NORTH COURT APARTMENTS (A Nonprofit Organization) HUD PROJECT NO. 092-EH133-WDD-L8 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT

Transcription

1 NORTH COURT APARTMENTS (A Nonprofit Organization) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1 2 STATEMENTS OF FINANCIAL POSITION 3 4 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS (DEFICIT) 5 STATEMENTS OF CASH FLOWS 6 NOTES TO FINANCIAL STATEMENTS 7 13 SUPPLEMENTARY INFORMATION SCHEDULES OF FUNCTIONAL EXPENSES 14

3 INDEPENDENT AUDITOR'S REPORT Board of Directors NORTH COURT APARTMENTS, INC Broadway Street NE Minneapolis, MN Members of the Board: We have audited the accompanying financial statements of North Court Apartments, Inc. (a not-for-profit organization) (HUD Project No. 092-EH133-WDD-L8), which comprise the Statements of Financial Position as of December 31, 2016 and 2015, and the related Statements of Activities and Changes in Net Assets (Deficit), 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. 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. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Court Apartments, Inc. as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The Schedules of Functional Expenses for the years ended December 31, 2016 and 2015 are presented for purposes of additional analysis and are 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. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements, and, accordingly, we do not express an opinion or provide any assurance on it. Respectfully submitted, CARLSON ADVISORS, LLP Minneapolis, Minnesota March 30, 2017

5 NORTH COURT APARTMENTS STATEMENTS OF FINANCIAL POSITION ASSETS December 31, CURRENT ASSETS Cash in Bank $ 26,172 $ 64,874 Rent Receivable (Net of Allowance for Doubtful Accounts of $4,500 at December 31, 2016) 1,792 2,641 Total Current Assets 27,964 67,515 RESTRICTED DEPOSITS AND FUNDED RESERVES Cash, Reserve for Replacement 24,249 19,024 Cash, Residual Receipts 2,769 2,769 Cash, Tenant Damage Deposits 5,599 5,598 Total Restricted Deposits and Funded Reserves 32,617 27,391 PROPERTY AND EQUIPMENT Land 15,000 15,000 Buildings and Improvements 348, ,520 Apartment Furnishings and Equipment 15,165 15,165 Total 378, ,685 Less: Accumulated Depreciation 281, ,101 Total Property and Equipment (At Depreciated Cost) 97, ,584 OTHER ASSETS Unamortized Loan Costs 6,870 7,290 Total Assets $ 164,764 $ 203,780 See accompanying Notes to Financial Statements. (3)

6 LIABILITIES AND NET ASSETS (DEFICIT) December 31, CURRENT LIABILITIES Current Maturities of Long-Term Debt $ 19,875 $ 19,115 Accounts Payable 388 1,281 Accrued Interest Total Current Liabilities 20,581 20,733 TENANT DAMAGE DEPOSITS 1,949 2,309 LONG-TERM DEBT, Net of Current Portion Above 125, ,976 DUE TO RELATED PARTY 147, ,164 Total Liabilities 296, ,182 NET ASSETS (DEFICIT) (131,286) (125,402) Total Liabilities and Net Assets (Deficit) $ 164,764 $ 203,780 (4)

7 NORTH COURT APARTMENTS STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS (DEFICIT) FOR THE YEARS ENDED Year Ended December 31, REVENUE Tenant Assistance Payments $ 20,592 $ 31,062 Tenant Rent 33,678 29,460 Laundry Income 1,362 1,521 Interest Income 6 5 Total Revenue 55,638 62,048 EXPENSES Salaries 5,400 5,400 Payroll Taxes Utilities 9,345 10,509 Interest 5,410 5,214 Management Fee 5,106 6,535 Auditing and Accounting 6,308 6,715 Building Repairs 8,522 6,722 Rent 2,152 2,125 Insurance 3,000 3,000 Other Administration 6,110 1,302 Amortization Expense Real Estate Taxes Bad Debt Expense 4,500 - Taxes, Licenses and Permits Office Supplies 97 - Total Expenses 57,250 48,618 INCOME (LOSS) BEFORE DEPRECIATION (1,612) 13,430 DEPRECIATION 4,272 4,718 INCREASE (DECREASE) IN NET ASSETS (5,884) 8,712 NET ASSETS (DEFICIT), BEGINNING OF YEAR (125,402) (134,114) NET ASSETS (DEFICIT), END OF YEAR $ (131,286) $ (125,402) See accompanying Notes to Financial Statements. (5)

