FUNDACION DE HOGARES PARA TRABAJADORES FELIPA SERRANO DE AYALA PROJECT HUD PROJECT NO. 056-EH-065-WAH-L8

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Years ended June 30, 2017 and 2016

2 -- TABLE OF CONTENTS -- Page Number Independent Auditors' Report 1 Financial Statements: Statements of Financial Position 3 Statements of Activities 5 Statements of Cash Flows 6 Notes to the Financial Statements 8 Supplementary Information: Supplementary Information Required by HUD 12 Schedule of Expenditures of Federal Awards 17 Summary Schedule of Prior Audit's Findings 18 Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance with Government Auditing Standards 19 Independent Auditors Report on Compliance For Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 21 Schedule of Findings and Questioned Costs 24 Certification of Project Owner and Management Agent 26 Independent Accountants' Report on Applying Agreed-Upon Procedures 27 Corrective Action Plan 30

3 PO BOX Tel. (787) SAN JUAN PR Fax (787) INDEPENDENT AUDITORS' REPORT To the Board of Directors of FUNDACION DE HOGARES PARA TRABAJADORES Report on the Financial Statements We have audited the accompanying financial statements of, which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of activities and cash flows for the years 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. Auditors 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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to FELIPA SERRANO DE AYALA 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 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. 1

4 Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as of June 30, 2017 and 2016, and the changes in its deficiency in net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information and Schedule of Expenditures of Federal Awards Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information included in the table of contents 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, 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 February 14, 2018, on our consideration of 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 S internal control over financial reporting and compliance. San Juan, Puerto Rico February 14, 2018 Stamp No. E of the Puerto Rico Society of Certified Public Accountants was adhered to the original of this report. 2

5 STATEMENTS OF FINANCIAL POSITION June 30, 2017 and ASSETS CURRENT ASSETS 1120 Cash on hand and in bank -- Notes A and B $ 1,160 $ 12, Tenants' accounts receivable Accounts receivable HUD -- Note C Accounts receivable Other Note D 1, Miscellaneous prepaid expenses 13, TOTAL CURRENT ASSETS 17,791 13, Tenants' deposits held in trust -- Note B 8,027 7,728 RESTRICTED DEPOSITS -- Notes A and B 1310 Escrow deposits 78 13, Replacement reserve -- Note E 217, , , ,322 PROPERTY AND EQUIPMENT -- Notes A and F 1410 Land 70,750 70, Building and improvements 2,099,558 2,099, Building equipment and others 92,279 86, Furniture 27,018 27, Maintenance equipment 6,749 6,749 2,296,354 2,290, Less accumulated depreciation and amortization ( 1,636,873) ( 1,596,627) 659, ,646 $ 902,890 $ 931,843 3

6 LIABILITIES AND NET ASSETS (DEFICIT) - UNRESTRICTED CURRENT LIABILITIES 2105 Bank overdraft $ 9,778 $ Current portion of mortgage payable -- Note F 93,013 $ 84, Accounts payable - 30 days 86,405 75, Accounts payable HUD Note C Utility allowances Accrued wages payable 29,619 12, Accrued payroll taxes payable 1, Accrued interest payable 5,684 6, Prepaid revenue Accrued management fee payable -- Note G 86,095 83,293 TOTAL CURRENT LIABILITIES 312, ,226 DEPOSIT LIABILITY 2191 Tenants' security deposits 8,027 7,745 LONG-TERM LIABILITY 2320 Mortgage payable, less current portion -- Note F 644, ,327 NET ASSETS 3100 Deficiency in net assets - Unrestricted -- Note H ( 62,118) ( 76,455) $ 902,890 $ 931,843 See accompanying notes to the financial statements. 4

7 STATEMENTS OF ACTIVITIES For the years ended June 30, 2017 and REVENUES Rent $338,588 $354,442 Financial Other 5,414 4,376 TOTAL REVENUES 344, ,146 EXPENSES Salaries 72,433 69,605 Administrative 37,435 29,193 Management fee 16,173 16,928 Utilities 24,270 22,421 Operating and maintenance 28,883 17,010 Taxes and insurance 30,846 28,591 Interest on mortgage 71,859 79,383 Depreciation and amortization 48,048 50, , ,046 CHANGES IN NET ASSETS 14,337 45,100 DEFICIENCY IN NET ASSETS, beginning of year ( 76,455) ( 121,555) DEFICIENCY IN NET ASSETS, end of year ($ 62,118) ($ 76,455) See accompanying notes to the financial statements. 5

