TOBY HOUSE VIII, INC. (a non-profit corporation) HUD Project No. 123-HD033. Financial and Com pliance Audit. September 30, 2016

Transcription

1 (a non-profit corporation) HUD Project No. 123-HD033 Financial and Com pliance Audit September 30, 2016

2 Table of Contents Page Independent auditor s report 1-2 Financial statements: Statement of financial position 3 Statement of activities 4 Statement of cash flows 5 Notes to financial statements 6-7 Schedule of expenditures of federal awards 8 Supplemental data required by HUD 9-12 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, questioned costs and summary of auditor s results Schedule of prior year findings 19 Certificate of corporate officers 20 Management agent's certification 21 Lead auditor: Douglas Kienitz, C.P.A. Telephone number: (480) Firm's Federal ID#:

3 INDEPENDENT AUDITOR S REPORT Board of Directors Toby House VIII, Inc.: Report on the Financial Statements I have audited the accompanying financial statements of Toby House VIII, Inc. (a non-profit corporation), which comprise the statement of financial position as of September 30, 2016, and the related statements of activities, 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 My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion

4 Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Toby House VIII, Inc. as of September 30, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information My audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information on pages 9 through 12 is presented for the purposes of additional analysis 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 my 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, I have also issued my report dated December 14, 2016, on my consideration of the Project s internal control over financial reporting and on my 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 my 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 the Project s internal control over financial reporting and compliance. December 14,

5 Statement of Financial Position September 30, 2016 ASSETS Current assets: 1120 Cash - operations $ 1, Tenant accounts receivable 1, HUD accounts receivable 1,513 Total current assets 5, Tenant security deposits held in trust 3,839 Restricted deposits and funded reserves: 1320 Reserve for replacements 23,176 Land, building, furniture and equipment, at cost, pledged: 1410 Land $ 180, Building, net of accumulated depreciation of $524,736 1,350, Furniture and equipment, net of accumulated depreciation of $707-1,531,677 LIABILITIES $ 1,563,919 Current liabilities: 2110 Accounts payable $ 29, Payable to Southwest Behavioral Health Services 472, Prepaid revenue 1 Total current liabilities 501, Tenant security deposits 3, ,609 NET ASSETS 3210 Net assets: Unrestricted 1,058,310 1,058,310 $ 1,563,919 See accompanying notes to financial statements

6 Statement of Activities Year ended September 30, 2016 Changes in unrestricted net assets: Revenue: Net rentals $ 130,320 Interest 13 Other 5,567 Total unrestricted revenue 135,900 Expenses: Administrative 44,885 Utilities 40,357 Operating and maintenance 51,805 Taxes and insurance 9,830 Depreciation 49,126 Total unrestricted expenses 196,003 Decrease in unrestricted net assets (60,103) Decrease in net assets (60,103) Net assets at October 1, ,118,413 Net assets at September 30, 2016 $ 1,058,310 See accompanying notes to financial statements

7 Statement of Cash Flows Year ended September 30, 2016 Cash flows provided by operating activities: Cash received from HUD and tenants $ 126,348 Other operating receipts 5,580 Operating expenses: Administrative (9,570) Management fees (14,868) Utilities (38,759) Salaries and wages (20,237) Operating and maintenance (38,243) Property insurance (4,275) Miscellaneous taxes and insurance (5,555) Transfers to tenant security deposits (24) Net cash provided by operating activities 397 Cash flows used by investing activities: Net deposits from reserve for replacements 5,208 Purchase of building improvements (10,262) Net cash used by investing activities (5,054) Net decrease in cash (4,657) Cash at October 1, ,554 Cash at September 30, 2016 $ 1,897 Reconciliation of Changes in Net Assets to Net Cash Provided by Operating Activities Decrease in net assets $ (60,103) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 49,126 (Increase) decrease in operating assets: Receivables (3,330) Security deposits (602) Increase (decrease) in operating liabilities: Accounts payable 15,370 Prepaid revenue (642) Security deposits 578 Net cash provided by operating activities $ 397 See accompanying notes to financial statements