8 NORTH COURT APARTMENTS STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED Year Ended December 31, CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Increase (Decrease) in Net Assets $ (5,884) $ 8,712 Adjustments to Reconcile Increase (Decrease) in Net Assets to Net Cash Provided by Operating Activities: Depreciation 4,272 4,718 Amortization Decrease (Increase) in Operating Assets: Rent Receivable 849 (1,744) Prepaid Expenses - 86 Increase (Decrease) in Operating Liabilities: Accounts Payable (894) 999 Accrued Interest (19) (20) Net Change in Tenant Damage Deposit Accounts (361) (1) Net Change in Residual Receipts Deposit Accounts - (1) Net Cash Provided by (Used For) Operating Activities (1,617) 13,166 CASH USED FOR INVESTING ACTIVITIES Additions to Escrow Funds for Property and Equipment Replacements (5,225) (3,809) Purchases of Fixed Assets - (1,987) Net Cash Used for Investing Activities (5,225) (5,796) CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Payments on Long-Term Debt (19,258) (18,679) Net Change in Due to Related Party (12,602) 22,360 Net Cash Provided by (Used For) Financing Activities (31,860) 3,681 NET INCREASE (DECREASE) IN CASH (38,702) 11,051 CASH BEGINNING 64,874 53,823 CASH ENDING $ 26,172 $ 64,874 Supplemental Cash Flow Information: Cash Paid during the Year for Interest $ 5,429 $ 5,234 See accompanying Notes to Financial Statements. (6)

9 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF ORGANIZATION North Court Apartments, Inc. (Organization) is a Minnesota not-for-profit corporation organized to operate a multi-unit residence for the developmentally disabled under Section 202 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The Organization has a Section 8 Housing Assistance Payment Contract (The "HAP" Contract for 12 units) which supports the Organization s long-term debt. Legal title to the project is held by North Court Apartments, Inc. The Organization also is subject to Section 8 Housing Assistance Payments Agreement with HUD. A significant portion of the Organization's rental income is received from HUD under this Agreement. The Organization's HUD non-major program is this Section 8 rent subsidy. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Standards of Accounting and Financial Reporting The organization follows the accounting guidance in the audit and accounting guide, Health Care Organizations, which is in conformity with the recommendations of the American Institute of Certified Public Accountants. Financial Statement Presentation The financial statements of the Organization have been prepared on the accrual basis of accounting and are presented in accordance with the FASB Accounting Standards Codification (ASC) 958, Not-for-Profit Entities. ASC 958 requires the Organization to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Assets accumulated and resources received and expended by the Organization are either unrestricted as to use or purpose or restricted by the donor for a particular purpose. Permanently restricted net assets account for donations restricted for specific purposes whereby the restriction does not expire. Temporarily restricted net assets represent contributions to the Organization whose use is limited by donor-imposed stipulations that either expire by the passage of time or can be fulfilled by expending the funds for their restricted purpose. The designation of net assets for specific purposes by the Organization itself does not constitute a basis for reclassifying them as temporarily restricted. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits in banks and money market instruments. The Organization also considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Organization had no cash equivalents as of December 31, 2016 and The Organization places its temporary cash investments with one financial institution. (7)

10 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Rents Receivable Billings for rental services are recognized as income as the rent is due. Billings to governmental agencies for subsidized services are based upon contract billing rates which may be subsequently changed by the government authorities. Changes in regulations or governmental funding could result in the reduction of rental income. Any such adjustments to the contract rates are recognized as a reduction of income when their effect becomes reasonably determinable. Bad debts are provided on the allowance method based on historical experience and management's evaluation of outstanding rent receivable. The accounts receivable are stated net of allowance for doubtful accounts. The allowance for doubtful accounts was $4,500 and $0 as of December 31, 2016 and 2015, respectively. Property and Equipment Property and equipment are stated at cost if purchased or fair market value at the date of the gift if donated. The Organization s capitalization threshold is for property and equipment which exceed $5,000. Renewals and betterments with a cost of greater than the threshold that materially prolong the useful lives of assets are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. Property and equipment are depreciated using the straight-line method over their estimated useful lives. The estimated useful lives of the assets are as follows: Buildings and Improvements Apartment Furnishings and Equipment 5 to 30 Years 5 Years Impairment of Long-Lived Assets The Organization reviews long-lived assets, including property, equipment and certain identifiable intangibles, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recovered. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. The Organization has determined that no impairment existed at December 31, 2016 and Revenue Recognition Revenues are recognized when rent is due. Revenue is generated by renting apartment space to residents. Contributions, including unconditional promises to give (pledges), are recognized in the period received. Conditional promises are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. (8)