8 STATEMENTS OF CASH FLOWS For the years ended June 30, 2017 and 2016 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from rentals $337,862 $355,795 Interest received Other cash received 5,414 4, , ,499 Salaries ( 55,426) ( 72,078) Administrative ( 27,732) ( 26,887) Management fees ( 13,371) ( 6,142) Utilities ( 22,102) ( 23,857) Operating and maintenance ( 28,389) ( 18,738) Taxes and insurance ( 20,751) ( 21,199) Interest on mortgage ( 72,512) ( 79,980) Tenant s security deposit ( 17) 17 ( 240,300) ( 248,864) NET CASH PROVIDED BY OPERATING ACTIVITIES 103, ,635 CASH FLOWS FROM INVESTING ACTIVITIES Deposits to replacement reserve and interest retained in account ( 18,689) ( 26,915) Withdrawals from replacement reserve 4,526 1,797 Acquisition of property and equipment ( 15,590) ( 7,300) NET CASH USED IN INVESTING ACTIVITIES ( 29,753) ( 32,418) CASH FLOWS FROM FINANCING ACTIVITIES Mortgage principal payments ( 84,826) ( 77,358) NET CASH USED IN FINANCING ACTIVITIES ( 84,826) ( 77,358) NET INCREASE IN CASH ( 11,321) 1,859 CASH, beginning of year 12,481 10,622 CASH, end of year $ 1,160 $ 12,481 See accompanying notes to the financial statements.

9 STATEMENTS OF CASH FLOWS (CONTINUED) For the years ended June 30, 2017 and CASH FLOWS FROM OPERATING ACTIVITIES CHANGE IN NET ASSETS $ 14,337 $ 45,100 ADJUSTMENTS TO RECONCILE CHANGES IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 48,048 50,915 Loss on disposal of property and equipment 1, (Increase) Decrease in: Tenants' accounts receivable ( 590) 66 Accounts receivable -- HUD ( 489) 969 Accounts receivable Others ( 1,881) 0 Miscellaneous prepaid expenses ( 13,005) 75 Escrow deposits 13,894 ( 1,098) Tenant s security deposit ( 299) 1,270 Increase (Decrease) in: Bank overdraft 9,778 0 Accounts payable - 30 days 11,139 7,191 Accounts payable HUD ( 227) 227 Utility allowance Accrued wages payable 17,007 ( 2,473) Accrued payroll taxes payable Accrued interest payable ( 653) ( 597) Prepaid revenue Accrued management fee payable 2,802 10,786 Tenant s security deposit payable 282 ( 1,253) TOTAL ADJUSTMENTS 88,921 66,535 NET CASH PROVIDED BY OPERATING ACTIVITIES $103,258 $111,635 Supplementary information of non-cash investing activities: For the year ended June 30, 2017, the Project disposed of property and equipment with an original cost $9,509 and accumulated depreciation of $7,802, resulting in a loss on disposal of $1,707. See accompanying notes to the financial statements. 7

10 NOTES TO THE FINANCIAL STATEMENTS For the years ended June 30, 2017 and 2016 NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization: FELIPA SERRANO DE AYALA (the Project) is a 44-unit apartment facility for the elderly and/or the physically impaired, located in Culebra, Puerto Rico. It is operated under Section 202 and Section 236 of the National Housing Act and regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Project's major program is its Section 202 direct loan. The Project is subject to Section 8 Rental Housing Assistance Payments Contract with the U.S. Department of Housing and Urban Development (HUD) for 42-units, and a significant portion of the Project rental income is received from HUD. Legal title of the Project is held by FUNDACION DE HOGARES PARA TRABAJADORES, a nonprofit corporation. The accompanying financial statements are those of the Project and do not necessarily represents the financial position of FUNDACION DE HOGARES PARA TRABAJADORES. Depreciation and Amortization: Property and equipment are valued at cost. Maintenance and repairs, including the replacement of minor items, are expensed as incurred and major additions are capitalized. Depreciation and amortization expense is computed according to the straight-line method. Depreciation and amortization expense for the years ended June 30, 2017 and 2016, amounted to $48,048 and $50,915, respectively. Income, Property and Other Taxes: Neither the Project nor its nonprofit Corporate Owner is subject to income, property or municipal taxes. Distributions: The Project's Regulatory Agreement with HUD stipulates, among other things, that the Project will not make distributions of assets or income to any of its officers or directors. 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 may affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Fair Value of Instruments: The Project s financial instruments are cash, accounts receivable, accounts and accrued expenses payable and long-term debt. The recorded values of cash, accounts receivable, accounts and accrued expenses payable approximate their fair values based on their short-term nature. The recorded values of the long-term debt approximate their fair values, as interest approximates market rates. 8

