsidy up to $165,000 to the Project to be used for a multi-tenant low-income rental housing development consisting of 64 units. The note bears no interest and its repayment is not required so long as the Project is in compliance with all of its obligations under the loan documents. 165,000 Total $ 3,827,069 The notes are secured by their respective deed of trust on the property. 13

15 Notes to Financial Statements September 30, 2016 Note 5 - Related-party transactions The Project is managed by and shares a common Board of Trustees with the Southern California Presbyterian Homes, dba be.group. be.group charged the Project management and accounting fees in the amount of $71,327 for the year ended September 30, The HUD-approved management fee is 12.5% of rent collections. Monthly accounting fees were reimbursed at $9.50 per unit per month. At September 30, 2016, the Project owed $6,019 to be.group for these fees. Additionally, the Project reimburses be.group monthly for the resident service coordinator salary, benefits and supervision and accounting ("RSC") based on actual amounts. The amount reimbursed to be.group for RSC was $42,206 for the year ended September 30, 2016 and is included in total service expenses. At September 30, 2016, the Project owed $3,473 to be.group for these fees, included in accounts payable - operations. Prior to October 31, 2009, the Project's employees participated in a Defined Benefit Retirement Plan (the "Plan") administered by be.group. On October 22, 2009, the Board of Directors of be.group and affiliates froze the Plan, effective October 31, be.group has no immediate plans to terminate the Plan. Pension costs are allocated to the Project on the basis of the Project's payroll costs as compared to total payroll costs of all participating entities. Included in health insurance and other employee benefits for the year ended September 30, 2016 are charges from be.group in the amount of $11,764 for participation in the Plan. The Plan's accumulated and projected benefit obligations are not separately computed for the Project, and therefore such information is not included herein. be.group's funding policy is to contribute amounts to the Plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of Effective January 1, 2002, be.group along with other unrelated entities entered into a contractual agreement to form Caring Communities Insurance Program ("Caring Communities"), a selfinsurance administrator which, through its risk-sharing provisions, provides be.group and its affiliates with insurance coverage for professional and comprehensive general liability exposure. The initial capital amount was equal to one year's premium, payable over a three-year period. The premium was determined by allocating an overall amount calculated by an actuary for liability coverage based on an analysis of the past five years loss experience by the 23 providers that are members of Caring Communities. The Project's premiums were determined based on an allocation of the total premium based on number of units and level of care at each community. The Project purchases its liability insurance through this insurance affiliate. Insurance costs for the year ended September 30, 2016 amounted to $10,642 and are included in total property and liability insurance. Note 6 - Project rental assistance contract The Federal Housing Administration has contracted with the Corporation under Section 811 of the National Housing Act of 1990 to make project rental assistance payments to the Corporation on behalf of qualified tenants. The agreement expires on February 28, Management intends to request a contract renewal and expects the contract to be renewed. During the year ended September 30, 2016, the Corporation received rental assistance of $287,679 under this contract. 14

