NEWBURGH SENIORS' HOUSING CORPORATION HUD PROJECT NO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2018 AND 2017

Transcription

1 HUD PROJECT NO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2018 AND 2017

2 FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 C O N T E N T S PAGE INDEPENDENT AUDITOR'S REPORT 1-2 FINANCIAL STATEMENTS Statements of Financial Position 3-4 Statements of Activities 5 Statements of Cash Flows 6-7 Notes to Financial Statements 8-14 SUPPLEMENTARY INFORMATION Schedules of Operating Expenses 15 Supplementary Information Required By HUD Schedule of Expenditures of Federal Awards and Notes 26 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 FINDINGS AND QUESTIONED COSTS 31 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS 32 MORTGAGOR S CERTIFICATION 33 MANAGEMENT AGENT'S CERTIFICATION 34 INDEPENDENT ACCOUNTANT S REPORT ON APPLYING AGREED-UPON PROCEDURE 35-37

3 Mark R. Carrier, C.P.A. Michael R. Dunn, C.P.A. Jonathan A. Hussey, C.P.A., M.S.T. Steven R. Lamontagne, C.P.A. Gary W. Soucy, C.P.A. Gary A. Wigant, C.P.A. C. Joseph Wolverton, Jr., C.P.A. INDEPENDENT AUDITOR'S REPORT To the Officers and Directors Newburgh Seniors Housing Corporation Orono, Maine Report on the Financial Statements We have audited the accompanying financial statements of Newburgh Seniors Housing Corporation (a nonprofit corporation), HUD Project No , which comprise the statements of financial position as of June 30, 2018 and 2017, and the related statements of activities and cash flows for the years then ended and the 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 audits. We conducted our audits 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 audits 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 Project 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 Project 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 Lisbon Street Lewiston, Maine Telephone: (207) FAX: (207)

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Newburgh Seniors Housing Corporation as of June 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years 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 an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 15 to 25 is presented for purposes of additional analysis as required by the Uniform Financial Reporting Standards issued by the U.S. Department of Housing and Urban Development (HUD), 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 September 1, 2018, on our consideration of Newburgh Seniors Housing Corporation 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 Newburgh Seniors Housing Corporation s internal control over financial reporting and compliance. Ouellette & Associates, P.A. Certified Public Accountants September 1, 2018 Federal Employer ID Number Lewiston, Maine Audit Partner: C. Joseph Wolverton, CPA -2-

5 STATEMENTS OF FINANCIAL POSITION JUNE 30, 2018 AND 2017 ASSETS CURRENT ASSETS Cash - Operations $ 41,194 $ 45,662 Accounts Receivable - HUD Prepaid Expenses 947 1,142 Total Current Assets 42,952 46,804 DEPOSITS HELD IN TRUST, FUNDED Tenant Security Deposits 5,078 4,704 RESTRICTED DEPOSITS AND FUNDED RESERVES Tax and Insurance Escrow 16,135 14,186 Replacement Reserve 804, ,391 Residual Receipts Reserve 5,005 5,005 Total Restricted Deposits and Funded Reserves 825, ,582 RENTAL PROPERTY Land and Land Improvements 267, ,340 Building 873, ,838 Building Equipment - Portable 47,559 46,575 Furnishings 7,409 7,409 Maintenance Equipment 1,640 1,640 Total Rental Property 1,197,757 1,179,802 Less Accumulated Depreciation 979, ,661 Net Rental Property 217, ,141 TOTAL ASSETS $ 1,091,731 $ 1,104,231 See Independent Auditor's Report and Accompanying Notes to the Financial Statements. -3-

6 STATEMENTS OF FINANCIAL POSITION (Continued) JUNE 30, 2018 AND 2017 LIABILITIES AND NET DEFICIT CURRENT LIABILITIES Current Portion of Mortgage Payable $ 28,794 $ 27,819 Accounts Payable 14,143 7,299 Accounts Payable - Section 8 and Other Accrued Interest Payable - First Mortgage 4,201 4,281 Accrued P.I.L.O.T. Fees 5,414 5,339 Miscellaneous Current Liabilities 4,555 4,555 Total Current Liabilities 57,351 49,327 TENANT SECURITY DEPOSITS (Contra) 4,974 4,606 LONG-TERM DEBT Mortgage Payable - First Mortgage, Less Current Portion 1,432,521 1,461,316 Less Unamortized Debt Issuance Costs 104, ,460 Total Long-Term Debt 1,327,617 1,352,856 Total Liabilities 1,389,942 1,406,789 NET DEFICIT (298,211) (302,558) TOTAL LIABILITIES AND NET DEFICIT $ 1,091,731 $ 1,104,231 See Independent Auditor's Report and Accompanying Notes to the Financial Statements. -4-