11 NOTES TO THE FINANCIAL STATEMENTS Years ended June 30, 2017 and 2016 NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-Lived Assets: The Project s Owner follows the provisions of Statement of Financial Accounting Standard, ASC Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Project s Owner has determined that no impairment loss needs to be recognized on the existing assets for the years ended June 30, 2017 and 2016, respectively. Cash Equivalents: For the statement of cash flows, all unrestricted investment instruments with original maturities of three months or less are considered cash equivalents. The Project had no cash equivalents at June 30, 2017 and Functional Expenses: Administrative expenses to support the Project's activities are summarized on a functional basis as follows: Supporting services: Salaries, general and administrative $126,041 $115,726 NOTE B -- CONCENTRATION OF CREDIT RISK The Project maintains all its cash with Banco Popular de Puerto Rico. Deposits in bank are insured by the Federal Deposit Insurance Corporation up to $250,000, per bank. The possibility of loss exists if a bank holding excess deposits were to fail. The total amount of cash in bank did not exceed the federally-insured limit for fiscal years 2017 and NOTE C -- ACCOUNTS RECEIVABLE - HUD The balance receivable from HUD of $489 as of June 30, 2017, is related to adjustments made in the Rental Housing Assistance Payment voucher, requested in August 2017 that corresponded to fiscal year ended in June 30, The balance payable to HUD of $227 as of June 30, 2016, was related to adjustments made in the Rental Housing Assistance Payment Voucher, requested in August 2016, that corresponded to fiscal year ended in June 30, NOTE D -- ACCOUNTS RECEIVABLE OTHER Represents payments made by the Project on behalf of another project. 9

12 NOTES TO THE FINANCIAL STATEMENTS Years ended June 30, 2017 and 2016 NOTE E -- HUD RESTRICTED DEPOSITS Under the HUD Regulatory Agreement, the Project is required to set aside specified amounts for the replacement of property and other expenditures, as approved by HUD. The replacement reserve account balance, which amounted to $217,513 and $203,350 as of June 30, 2017 and 2016, respectively, is held in a separate interest-bearing account and is not generally available for operating purposes. The replacement reserve had an unfunded balance of $6,591 as of June 30, NOTE F -- MORTGAGE PAYABLE The mortgage payable represents a permanent building loan provided by HUD. The balances due as of June 30, 2017 and 2016, amounted to $737,328 and $822,154, respectively. The monthly installment for principal and interest is $13,112, with maturity in Interest is being charged at 9.25%. The mortgage note is secured by the land and building. Maturities of the mortgage note in each of the next five years are as follows: 2018 $ 93, , , , ,467 Thereafter 173,391 $737,328 The fair value of the mortgage payable is estimated based on the current rates offered to the Project for debt of the same remaining maturities. At June 30, 2017 and 2016, the fair value of the mortgage payable approximated the amount recorded in the financial statements. NOTE G -- MANAGEMENT FEE Fundación de Hogares para Trabajadores is the Project s Management Agent. Management fees were computed at 4.75% of gross collections. The management agreement has been approved by HUD. As of June 30, 2017 and 2016, the Project owed management fees in the amount of $86,095 and $83,293, respectively. NOTE H -- UNRESTRICTED NET ASSETS None of the Project's net assets are subject to donor-imposed restrictions. Accordingly, all net assets are accounted for as unrestricted net assets under ASC and