16 Notes to Financial Statements September 30, 2016 Note 7 - Temporarily restricted net assets On November 29, 2001, the Project entered into a Capital Improvement Project Agreement with The Harry and Jeanette Weinberg Foundation, Incorporated (the "Foundation"). Under the agreement, the Foundation agreed to provide up to $243,000 to the Project to offset the following costs: construction funding shortfall, second elevator for resident use and other project amenities designed to enhance residents' quality of life. The Project agreed to develop and maintain affordable housing for the elderly until at least The total assistance of $243,000 is considered to be a temporarily restricted net asset, and will be released into unrestricted net assets on a straight-line basis over the 40-year period of compliance. During the year ended September 30, 2016, $6,075 of temporarily restricted net assets was released to unrestricted net assets, and is included in other income on the statement of activities and changes in net assets (deficit). At September 30, 2016, the remaining temporarily restricted net asset balance applicable to the financial assistance is $152,374. In July 2016, be.group, the managing agent of the Project, received a donation of $200,000 to be used towards the renovation of the Project's building. The total assistance of $200,000 is considered to be a temporarily restricted net asset, and will be released into unrestricted net assets as renovations towards the building are incurred and placed in service. During the year ended September 30, 2016, there were no releases of temporarily restricted net assets. As of September 30, 2016, a receivable of $200,000 is included in accounts and notes receivable - entity in the statement of financial position. Note 8 - Concentration of credit risk The Corporation maintains its cash balances in several accounts in one bank. The cash balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, these balances may exceed the federal insurance limits; however, the Corporation has not experienced any losses with respect to its bank balances in excess of government provided insurance. Management believes that no significant concentration of credit risk exists with respect to these cash balances at September 30, Note 9 - Contingencies Litigation In the normal course of business, the Project may become a party to litigation. Management believes there are no asserted or unasserted claims or contingencies that would have a significant impact on the financial statements of the Project. Residual receipts The Corporation has entered into a housing assistance payments contract under the revised regulations of 24 CFR. As such, upon termination of the contract, whether initiated by the Corporation opting out of the contract or by HUD, any unused balance in the residual receipts reserve must be remitted to HUD. 15

17 Notes to Financial Statements September 30, 2016 Note 10 - Current vulnerability due to certain concentrations The Corporation's principal asset is a 64-unit apartment project. The Corporation's operations are concentrated in the multifamily real estate market. In addition, the Corporation operates in a heavily regulated environment. The operations of the Corporation are subject to the administrative directives, rules and regulations of federal agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. Note 11 - Subsequent events Events that occur after the statement of financial position 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 statement of financial position date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the statement of financial position date require disclosure in the accompanying notes. Management evaluated the activity of the Corporation through December 21, 2016, (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. 16

18 Supplementary Information Supporting Data Required by HUD

19 Supplementary Information Statement of Financial Position Data September 30, 2016 Assets Account No. Current assets 1120 Cash - operations $ 20, Construction cash 10, Tenant accounts receivable Accounts receivable - HUD Accounts and notes receivable - entity 200, Prepaid expenses 1, T Total current assets 233,831 Deposits held in trust - funded 1191 Tenant deposits 21,845 Restricted deposits and funded reserves 1320 Reserve for replacements $ 93, Residual receipts reserve 10, T Total deposits 103,305 Rental property 1410 Land 2,600, Buildings 7,436, Building equipment - portable 52, Furniture for project/tenant use 43, Furnishings 93, Office furniture and equipment 21, T Total fixed assets 10,247, Less accumulated depreciation (2,544,905) 1400N Net fixed assets 7,702, T Total assets $ 8,061,661 18

20 Supplementary Information Statement of Financial Position Data September 30, 2016 Liabilities and Net Assets (Deficit) Account No. Current liabilities 2110 Accounts payable - operations $ 17, Accounts payable - Section 8 and other 1, Accrued wages payable 8, Accrued payroll taxes payable 4, Accrued property taxes payable 1, Miscellaneous current liabilities 9, Prepaid revenue T Total current liabilities 43,357 Deposits liability 2191 Tenant deposits held in trust (contra) 21,845 Long-term liabilities 2310 Notes payable (long-term) $ 3,827, Mortgage payable - first mortgage 5,806, Accrued interest payable - other loans/notes 142, T Total long-term liabilities 9,776, T Total liabilities 9,842, Unrestricted net assets (2,132,761) 3132 Temporarily restricted net assets 352, Total net assets (deficit) (1,780,387) 2033T Total liabilities and net assets (deficit) $ 8,061,661 19

21 Supplementary Information Statement of Activities and Changes in Net Assets (Deficit) Data Year Ended September 30, 2016 Account No. Rental revenue 5120 Rent revenue - gross potential $ 245, Tenant assistance payments 287, T Total rental revenue $ 532,992 Vacancies 5220 Apartments (3,883) 5200T Total vacancies (3,883) 5152N Net rental revenue 529,109 Financial revenue 5430 Revenue from investments - residual receipts Revenue from investments - replacement reserve T Total financial revenue 84 Other revenue 5910 Laundry and vending 3, Tenant charges Miscellaneous revenue 6, T Total other revenue 9, T Total revenue 538,753 20