7 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2018 AND REVENUES Rent Revenue $ 71,059 $ 75,893 Tenant Assistance Payments 170, ,531 Miscellaneous Rent Revenue - Recapture of Residual Receipt 29,610 24,546 Total Gross Potential Rent 270, ,970 Vacancies (2,406) (6,975) Net Rental Revenue 268, ,995 Other Revenue Financial Other 2,321 1,431 Total Other Revenue 2,771 1,869 TOTAL REVENUE 271, ,864 EXPENSES Project Services Administrative 43,275 42,770 Utilities 29,650 29,532 Operating and Maintenance 42,399 37,780 Taxes and Insurance 11,808 12,612 Interest - HUD Mortgage 54,414 55,359 Mortgage Insurance Premiums 6,549 6,591 Tenant Service Coordinator 14,675 14,375 Miscellaneous 29,610 24,548 Depreciation Expense 34,327 35,528 TOTAL EXPENSES 266, ,095 CHANGE IN NET ASSETS 4,347 2,769 NET DEFICIT - BEGINNING OF YEAR (302,558) (305,327) NET DEFICIT - END OF YEAR $ (298,211) $ (302,558) See Independent Auditor's Report and Accompanying Notes to the Financial Statements. -5-

8 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2018 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 4,347 $ 2,769 Adjustments to Reconcile Change in Net Assets to Net Cash Flows from Operating Activities: Depreciation Expense 34,327 35,528 Amortization of Debt Issuance Costs 3,556 3,556 (Increase) Decrease in Operating Assets: Accounts Receivable - HUD (811) - Prepaid Expenses 195 (95) Tenant Security Deposits (374) 48 Increase (Decrease) in Operating Liabilities: Accounts Payable 6,844 (99) Accounts Payable - Section 8 and Other 210 (392) Accrued Interest Payable - First Mortgage (80) (78) Accrued P.I.L.O.T. Fees Miscellaneous Current Liabilities - 2 Tenant Security Deposits (Contra) 368 (52) NET CASH FLOWS FROM OPERATING ACTIVITIES 48,657 41,268 CASH FLOWS FROM INVESTING ACTIVITIES Deposits to the Tax and Insurance Escrow and Interest Retained in Account (19,607) (29,812) Withdrawals from the Tax and Insurance Escrow 17,658 28,080 Deposits to the Reserve for Replacement and Interest Retained in Account (5,401) (5,398) Deposits to Residual Receipts and and Interest Retained in Account (29,610) (24,548) Withdrawals from the Residual Receipts Account 29,610 24,546 Rental Property Additions (17,955) (2,775) NET CASH FLOWS FROM INVESTING ACTIVITIES (25,305) (9,907) CASH FLOWS FROM FINANCING ACTIVITIES Principal Payments on Mortgage Payable (27,820) (26,877) NET CASH FLOWS FROM FINANCING ACTIVITIES $ (27,820) $ (26,877) See Independent Auditor's Report and Accompanying Notes to the Financial Statements. -6-

9 STATEMENTS OF CASH FLOWS (Continued) FOR THE YEARS ENDED JUNE 30, 2018 AND NET CHANGE IN CASH $ (4,468) $ 4,484 CASH, BEGINNING OF YEAR 45,662 41,178 CASH, END OF YEAR $ 41,194 $ 45,662 Supplemental Disclosures of Cash Flows Information: Cash Paid During the Year for: Interest $ 50,938 $ 51,881 Disclosure of Accounting Policy: For purposes of the statements of cash flows, the Corporation considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at June 30, 2018 or 2017 See Independent Auditor's Report and Accompanying Notes to the Financial Statements. -7-