13 NOTES TO THE FINANCIAL STATEMENTS Years ended June 30, 2017 and 2016 NOTE I -- RENT INCREASES Under the Regulatory Agreement, the Project may not increase rents charged to tenants without HUD approval. NOTE J -- CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Project's sole asset is a 44-unit apartment project. The Project's operations are concentrated in the elderly and handicapped real estate market. In addition, the Project operates in a heavily regulated environment. The operations of the Project 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. NOTE K -- SUBSEQUENT EVENTS The management of the Project has evaluated subsequent events through February 14, 2018, date in which the financial statements were available to be issued, and has determined that no additional accruals or disclosures are required in the accompanying financial statements. NOTE L -- OTHER MATTERS Last physical inspection was performed by REAC on December 19, 2014, and the Project score was 95B. Management and Occupancy Review (MOR) was performed by Puerto Rico Housing Finance Authority (PRHFA) in May 18, 2017, and the Project received an overall Superior Rating. Certain findings were noted in the MOR Review Report. Management Agent provided its Corrective Action Plan to PRHFA in July 13, 2017 and in letter dated July 31, 2017, PRHFA granted a total clearance to the MOR Review Report. 11

14 SUPPLEMENTARY INFORMATION REQUIRED BY HUD Year ended June 30, 2017 Replacement Reserve In accordance with the provisions of the Regulatory Agreement, restricted cash is held to be used for replacement of property and various other uses, with the approval of HUD, as follows: Replacement Reserve Balance, June 30, 2016 $203,350 Monthly deposits ($2,049 x 9) 18,441 Other deposits, unfunded deposit June 30, Interest earned 248 Withdrawals approved by HUD ( 4,526) Balance, June 30, 2017, confirmed by depositories $217,513 The replacement reserve account has an unfunded amount of $6,591 (See Note E) Schedule of Miscellaneous Administrative Expenses (6390) Software support fees $ 1,007 Marketing survey study 4,250 Bank charges 1,059 HUD program 1,584 Traveling 3,271 Computer technical assistance fees 925 ADP payroll services fees 1,114 Electronic filing of financial statements required by REAC 875 Reimbursement of petty cash and administrator account 813 Seminars 950 Loss on disposal of property and equipment 1,707 $17,555 12

15 SUPPLEMENTARY INFORMATION REQUIRED BY HUD Year ended June 30, 2017 Changes in Property and Equipment ASSETS ACCUMULATED DEPRECIATION Balance Balance Balance Balance Book Value 06/30/16 Additions Deductions 06/30/17 06/30/16 Provisions Deductions 06/30/17 06/30/ Land $ 70,750 $ 0 $ 0 $ 70,750 $ 0 $ 0 $ 0 $ 0 $ 70,750 Net 1420 Building 2,099, ,099,558 1,499,273 41, ,540, , Building equipment Portable 86,198 15,590 9,509 92,279 69,196 5,133 7,802 66,527 25, Furniture 27, ,018 23,054 1, ,233 2, Maintenance equipment 6, ,749 5, ,389 1,360 $2,290,273 $15,590 $9,509 $2,296,354 $1,596,627 $48,048 $7,802 $1,636,873 $659,481 Additions: Deductions: 1440 Building equipment Portable: 1440 Building equipment - portable: Washer machine (1) $ 2,826 Washer Machine (1) $ 962 Dryer 1,701 Dryer (1) 616 Air conditioner (1) 445 Stoves (10) 3,018 Stoves (10) 3,947 Refrigerators (11) 4,913 Refrigerators (11) 6,671 $9,509 $15,590 13

16 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended June 30, 2017 Federal Federal Federal Grantor/Program Title CFDA Number Expenditures U.S. Department of Housing and Urban Development direct programs: Section 202 Direct Loan $ 737,328 Section 8 Rental Housing Assistance Payment ,366 NOTE A -- BASIS OF PRESENTATION $1,031,694 The accompanying schedule of expenditures of federal awards includes the federal award activity of FELIPA SERRANO DE AYALA PROJECT, HUD Project No. 056-EH-065-WAH-L8, 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 the Project, it is not intended to and does not presents the financial position, changes in its deficiency in net assets, or cash flows of the Project. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursements. The Project has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance. NOTE C -- U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT LOAN PROGRAM The Project 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 end of the year is included in the federal expenditures presented in the Schedule. The Project received no additional loans during the year. Outstanding balance at CFDA Number Program Name June 30, Section 202 Direct Loan $737,328 17