11 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Revenue Recognition Continued All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. When a temporary restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Organization records restricted contributions for which the restriction is met in the same reporting period as unrestricted contributions. As of December 31, 2016 and 2015, the Organization had not received any contributions. Donated Materials and Services Donated materials are reflected as contributions in the financial statements at their estimated value at the date of receipt. Donated services are recognized as contributions in accordance with GAAP, if the service (a) creates or enhances nonfinancial assets or, (b) specialized skills are performed by people with those skills that would otherwise be purchased by the Organization. No amounts have been reflected in the statements for donated materials or services as of December 31, 2016 and Income Taxes The Organization was incorporated under the laws of Minnesota as a not-for-profit corporation and is exempt from federal income tax under Internal Revenue Code 501(c)(3). Uncertain Tax Positions The Organization has adopted accounting guidance related to uncertainty in income taxes. This guidance clarifies the recognition threshold and measurement requirements for income tax position taken or expected to be taken on income tax returns. This includes positions that the entity is exempt from income taxes or not subject to income taxes on unrelated business income. Under the standards, the Organization recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities. The Organization has identified no income tax uncertainties. Distributions The Organization's regulatory agreement with HUD stipulates, among other things, that the Organization 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. Significant items subject to such estimates and assumptions include: the allowance for doubtful accounts and useful lives of property and equipment. (9)

12 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Functional Allocation of Expenses The costs of providing the programs and supporting service activities have been allocated. Salaries and related costs are allocated between the program and supporting service categories based upon the estimated time expended by the employee in those categories. Other costs are allocated according to management s estimate or on a direct basis. Functional expense totals for the years ended December 31, 2016 and 2015 are as follows: Amount % Amount % Program $ 41, $ 33, Management and General 19, , Fundraising Total $ 61,522 $ 53,336 New Accounting Standards In August 2016, the FASB issued ASU , Not-For-Profit Entities (Topic 958): Presentation of Financial Statements of Not-For-Profit Entities, which provides guidance for the presentation of Not-for-Profit financial statements. The guidance requires not-for-profit entities to 1) reclassify Net Assets into two classes ( Without Donor Restrictions or With Donor Restrictions ) rather than three classes, 2) present both qualitative and quantitative information that communicates how the organization manages its liquid resources and the availability of financial assets to meet cash needs within one year of the balance sheet date, 3) present an analysis of expenses by function and nature, 4) present Investment Return amounts as a net presentation of investment expenses against investment returns, 5) present the Statement of Cash Flows in either direct or indirect method, but if using direct method, no longer required to show indirect reconciliation. The guidance will initially be applied using a retrospective approach. The amendments in the guidance are effective for fiscal years beginning after December 15, Early adoption is permitted. Management is evaluating the impact of the amended guidance on the entity s financial statements. NOTE 3 HUD RESTRICTED DEPOSITS Reserve for Replacement Under the regulatory agreement, the Organization is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. HUD-restricted deposits which were $24,249 and $19,024 at December 31, 2016 and 2015, respectively, are being held in separate accounts and generally are not available for operating purposes. Residual Receipts The organization has deposited funds into a residual receipts account. As of December 31, 2016 and 2015, the residual receipts account balance was $2,769. The funds are held in a separate account and generally are not available for operating purposes. (10)