10 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS Nature of Organization and Operations Newburgh Seniors Housing Corporation (the Corporation) is organized as a non-profit corporation that owns a 20-unit residential apartment project known as Persistence located in Newburgh, Maine. The Corporation is operated under Section 223(f) of the National Housing Act and is regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rent charges and operating methods. The Corporation's major program is its Section 223(f) mortgage insurance program loan. The Corporation is also subject to Section 8 Housing Assistance Payment agreements with HUD, and a significant portion of the Corporation's rental income is received from HUD. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The financial statements of the Corporation are prepared on the accrual basis of accounting, and include only those assets, liabilities and results of operations which relate to the business of Newburgh Seniors Housing Corporation. Accounts Receivable - Recognition of Bad Debts Tenant accounts receivable are stated at the amount management expects to collect from balances outstanding at year-end. Based on management s assessment of the credit history with tenants having outstanding balances and current relationships with them, they have concluded that realization losses on balances outstanding at year-end will be immaterial. The Corporation uses the direct write-off method of accounting whereby losses are charged to bad debt expense in the period they are determined to be uncollectible. If the allowance method of accounting were used, it would not have had a material effect on the financial statements. Rental Property Property and equipment are stated at cost or if donated, at approximate fair value at the date of donation. Buildings, improvements, and equipment are being depreciated on the straightline method over five to thirty-three years. For the years ended June 30, 2018 and 2017, all acquisitions of property and equipment of $500 and all expenditures that materially prolong the useful lives of the assets are capitalized. Expenditures for repairs and maintenance are expensed with betterments and renewals capitalized as incurred. When assets are retired or disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are reflected in income. Depreciation expense for the years ended June 30, 2018 and 2017 was $34,327 and $35,528, respectively. -8-

11 NOTES TO FINANCIAL STATEMENTS (Continued) JUNE 30, 2018 AND 2017 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Rental Revenue Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Project and its tenants are operating leases. Under the Regulatory Agreement, the Project may not increase rents charged to tenants without HUD approval. Income Taxes Newburgh Seniors Housing Corporation has been granted tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. Therefore, no provision for income taxes has been charged to operations in the current year. The Corporation is not a private foundation because it receives a substantial part of its support from a governmental unit. Management has determined that the Corporation does not have any uncertain tax positions and associated unrecognized benefits or liabilities that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Corporation s tax returns will not be challenged by the taxing authorities and that the Corporation will not be subject to additional tax, penalties and interest as a result of such challenge. Generally, the Corporation s tax returns remain subject to examination for three years after they were filed which includes the tax years ending June 30, 2016, 2017, and Distributions The Corporation's regulatory agreement with HUD stipulates, among other things, that the Corporation will not make distributions of assets or income to any of its officers or directors. 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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Long-Lived Assets Long-lived assets are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Corporation reviews the carrying value of the long-lived assets to determine whether or not impairment to such value has occurred. No impairments were recorded during the years ended June 30, 2018 and

12 NOTES TO FINANCIAL STATEMENTS (Continued) JUNE 30, 2018 AND 2017 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Subsequent Events Events that occur after the financial position date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. Subsequent events that provide evidence about conditions that existed at the financial position date are required to be recognized in the accompanying financial statements. Subsequent events that provide evidence about conditions that existed after the financial position date require disclosure in the accompanying notes. Management evaluated the activity of the Corporation through September 1, 2018, 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. NOTE 3: LONG-TERM DEBT Long-term debt is comprised of the following: A 35-year mortgage with a face amount of $1,599,200 with Walker & Dunlop, LLC at 3.45% per annum. The mortgage is payable in equal monthly installments of $6,563 through February The loan is secured by the real estate and co-insured by HUD under Section 223(f). $ 1,461,315 $ 1,489,135 Less Current Portion 28,794 27,819 Long-Term Portion 1,432,521 1,461,316 Less Unamortized Debt Issuance Costs 104, ,460 Net Long-Term Mortgage Payable $ 1,327,617 $ 1,352,856 In 2017, the Project retroactively adopted the requirements in ASU No , Interest- Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs, to present debt issuance costs as a reduction of the carrying amount of the related debt rather than as an asset. Amortization of debt issuance costs of $3,556 for the years ended June 30, 2018 and 2017 is reported as interest expense in the statements of activities. -10-

13 NOTES TO FINANCIAL STATEMENTS (Continued) JUNE 30, 2018 AND 2017 NOTE 3: MORTGAGE PAYABLE (Continued) Future maturities of the mortgage payable are summarized as follows at June 30: Year-End Amount 2019 $ 28, , , , ,049 Thereafter 1,306,891 Total $ 1,461,315 NOTE 4: HOUSING ASSISTANCE AGREEMENT The Department of Housing and Urban Development (HUD) has contracted with the Corporation under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the Corporation on behalf of qualified tenants. The contract, dated May 12, 1987, was for a twenty-year period and is renewable annually thereafter. Gross contract rents effective January 1, 2018 were $271,860 which was increased from $269,520 for the prior year. The Department of Housing and Urban Development (HUD) required the Corporation to utilize $29,610 and $24,546 from its residual receipts account during the years ended June 30, 2018 and 2017, respectively, in lieu of receiving HAP payments. Therefore, the Corporation did not realize the full contract rents it was scheduled to receive under the contract during the years ended June 30, 2018 and NOTE 5: RESTRICTED DEPOSITS AND FUNDED RESERVES Under the regulatory agreement, the Corporation is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. Replacement Reserve HUD-restricted replacement reserve balances totaled $804,792 and $799,391 at June 30, 2018 and 2017, respectively. Residual Receipts Use of the residual receipts reserve is contingent upon HUD s prior written approval. The residual receipts account had a balance of $5,005 at June 30, 2018 and