17 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS Year ended June 30, 2017 Recurrent Finding - Occupancy The Project faced recurring problems of vacancy losses during the past few years. During fiscal year 2017, vacancy losses increase by $24,422 when compared with fiscal year 2016, from $148,598 to $173,020. Vacancy losses represent a 33.82% of total gross potential income which has caused the Project a financial hardship. Project has encountered community resistance from potential applicants to move-in to the Project and also prospective applicants did not qualify due to the income limits established by HUD for the area. Finding No Security deposits cash account is deficient when compared to Projects tenants security liability. Corrective action was taken. Condition not repeated in current fiscal year. 18

18 PO BOX Tel. (787) SAN JUAN PR Fax (787) INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of FUNDACION DE HOGARES PARA TRABAJADORES We have audited, in accordance with the auditing standards generally accepted in the Unites States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the Unites States, the financial statements of FELIPA SERRANO DE AYALA PROJECT, which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of activities, and cash flows for the years then ended, and the related notes to the financial statements, and have issued our report thereon dated February 14, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered FELIPA SERRANO DE AYALA PROJECT S internal control over financial reporting 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 S internal control. Accordingly, we do not express an opinion on the effectiveness of the Project s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Project 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. 19

19 Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether S financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of FELIPA SERRANO DE AYALA PROJECT 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 Project s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Juan, Puerto Rico February 14, 2018 Stamp No. E of the Puerto Rico Society of Certified Public Accountants was adhered to the original of this report. 20

20 PO BOX Tel. (787) SAN JUAN PR Fax (787) INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors of FUNDACION DE HOGARES PARA TRABAJADORES Report on Compliance for Each Major Federal Program We have audited 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 S major federal programs for the year ended June 30, S major federal program is identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Direct and material compliance requirement are as follows: Name of Major Federal Programs Section 202, Direct Loan. Direct and Material Compliance Requirements Federal financial reports, replacement reserve; cash receipts, cash disbursements, tenant application, eligibility, and recertification, units leased to extremely low-income families, security deposits, management functions, acquisition of liabilities, and unauthorized loans from project funds. Management s Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. 21

21 Page 2 Auditors Responsibility Our responsibility is to express an opinion on compliance for each of FELIPA SERRANO DE AYALA PROJECT S major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about FELIPA SERRANO DE AYALA PROJECT 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 FELIPA SERRANO DE AYALA PROJECT S compliance. Opinion on Each Major Federal Program In our opinion, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Other Matter The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as findings Our opinion on each major federal program is not modified with respect to this matter. S response to the noncompliance finding identified in our audit is included in the Corrective Action Plan accompanying the financial statements. The Project s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. 22

22 Page 3 Report on Internal Control Over Compliance Management of 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 FELIPA SERRANO DE AYALA PROJECT 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 S internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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. San Juan, Puerto Rico February 14, 2018 Stamp No. E of the Puerto Rico Society of Certified Public Accountants was adhered to the original of this report. 23

23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2017 Section 202 Direct Loan CFDA # Part I - Summary of Audit Results Type of Report Issued on Financial Statements Unmodified opinion. Reportable Conditions in Internal Control Over Financial Statements No material weakness was found. Material Noncompliance No material noncompliance was found with respect to financial statements. Reportable Conditions in Internal Control Over Major Programs No. Type of Report Issued on Compliance for Major Programs Unmodified opinion. Audit Findings Reported Under Code Section 510(a) Yes. Major Programs 202 Direct Loan, CFDA # Dollar Threshold to Distinguish Between Type A and Type B Programs $750,000 Low Risk Auditee No, since there were findings in prior years. 24

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year ended June 30, 2017 Section 202 Direct Loan CFDA # Part II - Financial Statements Findings Section No matters are reportable. Section 202 Direct Loan CFDA # Part III - Federal Award Findings and Questioned Costs Section Finding No CONDITION Replacement reserve account has an unfunded amount of $6, CRITERIA Monthly deposits to the replacement reserve account must be made according to approved Form 9250 of HUD. 3. EFFECT Non-compliance with HUD Regulatory Agreement. 4. CAUSE Oversight in Management Agent functions. 5. RECOMMENDATION Management Agent must transfer to the replacement reserve account the amount of $6,591 as soon as possible. 25