22 Supplementary Information Statement of Activities and Changes in Net Assets (Deficit) Data Year Ended September 30, 2016 Account No. Administrative expenses 6203 Conventions and meetings 1, Office salaries 38, Office expenses 28, Management fee 64, Manager or superintendent salaries 46, Administrative rent free unit 8, Legal expense - project Auditing expense 8, Bookkeeping fees/accounting services 7, Bad debts 1, Miscellaneous administrative expenses T Total administrative expenses 203,921 Utilities expense 6450 Electricity 21, Water 17, Gas 6, Sewer 12, T Total utilities expense 57,252 Operating and maintenance expenses 6510 Payroll 36, Supplies 9, Contracts 23, Garbage and trash removal 5, Security payroll/contract 1, Security rent free unit 8, Heating/cooling repairs and maintenance Vehicle and maintenance equipment operation and repairs 1, T Total operating and maintenance expenses 86,439 21

23 Supplementary Information Statement of Activities and Changes in Net Assets (Deficit) Data Year Ended September 30, 2016 Account No. Taxes and insurance 6710 Real estate taxes 4, Payroll taxes 9, Property and liability insurance 29, Workmen s compensation 8, Health insurance and other employee benefits 31, Miscellaneous taxes, licenses, permits and insurance 2, T Total taxes and insurance 86, Nursing home/assisted living/board and care/other elderly care expenses 47, T Total cost of operations before depreciation and amortization 481, T Income (loss) before depreciation and amortization 57,699 Depreciation and amortization 6600 Depreciation expense 201,669 Total depreciation and amortization 201, N Operating income (loss) (143,970) Total expenses 682, Change in unrestricted net assets $ (143,970) 22

24 Supplementary Information Statement of Activities and Changes in Net Assets (Deficit) Data Year Ended September 30, 2016 Account No. S Total first mortgage (or bond) principal payments required during the audit year (12 monthly payments). Applies to all direct loans and HUD-held and fully-insured first mortgages. $ - S Total of 12 monthly deposits in the audit year made to the replacement reserve account, as required by the regulatory agreement, even if payments may be temporarily suspended or reduced. $ 26,340 S Replacement reserve, or residual receipts and releases which are included as expense items on the statement of activities. $ - S Project improvement reserve releases under the flexible subsidy program which are included as expense items on the statement of activities. $ - S Mortgage payable note detail (Section 236 only) Interest reduction payments from subsidy. $ - 23

25 Supplementary Information Statement of Cash Flows Data Year Ended September 30, 2016 Account No. Cash flows from operating activities S Rental receipts $ 513,509 S Interest receipts 84 S Other operating receipts 3,092 S Total receipts 516,685 S Administrative expenses paid (97,594) S Management fees paid (63,729) S Utilities paid (62,760) S Salaries and wages paid (119,603) S Operating and maintenance paid (43,012) S Real estate taxes paid (4,292) S Property insurance paid (27,559) S Miscellaneous taxes and insurance paid (56,461) S Total disbursements (475,010) S Net cash provided by operating activities 41,675 Cash flows from investing activities S Net deposits to reserve for replacements (9,396) S Net deposits to residual receipts reserves (4) S Net purchases of fixed assets (19,087) S Net cash used in investing activities (28,487) S Net increase in cash 13,188 S Cash, beginning 18,167 S1200T Cash, end $ 31,355 24

26 Supplementary Information Statement of Cash Flows Data Year Ended September 30, 2016 Account No. Reconciliation of change in unrestricted net assets to net cash provided by operating activities 3250 Change in unrestricted net assets $ (143,970) Adjustments to reconcile change in unrestricted net assets to net cash provided by operating activities 6600 Depreciation 201,669 Changes in asset and liability accounts (Increase) decrease in assets S Tenant accounts receivable (1,302) S Accounts receivable - other (23) S Prepaid expenses 6,434 S Tenant security deposits funded (402) Increase (decrease) in liabilities S Accounts payable (19,845) S Accrued liabilities 1,914 S Tenant security deposits held in trust 402 S Prepaid revenue (366) S Other adjustments (include detail) S Bad debts $ 1,292 S Recognition of grant revenue (6,075) S Miscellaneous current liabilities 1,947 (2,836) Total adjustments 185,645 S Net cash provided by operating activities $ 41,675 S Comments Purchase of fixed assets recorded in accounts payable $ 443 Donation temporarily restricted for capital improvements $ 200,000 25