14 NOTES TO FINANCIAL STATEMENTS (Continued) JUNE 30, 2018 AND 2017 NOTE 5: RESTRICTED DEPOSITS AND FUNDED RESERVES (Continued) Residual Receipts (Continued) In accordance with Housing Notice H , Use of New Regulation Section 8 Housing Assistance Payments (HAP) Contracts Residual Receipts to Offset Project- Based Section 8 Housing Assistance Payments, the Project must apply any excess balance greater than $250 per unit in a residual receipts account to offset the Section 8 subsidy that would otherwise be payable from HUD on a monthly basis. At June 30, 2018 and 2017, the allowed balance of the residual receipts account was limited to $5,000. During the years ended June 30, 2018 and 2017, HUD required the Project to utilize $29,610 and $24,546, respectively, from the residual receipts account (FORQ payments) in lieu of receiving HAP rental payments from HUD. Tax and Insurance Escrow The Corporation makes monthly escrow deposits to a financial institution to fund future expected tax assessments and insurance premiums. The balance in this account at June 30, 2018 and 2017 was $16,135 and $14,186, respectively. All of the reserves noted above are held in separate accounts and generally are not available for operating purposes. NOTE 6: RELATED PARTY TRANSACTIONS The Corporation has entered into a management contract with The Housing Foundation - M & D II, a related party. The contract restricts management fees to $56 per unit. Thus, for the years ended June 30, 2018 and 2017, management fees were $13,440. An informal maintenance agreement with The Housing Foundation - M & D II has also been executed causing maintenance work, cleaning and material reimbursements as well as vehicle operation and maintenance to be paid on an as needed basis. During the years ended June 30, 2018 and 2017, $26,219 and $22,418 was incurred for such services, respectively. During the years ended June 30, 2018 and 2017, the Corporation was charged $22,102 and $21,715, respectively, by The Housing Foundation - M & D II for office support and office rent. The allocations of these charges are based on a time study performed by M & D II. The Corporation was also charged by M & D II $2,204 in 2018 and $2,205 in 2017 for computer, copier and miscellaneous administrative fees. Computer, copier and miscellaneous administrative fees are prorated based on the number of housing units managed. -12-

15 NOTES TO FINANCIAL STATEMENTS (Continued) JUNE 30, 2018 AND 2017 NOTE 6: RELATED PARTY TRANSACTIONS (Continued) During the years ended June 30, 2018 and 2017, the Corporation was charged $14,675 and $14,375, respectively, by The Housing Foundation M & D II for the Corporation s Tenant Service Coordinator. NOTE 7: PAYMENT IN LIEU OF TAXES (P.I.L.O.T.) By reason of a decision of the Maine Supreme Judicial Court in 1987, Newburgh Seniors Housing Corporation, which is financed under Section 223(f) of HUD's program, is exempt from real estate taxation. Although State law permits the imposition of a service fee, also known as a payment in lieu of taxes (P.I.L.O.T.), State law currently limits the amount of such service fee to 2% of gross rent revenues. Thus, for the years ended June 30, 2018 and 2017, the service fee was $5,499 and $5,425, respectively. NOTE 8: UNRESTRICTED NET ASSETS None of the Corporation's net assets are subject to donor-imposed restrictions. Accordingly, all net assets are classified as unrestricted net assets. NOTE 9: FUNCTIONAL ALLOCATION OF EXPENSES Expenditures incurred in connection with project operations have been summarized on a functional basis in the statements of activities. NOTE 10: CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Corporation s sole asset is a 20-unit apartment building. 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, state and local regulatory 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. -13-