25 CERTIFICATION OF PROJECT OWNER AND MANAGEMENT AGENT June 30, 2017 We hereby certify that we have examined the accompanying financial statements and supplemental data of, HUD Project No. 056-EH-065-WAH-L8 and, to the best of our knowledge and belief, the same are accurate and complete. Mrs. Luisa I. Acevedo President Date Mr. Alberto Ortiz Treasurer Date Fundación de Hogares para Trabajadores Owner EIN Mr. Orlando J. Ramirez Molina Executive Director of Fundación de Hogares para Trabajadores and Management Agent Owner EIN Date 26

26 PO BOX Tel. (787) SAN JUAN PR Fax (787) INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURE To the Board of Directors of FUNDACION DE HOGARES PARA TRABAJADORES We have performed the procedure described in the second paragraph of this report, which was agreed to by and the U.S. Department of Housing and Urban Development, Public Indian Housing-Real Estate Assessment Center (PIH-REAC), on whether the electronic submission of certain information agrees with the related hard copy documents included within the OMB Uniform Administrative Requirements reporting package. is responsible for the accuracy and completeness of the electronic submission. The sufficiency of the procedure in solely the responsibility of and the U.S. Department of Housing and Urban Development, PIH-REAC. Consequently, we make no representation regarding the sufficiency of the procedure described below either for the purpose for which this report has been requested or for any other purpose. We compared the electronic submission of the items listed in the "UFRS Rule Information" column with the corresponding printed documents listed in the "Hard Copy Documents" column. The associated findings from the performance of our agreed-upon procedure indicate agreement of the electronically submitted information and hard copy documents as shown in the attached chart. This agreed-upon procedure engagement was conducted in accordance with the attestation standards established by the American Institute of Certified Public Accountants and the standards applicable to attestation engagements contained in Government Auditing Standards issued by the Comptroller General of the Unites States. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on whether the electronic submission of the items listed in the UFRS Rule Information column agrees with the related hard copy documents within the audit reporting package. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. 27

27 Page 2 We were engaged to perform an audit in accordance with the audit requirements of OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, for FELIPA SERRANO DE AYALA PROJECT as of and for the year ended June 30, 2017, and have issued our reports thereon dated February 14, The information in the "Hard Copy Documents" column was included within the scope, or was a by-product of that audit. Further, our opinion on the fair presentation of the supplementary information dated February 14, 2018, was expressed in relation to the basic financial statements of taken as a whole. A copy of the reporting package required by OMB Uniform Administrative Requirements, which includes the auditors reports, is available in its entirety from. We have not performed any additional auditing procedures since the date of the aforementioned audit reports. Further, we take no responsibility for the security of the information transmitted electronically to the U.S. Department of Housing and Urban Development, PIH-REAC. The purpose of this report on applying the agreed-upon procedure is solely to describe the procedure performed on the electronic submission of the items listed in the UFRS Rule Information column and the associated findings, and not to provide as opinion or conclusion. Accordingly, this report is not suitable for any other purpose. San Juan, Puerto Rico February 14, 2018 Stamp No. E of the Puerto Rico Society of Certified Public Accountants was adhered to the original of this report. 28

28 FELIPA SERRANO DE AYALA June 30, 2017 UFRS Rule Information Hard Copy Document(s) Findings Balance Sheet, Revenue and Expense and Cash Flow Data (account numbers 1120 to 7100T and the S1200 series) Financial Data Templates (Supplemental Schedules) Agrees Surplus Cash (S1300 series of accounts) Financial Data Templates (Computation of Agrees Surplus Cash, Distributions and Residual Receipts) (Annual)) Footnotes (S3100 series of accounts) Footnotes to Audited Basic Financial Statements Agrees Type of Opinion on the Financial Statements and Auditor Reports (S3400, S3500, and S3600 series of accounts) Type of Opinion on Financial Data Templates (Supplemental Data) (account S ) Audit Findings Narrative (S3800, series of accounts) General Information (S3300, S3700, and S3800 series of accounts) Auditors Reports on the Financial Statements, Compliance, and Internal Control Auditors Supplemental Report on Financial Data Templates Schedule of Findings and Questioned Costs Schedule of Findings and Questioned Costs and Federal Awards Data Agrees Agrees Agrees Agrees 29

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