13 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3 HUD RESTRICTED DEPOSITS Continued Tenant Damage Deposits Under the regulatory agreement, the Organization is required to set aside amounts for the return of resident paid damage deposits. HUD-restricted deposits which were $5,599 and $5,598 at December 31, 2016 and 2015, respectively, are being held in separate accounts and generally are not available for operating purposes. NOTE 4 LONG-TERM DEBT Long-term debt consists of the following: Interest Due Within Due After Description Rate One Year One Year Total Note Payable to related party, monthly payments of $1,029 through July % $ 8,597 $ 123,081 $ 131,678 Note payable to related party, monthly payments of $964 through March % 11,278 2,877 14,155 Total Long-Term Debt $ 19,875 $ 125,958 $ 145,833 Future principal payments are as follows: Year Ending December 31, Amount 2017 $ 19, , , , ,951 Thereafter 85,786 Total $ 145,833 (11)

14 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 5 DUE TO RELATED PARTY Community Involvement Programs (CIP), a Minnesota not-for-profit corporation, is a related party to the Organization because of common members of their Board of Directors. CIP provides office space and management support to the Organization as needed. Due to related party consists of total unreimbursed expenses paid by CIP's general fund on behalf of North Court Apartments Project. The general fund pays all common expenses of its programs and the programs reimburse the fund as needed. At December 31, 2016 and 2015, the liability balance of $147,562 and $160,164, respectively, of unreimbursed expenses paid by the general fund for North Court Apartments was substantially for maintenance, utilities and insurance costs, wages and benefits, and allocation of administrative costs. NOTE 6 CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Organization's operations are concentrated in the multifamily real estate market. In addition, the Organization operates in a heavily regulated environment. The operations of the Organization 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 7 MAINTENANCE AND ADMINISTRATIVE ALLOCATION The Organization does not have any employees, nor does it pay any related payroll taxes or benefits. All maintenance on the project is performed by CIP, a related Organization. CIP allocates a portion of its maintenance and administrative expenses to North Court Apartments, Inc. Maintenance expenses are allocated based on the number of units (12) compared to the number of units in the Organization (98) with a maximum of $5,000. The maintenance allocation of $5,000 for each of the years ended December 31, 2016 and 2015 is recorded in Building Repairs. Administrative expenses are allocated based on a percentage of budgeted revenues. The management fee was $5,106 and $6,535 for each of the years ended December 31, 2016 and 2015, respectively. (12)

15 NORTH COURT APARTMENTS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 8 COMMITMENTS AND CONTINGENCIES Insurance The Organization is subject to legal proceedings and claims which arise in the course of providing health care services. The Organization maintains liability insurance coverage for claims made during the policy year. In management s opinion, adequate provision has been made for amounts expected to be paid under the policy s deductible limits for unasserted claims not covered by the policy and any other uninsured liability. Industry The health care industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for resident services, and Medicare and Medicaid fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse of statutes and regulations by health care providers. Violations of these laws and regulations could result in expulsion from government health care programs together with the imposition of significant fines and penalties, as well as significant repayments for resident services previously billed. NOTE 9 SUBSEQUENT EVENTS In preparing these financial statements, the Organization has evaluated for recognition or disclosure the events or transactions that occurred through March 30, 2017, the date the financial statements were available to be issued. (13)

16 SUPPLEMENTARY INFORMATION

17 NORTH COURT APARTMENTS SCHEDULES OF FUNCTIONAL EXPENSES FOR THE YEARS ENDED (UNAUDITED) Management Management Total Program and Total Program and Costs Services General Fundraising Costs Services General Fundraising Salaries $ 5,400 $ - $ 5,400 $ - $ 5,400 $ - $ 5,400 $ - Payroll Taxes Utilities 9,345 9, ,509 10, Interest 5,410 5, ,214 5, Management Fee 5,106-5,106-6,535-6,535 - Auditing and Accounting 6,308-6,308-6,715-6,715 - Building Repairs 8,522 8, ,722 6, Rent 2,152 2, ,125 2, Insurance 3,000 3, ,000 3, Other Administration 6,110 4,277 1,833-1, Amortization Expense Real Estate Taxes Bad Debt Expense 4,500 4, Taxes, Licenses and Permits Office Supplies Total Expenses Before Depreciation 57,250 37,641 19,609-48,618 28,913 19,705 - Depreciation 4,272 4, ,718 4, Total Expenses $ 61,522 $ 41,913 $ 19,609 $ - $ 53,336 $ 33,631 $ 19,705 $ - See accompanying Independent Auditor's Report. (14)