16 NOTES TO FINANCIAL STATEMENTS (Continued) JUNE 30, 2018 AND 2017 NOTE 11: CONCENTRATIONS OF CREDIT RISK ARISING FROM CASH DEPOSITS IN EXCESS OF INSURED LIMITS Financial instruments that potentially subject the Corporation to concentrations of credit risk consist primarily of cash accounts with various financial institutions. These balances fluctuate greatly during the year and can exceed the $250,000 limit of FDIC coverage. Management regularly monitors the financial institutions, together with their respective cash balances, and attempts to maintain this potential risk at a minimum. Certain restricted deposits and funded reserves are not FDIC insured but are backed by government securities. The uninsured, government backed cash balances totaled $820,927 and $813,577 at June 30, 2018 and 2017, respectively. These escrow funds are held by the mortgage servicer, and therefore, outside of the control of the Corporation. -14-

17 HUD PROJECT NO SUPPLEMENTARY INFORMATION

18 SCHEDULES OF OPERATING EXPENSES FOR THE YEARS ENDED JUNE 30, 2018 AND ADMINISTRATIVE Office Salaries $ 20,652 $ 20,265 Office Expenses 1,316 1,090 Office or Model Rent 1,450 1,450 Management Fees 13,440 13,440 Audit Expense 4,550 4,550 Bad Debts 53 - Miscellaneous Administrative Expenses 1,814 1,975 Total Administrative 43,275 42,770 UTILITIES Fuel Oil 13,475 13,550 Electricity 11,584 12,296 Water 4,591 2,926 Sewer Total Utilities 29,650 29,532 OPERATING AND MAINTENANCE Payroll 14,970 13,670 Supplies 4,158 1,679 Contracts 9,351 9,971 Garbage and Trash Removal 1,212 1,322 Snow Removal 7,548 7,910 Vehicle Operation and Repair 3,352 2,958 Miscellaneous Operating and Maintenance 1, Total Operating and Maintenance 42,399 37,780 TAXES AND INSURANCE P.I.L.O.T. Fees 5,499 5,425 Property and Liability Insurance 5,878 6,756 Fidelity Bond Insurance Total Taxes and Insurance 11,808 12,612 INTEREST - HUD MORTGAGE 54,414 55,359 MORTGAGE INSURANCE PREMIUMS 6,549 6,591 TENANT SERVICE COORDINATOR 14,675 14,375 MISCELLANEOUS Loss Due to Recapture of Residual Receipts 29,610 24,548 DEPRECIATION EXPENSE 34,327 35,528 TOTAL OPERATING EXPENSES $ 266,707 $ 259,

19 HUD PROJECT NO STATEMENT OF FINANCIAL POSITION DATA JUNE 30, 2018 ASSETS Account No. CURRENT ASSETS 1120 Cash - Operations $ 41, Accounts Receivable - HUD Prepaid Expenses T Total Current Assets 42,952 DEPOSITS HELD IN TRUST, FUNDED 1191 Tenant Security Deposits 5,078 RESTRICTED DEPOSITS AND FUNDED RESERVES 1310 Escrow Deposits 16, Replacement Reserve 804, Residual Receipts Reserve 5, T Total Restricted Deposits and Funded Reserves 825,932 RENTAL PROPERTY 1410 Land and Land Improvements 267, Building 873, Building Equipment - Portable 47, Furnishings 7, Maintenance Equipment 1, T Total Rental Property 1,197, Less Accumulated Depreciation 979, N Net Rental Property 217, T TOTAL ASSETS $ 1,091,

20 HUD PROJECT NO STATEMENT OF FINANCIAL POSITION DATA (Continued) JUNE 30, 2018 LIABILITIES AND NET DEFICIT Account No. CURRENT LIABILITIES 2110 Accounts Payable - Operations $ 14, Accounts Payable - Section 8 and Other Accrued Interest Payable - First Mortgage 4, Accrued Property Taxes 5, Current Portion of Mortgage Payable 28, Miscellaneous Current Liabilities 4, T Total Current Liabilities 57, TENANT SECURITY DEPOSITS (Contra) 4,974 LONG-TERM DEBT 2320 Mortgage Payable - First Mortgage, Less Current Portion 1,432, Debt Issuance Costs 104, T Total Long-Term Debt 1,327, T Total Liabilities 1,389, NET DEFICIT (298,211) 3130 Total Net Assets (298,211) 2033T TOTAL LIABILITIES AND NET DEFICIT $ 1,091,