8 Notes to Financial Statements September 30, 2016 (1) Operations and Summary of Significant Accounting Policies Toby House VIII, Inc. ("Project") is a non-profit corporation organized for the purpose of operating three properties located in Phoenix, Arizona for low-income and handicapped individuals. The Project is comprised of 21 apartment units. The Project was constructed under a Capital Advance Financing Agreement with HUD. A regulatory agreement with HUD restricts the operations of the Project, including limiting occupancy to the lowincome and handicapped and requiring approval of HUD for additional indebtedness, payment of compensation and changes in rental rates. The Project receives housing assistance payment subsidies from HUD under Section 8 of the U.S. Housing Act of Significant accounting policies follow: (a) Basis of Financial Statements The financial statements are prepared on the accrual basis of accounting in which income is recognized when earned and expenses are recorded when incurred. (b) Basis of Presentation The Project presents its financial information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Project does not have any temporarily or permanently restricted net assets. (c) Use of Estimates Management necessarily uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results may vary from such estimates and assumptions. (d) Depreciation Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, which is forty years for the building and five to seven years for furniture and equipment. In general, expenditures for furniture and equipment in excess of $1,000 are capitalized. (e) Cash Equivalents For purposes of the statement of cash flows, the Project considers all highly liquid debt instruments with an initial maturity of three months or less to be cash equivalents. The Project has bank balances which do not exceed the FDIC insurance limit. (f) Advertising Costs Advertising costs are charged to operations when incurred. No advertising costs were incurred in (g) Subsequent Events The Project has evaluated subsequent events through December 14, 2016, the date which the financial statements were available to be issued

9 Notes to Financial Statements (continued) September 30, 2016 (1) Operations and Summary of Significant Accounting Policies (continued) The financial statements do not reflect a provision for income taxes as the Project has been granted tax-exempt status under Section 501(c)(3) of the Internal Revenue Code for revenue related to its exempt purpose. (2) Reserve for Replacements and Residual Receipts The Project is obligated under a regulatory agreement with HUD to contribute $420 monthly to a reserve fund for replacements which is held in a separate bank account. Disbursements from this account for property replacements require approval from HUD. In addition, monies in excess of certain current obligations and other liabilities must be transferred to the residual receipts account within ninety days after the fiscal year. Disbursements from this account require approval from HUD. (3) Capital Advance Financing Agreement The Project was constructed under a Capital Advance Financing Agreement with HUD. Under this agreement, the capital advance bears no interest and is not required to be repaid so long as the housing remains available to eligible very low income households for a period of 40 years and is in accordance with Section 202 of the Housing Act of 1959 or Section 811 of the National Affordable Housing Act. Cumulative advances to September 30, 2016 totaled $1,494,131. (4) Related Entity The Project was organized by Toby House, Inc. for the purpose of providing residential facilities for low-income and handicapped individuals. During 2011, Southwest Behavioral Health Services acquired Toby House VIII, Inc. Both Toby House, Inc. and Southwest Behavioral Health Services advanced funds on behalf of the Project. Unpaid advances aggregated $472,228 at September 30, In addition, $17,860 related to payroll, management fees and other services for current year operations is included in accounts payable. (5) Management Agreement The Project is obligated to Southwest Behavioral Health Services under a management agreement that requires management fees of $59 per unit per month, which is an amount approved by HUD. In addition, Southwest Behavioral Health Services provided office services for the Project. These services totaled $20,237 for salaries and $1,672 for related payroll taxes. (6) Current Vulnerability Due to Certain Concentrations The Project's principal asset is a twenty-one unit apartment project. The Project's operations are concentrated in the multifamily 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 the change

10 Schedule of Expenditures of Federal Awards September 30, 2016 Federal Grantor/Pass-through CFDA Federal Grantor/Program Title Number Expenditures U.S. Department of Housing and Urban Development: Community Development Block Grants/ Entitlement Grants $ 1,494,131 Supportive Housing for Persons with Disabilities ,616 Note A - Basis of Presentation $ 1,585,747 The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Toby House VIII, Inc. 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 Toby House VIII, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Toby House VIII, Inc. Note B - Summary of Significant Accounting Policies (1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Toby House VIII, Inc. has elected not to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance

11 Supplemental Data Required by HUD September 30, ) Reserve for replacements: In accordance with the provisions of the regulatory agreement, restricted cash is to be used for replacements of property with the approval of HUD. The balance consists of cash as follows: Balance at September 30, 2015 $ 28,384 Deposits 5,042 Interest earned 12 Withdrawals (10,262) Balance at September 30, 2016 $ 23,176 2) Computation of surplus cash at September 30, 2016: Cash $ 5,736 Tenant subsidy due for period covered by financial statements 1,513 Other - Total cash $ 7,249 Accrued mortgage interest payable $ - Delinquent mortgage principal payments - Delinquent deposits to reserve for replacements - Accounts payable - 30 days 29,565 Loans and notes payable - 30 days - Deficient tax insurance or MIP escrow deposits - Accrued expenses not escrowed - Prepaid revenue 1 Tenant security deposits liability 3,815 Other current obligations - Total current obligations $ 33,381 Surplus cash (deficiency) $ (26,132) Deposit due residual receipts $