27 Supplementary Information Year Ended September 30, 2016 Reserve for Replacements Account No. 1320P Balance at September 30, 2015 $ 83, DT Total monthly deposits 26, INT Interest income WT Approved withdrawals (17,015) 1320OWT Other withdrawals 1320OW-010 FDIC fees (8) 1320 Balance at September 30, 2016 $ 93,024 Residual Receipts Reserve Account No. 1340P Balance at September 30, 2015 $ 10, INT Interest income OWT Other withdrawals 1340OW-010 FDIC fees (1) 1340 Balance at September 30, 2016 $ 10,281 Computation of Surplus Cash, Distributions and Residual Receipts Account No. Part A - Compute Surplus Cash S Cash (Accounts 1120, 1170 and 1191) $ 42, Accounts receivable - HUD 869 S Total cash 43,417 S Accrued mortgage interest payable - S Delinquent mortgage principal payments - S Delinquent deposits to reserve for replacements - S Accounts payable (due within 30 days) 18,512 S Loans and notes payable (due within 30 days) - S Deficient tax, insurance or MIP escrow deposits - S Accrued expenses (not escrowed) 24, Prepaid revenue (Account 2210) Tenant security deposits liability (Account 2191) 21,845 S Less total current obligations 65,202 S Surplus cash (deficiency) $ (21,785) S Part B - Deposit Due Residual Receipts Reserve $ - 26

28 Supplementary Information Year Ended September 30, 2016 Changes in Fixed Asset Accounts Assets Balance 09/30/15 Additions Deletions Balance 09/30/16 Land $ 2,600,000 $ - $ - $ 2,600,000 Buildings 7,436, ,436,128 Building equipment - portable 48,574 4,215-52,789 Furniture for project/tenant use 40,818 3,060-43,878 Furnishings 82,449 10,705-93,154 Office furniture and equipment 21, ,636 $ 10,229,605 $ 17,980 $ - $ 10,247,585 Accumulated depreciation $ 2,343,236 $ 201,669 $ - $ 2,544,905 Total net book value $ 7,702,680 27

29 Supplementary Information Year Ended September 30, 2016 Fixed Asset Detail Additions to Building Equipment - Portable Account Item and quantity Amount AC unit #409 $ 898 AC unit # Refrigerator # AC unit # Range # Range # $ 4,215 Additions to Furniture for Project/Tenant Use Account Item and quantity Amount Refinish shower stall and countertops #406 $ 855 Refinish shower, bath and kitchen countertops # Refinish shower, bath and kitchen countertops # Refinish shower, bath and kitchen countertops # $ 3,060 Additions to Furnishings Account Item and quantity Amount Carpet and flooring #215 $ 1,312 Carpet and flooring #214 1,312 Carpet and flooring #303 1,312 Carpet and flooring #316 1,312 Carpet # Carpet and flooring #115 1,315 Carpet and flooring #115 1,315 Carpet and flooring #208 2,014 $ 10,705 28

30 Supplementary Information Year Ended September 30, 2016 Detail of Accounts - Statement Of Financial Position Accounts and Notes Receivable - Entity (Account No. 1145) Grant receivable $ 200,000 $ 200,000 Miscellaneous Current Liabilities (Account No. 2190) Accrued group life and health insurance payable $ 1,720 Accrued audit fees for fiscal year endd September 30, ,160 $ 9,880 Detail of Accounts - Statement of Activities Miscellaneous Other Revenue (Account No. 5990) Release of temporarily restricted net assets $ 6,075 Gift from be.group foundation 225 Refund from CPS purchasing program 98 $ 6,398 Nursing Home/Assisted Living/Board and Care/Other Elderly Care Expenses (Account No. 6900) 6981 Activities supplies $ 1, Activities purchased services Other service expenses 45,011 $ 47,174 29