21 HUD PROJECT NO SCHEDULE OF ACTIVITIES DATA FOR THE YEAR ENDED JUNE 30, 2018 Account No. OPERATIONS Revenue 5120 Rent Revenue - Gross Potential $ 71, Tenant Assistance Payments 170, Miscellaneous Rent Revenue 29, T Total Rent Revenue 270, Vacancies - Apartments (2,406) 5152N Net Rental Revenue 268, Revenue From Investments - Residual Receipts Revenue From Investments - Replacement Reserve Revenue From Investments - Miscellaneous T Total Financial Revenue Laundry and Vending Revenue 1, Tenant Charges T Total Other Revenue 2, T Total Revenue 271,054 Expenses 6310 Office Salaries 20, Office Expenses 1, Office or Model Apartment Rent 1, Management Fees 13, Audit Expense 4, Bad Debts Miscellaneous Administrative Expenses 1, T Total Administrative Expenses 43, Fuel Oil/Coal 13, Electricity 11, Water 4, T Total Utilities Expense $ 29,

22 HUD PROJECT NO SCHEDULE OF ACTIVITIES DATA (Continued) FOR THE YEAR ENDED JUNE 30, 2018 Account No. OPERATIONS (Continued) Expenses (Continued) 6510 Payroll $ 14, Supplies 4, Contracts 9, Garbage and Trash Removal 1, Snow Removal 7, Vehicle and Maintenance Equipment Operation and Repairs 3, Miscellaneous Operating and Maintenance Expense 1, T Total Operating and Maintenance Expenses 42, Real Estate Taxes 5, Property and Liability Insurance 5, Fidelity Bond Insurance T Total Taxes and Insurance 11, Interest on Mortgage Payable 54, Mortgage Insurance Premiums 6, Miscellaneous Financial Expenses 29, T Total Financial Expenses 90, Other Elderly Care Expense 14, T Total Costs of Operations Before Depreciation 232, T Change in Net Assets Before Depreciation 38, Depreciation Expense 34,327 Total Depreciation and Amortization 34, N Operating Profit or (Loss) 4, Change in Unrestricted Net Assets 4,347 NET DEFICIT, BEGINNING OF YEAR (302,558) NET DEFICIT, END OF YEAR $ (298,211) S Total mortgage principal payments required during the year. $ 27,820 S Total of 12 monthly deposits during the year into the replacement reserve account, as required by the regulatory agreement. $ 5,

23 HUD PROJECT NO SCHEDULE OF CASH FLOWS DATA FOR THE YEAR ENDED JUNE 30, 2018 Account No. CASH FLOWS FROM OPERATING ACTIVITIES: S Rental Receipts $ 238,072 S Interest Receipts 450 S Other Receipts 2,321 S Total Receipts 240,843 S Administrative (25,945) S Management Fees (13,440) S Utilities (28,451) S Operating and Maintenance (40,644) S Real Estate Taxes (5,424) S Property Insurance (5,683) S Miscellaneous Taxes and Insurance (431) S Tenant Security Deposits (6) S Other Operating Expenses (14,675) S Interest on Mortgage Note (50,938) S Mortgage Insurance Premium (6,549) S Total Disbursements (192,186) S NET CASH FLOWS FROM OPERATING ACTIVITIES 48,657 CASH FLOWS FROM INVESTING ACTIVITIES S Net Deposits to the Mortgage Escrow Account (1,949) S Net Deposits to the Reserve for Replacement Account (5,401) S Net Rental Property Additions (17,955) S NET CASH FLOWS FROM INVESTING ACTIVITIES (25,305) CASH FLOWS FROM FINANCING ACTIVITIES S Principal Payments on Mortgage (27,820) S NET CASH FLOWS FROM FINANCING ACTIVITIES (27,820) S NET CHANGE IN CASH (4,468) S CASH, BEGINNING OF YEAR 45,662 S1200T CASH, END OF YEAR $ 41,

24 HUD PROJECT NO SCHEDULE OF CASH FLOWS DATA (Continued) FOR THE YEAR ENDED JUNE 30, 2018 Account No. Reconciliation of Change in Net Assets to Net Cash Flows from Operating Activities: 3250 Change in Net Assets $ 4,347 Adjustments to Reconcile Change in Net Assets to Net Cash Flows from Operating Activities: 6600 Depreciation 34,327 (Increase) Decrease in Operating Assets: S Amortization of Debt Issuance Costs 3,556 S Accounts Receivable - Other (811) S Prepaid Expenses 195 S Tenant Security Deposits (374) Increase (Decrease) in Operating Liabilities: S Accounts Payable 6,844 S Accounts Payable - HUD 210 S Accrued Liabilities 75 S Accrued Interest Payable (80) S Tenant Security Deposits 368 S Net Cash Flows from Operating Activities $ 48,