12 Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing OMB Approval No (Exp. 1/31/95) Public Reporting B urden for th is collection o f informatio n is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. S end comm ents regarding this burde n estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Office of information Policies and Systems, U.S. Department of Housing and Urban Development, Washington, D.C and to the Office of Management and Budget, Paperwork Reduction Project ( ), Washington, D.C Do not send this completed form to either of these addresses. For Month/Period Project Number: Project Name: Beginning: OCTOBER 1, 2015 Ending: SEPTEMBER 30, HD033 Part I Description of Account Acct. No. Amo unt* Apartments or Member Carrying Charges (Coops) 5120 $ 54,640 Tenan t Assistan ce Paym ents 5121 $ 91,616 Rental Furniture and Equipment 5130 $ Income Stores and Commercial 5140 $ 5100 Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Misce llaneo us (sp ecify) 5190 $ Total Rent Revenue Potential at 100% Occupancy $ 146,256 Apartments 5220 ( 15,936 ) Furniture and Equipment 5230 ( ) Vacancies Stores and Commercial 5240 ( ) 5200 Garage and Parking Spaces 5270 ( ) Misce llaneo us (sp ecify) 5290 ( ) Total Vacancies $ (15,936) Net Rental Revenue Rent Revenue Less Vacancies $ 130,320 Elderly and Congregate Service Income-5300 Total Service Income (Schedule Attached) 5300 $ $ Interest Income-Project Operations 5410 $ 1 Financial Income from Investments-Residual Receipts 5430 $ Revenue Income from Investments-Reserve for Replacement 5440 $ Income from Investments-Miscellaneous 5490 $ Total Financial Revenue $ 13 Laundry and Vending 5910 $ 468 NSF and Late Charges 5920 $ Other Damages and Cleaning Fees 5930 $ 4,151 Revenue Forfeited T enant S ecurity Dep osits 5940 $ 5900 Othe r Reve nue (s pecify) MISCELLANEOUS 5990 $ 948 Total Other Revenue $ 5,567 Total Revenue $ 135,900 Advertising 6210 $ Other Administrative Expenses 6250 $ Office Salaries 6310 $ 5,890 Office Supplies 6311 $ 3,465 Office or Model Apartment Rent 6312 $ Administrative Management 6320 $ 14,868 Expenses Manager or Superintendent Salaries 6330 $ 14, /6300 Mana ger or S uperin tende nt Ren t Free U nit 6331 $ Legal E xpense s (Project) 6340 $ 199 Auditing Expen ses (Pro ject) 6350 $ 5,850 Bookkeeping Fees/Accounting Services 6351 $ Telephone and Answering Service 6360 $ Bad D ebts 6370 $ 266 Misce llaneo us Ad minis trative E xpens es (sp ecify) 6390 $ Total Administrative Expenses $ 44,885 Fuel Oil/Coal 6420 $ Utilities Electricity (Light and Misc. Power) 6450 $ 34,654 Expense Water 6451 $ 3, Gas 6452 $ Sewer 6453 $ 1,973 Total Utilities Expense $ 40,357 * All amounts must be round to the nearest dollar; $.50 and Page 1 of 2 form HUD (7/91) over, roun ded up-$.49 and b elow, roun d down ref Hand book

13 Janitor and Cleaning Pay roll 6510 $ Janitor and Cleaning Supplies 6515 $ Janitor and Cleaning Contract 6517 $ Exterminating Payroll/Contract 6519 $ Exterminating Supplies 6520 $ Garbage and Trash Removal 6525 $ 6,766 Security Payroll/Contract 6530 $ Grou nds P ayroll 6535 $ Operating and Grounds Supplies 6536 $ Maintenance Grounds Contract 6537 $ Expenses Repa irs Payro ll 6540 $ 6500 Repairs Material 6541 $ 17,945 Repairs Contract 6542 $ 25,113 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 1,981 Swimming Pool Maintenance/Contract 6547 $ Snow Removal 6548 $ Decorating Payroll/Contract 6560 $ Decorating Supplies 6561 $ Other 6570 $ Miscellaneous Operating and Maintenance Expenses 6590 $ Total Operating and Maintenance Expenses $ 51,805 Real Estate Taxes 6710 $ Payroll Taxes (FICA) 6711 $ 1,672 Taxes Miscellaneous Taxes, Licenses and Permits 6719 $ and Property and Liability Insurance (Hazard) 6720 $ 4,275 Insurance Fidelity Bond Insurance 6721 $ 6700 Workmen's Compensation 6722 $ 68 Health Insurance and Other Employee Benefits 6723 $ 3,815 Other Insurance (specify) 6729 $ Total Taxes and Insurance $ 9,830 Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ Financial Interest on Notes Payable (Long-Term) 6830 $ Expenses Interest on Notes Payable (Short-Term) 6840 $ 6800 Mortgage Insurance Premium/Service Charge 6850 $ Miscellaneous Financial Expenses 6890 $ Total Financial Expenses $ Elderly & Total Service Expenses-Schedule Attached 6900 $ Cong regate Total Cost of Operations Before Depreciation $ 146,877 Service Profit (Loss) Before Depreciation $ (10,977) Expenses Depreciation (Total)-6600 (specify) 6600 $ 49, Operating Profit or (Loss) $ (60,103) Officer Salaries 7110 $ Corporate or Lega l Expe nses (Entity) 7120 $ Mortgagor Taxe s (Fed eral-s tate-e ntity) $ Entity Othe r Expe nses (Entity) 7190 $ Expenses Total Corporate Expenses $ 7100 Net Profit or (Loss) $ (60,103) Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012;31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expenses Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage. $ Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 5, Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ Project improvement Reserv e Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ -0- Page 2 of 2 form HUD (7/91) ref Hand book