31 Supplementary Information Year Ended September 30, 2016 Other Information Schedule of notes payable: Account No. Creditor Lien placed on project assets? (Yes/No) Amount due S City of Los Angeles No $ 3,662,069 S Affordable Housing Program No 165,000 S $ 3,827,069 Related party transactions detail: Account No. Entity name Amount paid S be.group - management and accounting fees $ 71,025 S be.group - resident service coordinator salary 37,615 S be.group - resident service coordinator supervision and accounting 4,457 $ 113,097 30

32 Schedule of Expenditures of Federal Awards Year Ended September 30, 2016 Federal Grantor/ (Pass-through Grantor)/ Program Title Pass-through Federal Entity Total CFDA Identifying Federal Number Number Expenditures U.S. Department of Housing and Urban Development Section Capital Advances for Supportive Housing for the Elderly Section Project Rental Assistance Contract $ 5,806, ,679 Total expenditures of federal awards $ 6,094,479 See Notes to Schedule of Expenditures of Federal Awards. 31

33 Notes to Schedule of Expenditures of Federal Awards September 30, 2016 Note 1 - Basis of presentation The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal award activity of Adda and Paul Safran Senior Housing, HUD Project No. 122-EE127-WAH- NP, under programs of the federal government for the year ended September 30, 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 Adda and Paul Safran Senior Housing, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Adda and Paul Safran Senior Housing. 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, as applicable, the cost principles contained in Office of Management and Budget Circular A-122, Cost Principles for Non-Profit Organizations, or the cost principles contained in the Uniform Guidance. Adda and Paul Safran Senior Housing has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. Note 3 - U.S. Department of Housing and Urban Development loan program Adda and Paul Safran Senior Housing has received a U.S. Department of Housing and Urban Development direct loan under Section 202 of the National Housing Act. The loan balance outstanding at the beginning of the year is included in the federal expenditures presented in the Schedule. Adda and Paul Safran Senior Housing received no additional loans during the year. The balance of the loan outstanding at September 30, 2016 consists of: CFDA Number Program Name Outstanding Balance at September 30, Section Capital Advances for Supportive Housing for the Elderly $ 5,806,800 32

34 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 To the Board of Trustees Venice Senior Housing Corp. We have audited, 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, the financial statements of Adda and Paul Safran Senior Housing, which comprise the statement of financial position as of September 30, 2016, and the related statements of activities and changes in net assets (deficit) and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated December 21, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Adda and Paul Safran Senior Housing'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 Adda and Paul Safran Senior Housing's internal control. Accordingly, we do not express an opinion on the effectiveness of Adda and Paul Safran Senior Housing'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 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether Adda and Paul Safran Senior Housing's financial statements are free of 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. 33

35 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 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. Los Angeles, California December 21,

36 Independent Auditor's Report on Compliance for Each Major Federal Program and on Internal Control over Compliance Required by the Uniform Guidance To the Board of Trustees Venice Senior Housing Corp. Report on Compliance for Each Major Federal Program We have audited Adda and Paul Safran Senior Housing'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 Adda and Paul Safran Senior Housing's major federal programs for the year ended September 30, Adda and Paul Safran Senior Housing'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 the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of Adda and Paul Safran Senior Housing'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 the 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 Adda and Paul Safran Senior Housing'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 Adda and Paul Safran Senior Housing's compliance. Opinion on Each Major Federal Program In our opinion, Adda and Paul Safran Senior Housing 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 identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs for the year ended September 30,

37 Report on Internal Control over Compliance Management of Adda and Paul Safran Senior Housing 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 Adda and Paul Safran Senior Housing'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 Adda and Paul Safran Senior Housing'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 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 our testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Los Angeles, California December 21,