25 HUD PROJECT NO SUPPLEMENTARY INFORMATION REQUIRED BY HUD Schedule of Reserve for Replacements FOR THE YEAR ENDED JUNE 30, 2018 In accordance with the provisions of the regulatory agreement, restricted cash is held by a local bank or mortgage servicer, to be used for the replacement of property and various other uses with the approval of HUD as follows: 1320P Balance at June 30, 2017 $ 799, DT Monthly Deposits 5, INT Interest Earned in Account WT Approved Withdrawals Balance at June 30, 2018 $ 804,792 Schedule of Residual Receipts In accordance with the provisions of the regulatory agreement, restricted cash is held by a local bank or mortgage servicer, to be used with the approval of HUD as follows: 1340P Balance at June 30, 2017 $ 5, DT Total Deposits 29, INT Interest Earned in Account WT Approved Withdrawals (29,610) 1340 Balance at June 30, 2018 $ 5,

26 Computation of Surplus Cash - Annual Account No. HUD PROJECT NO SUPPLEMENTARY INFORMATION REQUIRED BY HUD (Continued) JUNE 30, 2018 S Cash $ 46, Accounts Receivable - HUD 811 S Total Cash $ 47,083 Current Obligations: S Accrued Interest Payable - First Mortgage 4,201 S Accounts Payable (Due within 30 Days) 14,387 S Other Accrued Expenses (Not Escrowed) 4, Tenant Security Deposits Liability 4,974 S Total Current Obligations 28,117 S Surplus Cash (Deficiency) $ 18,966 S Deposit Due Residual Receipts $ 18,

27 HUD PROJECT NO SUPPLEMENTARY INFORMATION REQUIRED BY HUD (Continued) Changes in Rental Property FOR THE YEAR ENDED JUNE 30, 2018 ASSETS Beginning Ending Account No. Balance (P) Additions (AT) Deductions (DT) Balance 1410 Land $ 267,340 $ - $ - $ 267, Building 856,838 16, , Building Equipment - Portable 46, , Furnishings 7, , Maintenance Equipment 1, , T Total $ 1,179,802 $ 17,955 $ - $ 1,197,757 Accumulated Depreciation $ 945,661 $ 34,327 $ - $ 979, P ADT 1495 RENTAL PROPERTY ADDITIONS 1420AT 1440AT Purchase Date Amount Building Rehab Unit 31 Various $ 16,971 Building Equipment - Portable Appliances 5/21/2018 $

28 HUD PROJECT NO SUPPLEMENTARY INFORMATION REQUIRED BY HUD (Continued) FOR THE YEAR ENDED JUNE 30, 2018 Detail of Accounts Schedule of 2100 Accounts Miscellaneous Current Liabilities Accrued Audit Fees $ 4,550 Excess Project Funds - Residual Receipts Available for Recapture $ 5 4,555 Schedule of 5190 Accounts Miscellaneous Rent Revenue Recapture of Residual Receipts $ 29,610 Schedule of 6890 Accounts Miscellaneous Financial Expenses Loss Due to Recapture of Residual Receipts $ 29,610 Schedule of 6900 Accounts Other Elderly Care Expense Tenant Service Coordinator $ 14,

29 HUD PROJECT NO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND NOTES JUNE 30, 2018 FEDERAL FEDERAL FEDERAL GRANTOR CFDA NUMBER EXPENDITURES U.S. Department of Housing and Urban Development Section 8 Housing Assistance Payments $ 170,020 Section 223(f) Mortgage Insurance Program Loan ,461,315 Total $1,631,335 NOTE A - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Newburgh Seniors Housing Corporation, HUD Project No , and is presented on the accrual basis of accounting. 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 Newburgh Seniors' Housing Corporation, it is not intended to and does not present the financial position, changes in net assets, or cash flows from Newburgh Seniors' Housing Corporation. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures are recognized following the cost principles contained in Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Newburgh Seniors Housing Corporation has elected not to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance. NOTE C - U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT LOAN PROGRAM Newburgh Seniors Housing Corporation has received a U.S. Department of Housing and Urban Development direct loan under Section 223(f) 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. Newburgh Seniors Housing Corporation received no additional loans during the year. The balance of the loan outstanding at June 30, 2018 consists of: CFDA Number Program Name Outstanding Balance at June 30, Section 223(f) Mortgage Insurance Loan $ 1,461,