14 Schedule of Changes in Land, Building and Equipment Year ended September 30, 2016 Assets Accumulated Depreciation Net Balance Balance Balance Balance Book Value September 30, September 30, September 30, Current September 30, September 30, 2015 Additions Deductions Provision Deductions Land $ 180, , ,997 Building 1,865,154 10,262-1,875, ,610 49, ,736 1,350,680 Furniture and Equipment $ 2,046,858 10,262-2,057, ,317 49, ,443 1,531,

15 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER M ATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Directors Toby House VIII, Inc.: I have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Toby House VIII, Inc., which comprise the statement of financial position as of September 30, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued my report thereon dated December 14, Internal Control Over Financial Reporting In planning and performing my audit of the financial statements, I considered the Project s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing my opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Project s internal control. Accordingly, I 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 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. My 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 my audit, I did not identify any deficiencies in internal control that I consider to be material weaknesses. However, material weaknesses may exist that have not been identified

16 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Project s financial statements are free from material misstatement, I 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 my audit, and accordingly, I do not express such an opinion. The results of my 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 my testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the 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. December 14,

17 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PRO GRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Board of Directors Toby House VIII, Inc.: Report on Compliance for Each Major Federal Program I have audited Toby House VIII, Inc. s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Project s major federal programs for the year ended September 30, The Project 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 My responsibility is to express an opinion on compliance for each of the Project s major federal programs based on my audit of the types of compliance requirements referred to above. I conducted my 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 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 I 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 the Project s compliance with those requirements and performing such other procedures as I considered necessary in the circumstances. I believe that my audit provides a reasonable basis for my opinion on compliance for each major federal program. However, my audit does not provide a legal determination of the Project s compliance. Opinion on Each Major Federal Program In my opinion, Toby House VIII, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30,

18 Report on Internal Control Over Compliance Management of the Project is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing my audit of compliance, I considered the 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, I do not express an opinion on the effectiveness of the Project 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. My 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. I did not identify any deficiencies in internal control over compliance that I 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 my 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. December 14,

19 Schedule of Findings, Questioned Costs and Summ ary of Auditor s Results September 30, 2016 Section I - Summary of Auditor s Results Financial Statements Type of auditor s report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiencies identified that are not considered to be material weaknesses? Noncompliance material to financial statements noted? Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiencies identified that are not considered to be material weaknesses? Type of auditor s report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Title 2 CFR Section (a)? Unmodified No No No No No Unmodified No Identification of major programs: CFDA Community Development Block Grants/Entitlement Grants CFDA Supportive Housing for Persons with Disabilities Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? Yes Section II - Financial Statement Findings None

20 Schedule of Findings, Questioned Costs and Summary of Auditor s Results (continued) September 30, 2016 Section III - Federal Award Findings and Questioned Costs None

21 Schedule of Prior Year Findings September 30, 2016 There were no findings or questioned costs for the year ended September 30,

22 CERTIFICATE OF CORPORATE OFFICERS We hereby certify that we have examined the accompanying financial statements and supplemental data of Toby House VIII, Inc. and, to the best of our knowledge and belief, the same is complete and accurate. (Signature) (Date) (Signature) (Date) EMPLOYER IDENTIFICATION NUMBER

23 MANAGEMENT AGENT'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Toby House VIII, Inc. and, to the best of my knowledge and belief, the same is complete and accurate. by (Signature) (Date) Southwest Behavioral Health Services, Inc