30 Mark R. Carrier, C.P.A. Michael R. Dunn, C.P.A. Jonathan A. Hussey, C.P.A., M.S.T. Steven R. Lamontagne, C.P.A. Gary W. Soucy, C.P.A. Gary A. Wigant, C.P.A. C. Joseph Wolverton, Jr., C.P.A. 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 Officers and Directors Newburgh Seniors Housing Corporation Orono, Maine 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 Newburgh Seniors Housing Corporation, HUD Project No , which comprise the statement of financial position as of June 30, 2018, 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 September 1, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Newburgh Seniors Housing Corporation 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 Newburgh Seniors Housing Corporation s internal control. Accordingly, we do not express an opinion on the effectiveness of Newburgh Seniors Housing Corporation 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 Newburgh Seniors Housing Corporation 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 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 Lisbon Street Lewiston, Maine Telephone: (207) FAX: (207)

31 Compliance and Other Matters As part of obtaining reasonable assurance about whether Newburgh Seniors Housing Corporation 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. 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 Newburgh Seniors Housing Corporation s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Newburgh Seniors Housing Corporation s internal control and compliance. Accordingly, this report is not suitable for any other purpose. September 1, 2018 Lewiston, Maine Ouellette & Associates, P.A. Certified Public Accountants -28-

32 Mark R. Carrier, C.P.A. Michael R. Dunn, C.P.A. Jonathan A. Hussey, C.P.A., M.S.T. Steven R. Lamontagne, C.P.A. Gary W. Soucy, C.P.A. Gary A. Wigant, C.P.A. C. Joseph Wolverton, Jr., C.P.A. INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Officers and Directors Newburgh Seniors Housing Corporation Orono, Maine Report on Compliance for Major Federal Program We have audited Newburgh Seniors Housing Corporation s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on Newburgh Seniors Housing Corporation s major federal program for the year ended June 30, Newburgh Seniors Housing Corporation s major federal program is 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 Newburgh Seniors Housing Corporation s major federal program 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 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 Newburgh Seniors Housing Corporation 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 its major federal program. However, our audit does not provide a legal determination on Newburgh Seniors Housing Corporation s compliance Lisbon Street Lewiston, Maine Telephone: (207) FAX: (207)

33 Opinion on Major Federal Program In our opinion, Newburgh Seniors Housing Corporation complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, Report on Internal Control Over Compliance Management of Newburgh Seniors Housing Corporation 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 Newburgh Seniors Housing Corporation s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for its major federal program and to test and report on internal control over compliance in accordance with 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 Newburgh Seniors Housing Corporation 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 that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. September 1, 2018 Lewiston, Maine Ouellette & Associates, P.A. Certified Public Accountants -30-

34 A. SUMMARY OF AUDIT RESULTS HUD PROJECT NO SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, The independent auditor s report expresses an unmodified opinion on the financial statements of Newburgh Seniors Housing Corporation. 2. No material weaknesses were identified during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements of Newburgh Seniors Housing Corporation were disclosed during the audit. 4. No material weaknesses were identified during the audit of the major federal award program of Newburgh Seniors Housing Corporation. 5. The independent auditor s report on compliance for the major federal award program for Newburgh Seniors Housing Corporation expresses an unmodified opinion. 6. Audit findings that are required to be reported in accordance with 2 CFR section (a) are reported in this schedule. 7. The program tested as a major program included: U.S. Department of Housing and Urban Development: Section 223(f) Mortgage Insurance Program Loan CFDA # The threshold for distinguishing Types A and B programs was $750, Newburgh Seniors Housing Corporation was determined to be a low-risk auditee. B. FINDINGS - FINANCIAL STATEMENTS AUDIT No matters were reported. C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT No matters were reported. -31-

35 HUD PROJECT NO SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS YEAR ENDED JUNE 30, 2018 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Finding No : Section 223(f) Mortgage Insurance Loan, CFDA Condition: A deficiency in internal control over compliance existed because the prior year surplus cash was not deposited into the residual receipts account within 90 days after the close of the fiscal year. Recommendation: The Corporation should establish procedures to ensure that surplus cash is deposited yearly within 90 days after the close of the fiscal year, or contact HUD for an extension of the deposit. An electronic version of the timely issued financial statements should be obtained to ensure the correct amount is transferred to the residual receipts account. The Corporation s accountant is to make every attempt to provide timely filed financial statements in order to ensure the correct amount is transferred to the residual receipts account. Current Status: The Corporation has established procedures to ensure that surplus cash is deposited yearly within 90 days after the close of the fiscal year. -32-

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