LA Gardens Community Association HUD Project No NP

Transcription

1 Audited Financial Statements December 31, 2016 and 2015 With Supplemental Information and Single Audit Information Certified Public Accountants

2 Table of Contents Independent Auditor s Report...1 Identification of Lead Auditor...3 Financial Statements Statements of Financial Position...4 Statements of Activities...6 Statements of Cash Flows...7 Notes to Financial Statements...9 Supplemental HUD Information Statements of Financial Position...15 Statements of Activities...17 Supporting Data Required by HUD Part II...19 Statements of Changes in Net Assets...20 Statements of Cash Flows...21 Other Information and Replacement Reserves...23 Computation of Surplus Cash...24 Fixed Assets and Accumulated Depreciation...25 Single Audit Section Schedule of Expenditures of Federal Awards...27 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...28 Independent Auditor s Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance...30 Schedule of Findings and Questioned Costs...33 Mortgagor s Certification...35 Management Agent s Certification...36

3 Board of Directors LA Gardens Community Association Los Angeles, California Independent Auditor s Report Report on Financial Statements We have audited the accompanying financial statements of of LA Gardens Community Association (Company), 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company 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 Company 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. Comer, Nowling and Associates, P.C Allisonville Road, Suite 120 Indianapolis, Indiana office

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LA Gardens Community Association as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The financial data schedules and other supplemental schedules are presented for purposes of additional analysis and are not a required part of the financial statements. The financial data schedules and other supplemental schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The accompanying supplemental information 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, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis 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 and is also not a required part of the financial statements. Such 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, financial data schedules and other supplemental schedules are 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 March 1, 2017 on our consideration of the Company 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 the Company s internal control over financial reporting and compliance. Comer, Nowling And Associates, P.C. Comer, Nowling And Associates, P.C. Indianapolis, Indiana March 1,

5 Identification of Lead Auditor Name: Title: Gregory L. Nowling, CPA Partner Telephone: (317) Firm ID Number: Address: c/o Comer, Nowling And Associates, P.C Allisonville Road Suite 120 Indianapolis, IN UII Number:

6 Statements of Financial Position As of December 31, 2016 and 2015 Assets Current Assets Cash - operations $ 14,601 $ 5,795 Tenant accounts receivable Accounts receivable - HUD 50 - Prepaid expenses 21,943 22,593 Total current assets 36,717 28,968 Deposits Held in Trust Tenant deposits held in trust 26,366 25,691 Restricted Deposits Replacement reserve 931, ,583 Residual receipts reserve 91,442 91,396 Total restricted deposits 1,023, ,979 Property and Equipment Land 496, ,549 Buildings 7,643,310 7,491,010 Building equipment - portable 75,563 65,063 Furnishings 129, ,659 Total property and equipment 8,345,081 8,182,281 Accumulated depreciation (4,305,315) (4,104,514) Net property and equipment 4,039,766 4,077,767 Total Assets $ 5,126,076 $ 5,091,405 See notes to financial statements. 4

7 Statements of Financial Position (Continued) As of December 31, 2016 and 2015 Liabilities and Net Assets (Deficit) Current Liabilities Accounts payable - operations $ 7,428 $ 8,355 Accounts payable - Section 8 & other 1,073 1,588 Accrued wages payable 4,553 4,312 Accrued management fee payable Prepaid revenue 3, Total current liabilities 16,547 14,965 Deposit Liabilities Tenant deposits held in trust 25,819 24,616 Long-Term Liabilities Other mortgages payable (long-term) 6,574,432-6,574,432 - Total long-term liabilities 6,574,432 6,574,432 Total Liabilities 6,616,798 6,614,013 Unrestricted Net Assets (Deficit) (1,490,722) (1,522,608) Total net assets (1,490,722) (1,522,608) Total Liabilities and Unrestricted Net Assets (Deficit) $ 5,126,076 $ 5,091,405 See notes to financial statements. 5

8 Statements of Activities For the Years Ended December 31, 2016 and Income Rental income $ 817,833 $ 794,513 Interest income Other income 4,159 1,778 Total income 822, ,171 Expenses Administrative expenses 216, ,513 Utility expenses 75,734 75,808 Operating and maintenance expenses 233, ,110 Taxes and insurance 64,593 73,121 Financial expenses Total cost of operations before depreciation 590, ,591 Change in net assets (deficit) before depreciation 232, ,580 Depreciation expense 200, ,422 Change In Unrestricted Net Assets (Deficit) 31,886 (78,842) Unrestricted Net Assets (Deficit), Beginning of Year (1,522,608) (1,443,766) Unrestricted Net Assets (Deficit), End of Year $ (1,490,722) $ (1,522,608) See notes to financial statements. 6

9 Statements of Cash Flows For the Years Ended December 31, 2016 and Cash Flows From Operating Activities Rental receipts $ 821,015 $ 793,777 Interest receipts Other receipts 4,159 1,778 Total receipts 826, ,435 Administrative (48,256) (51,796) Management fees (91,182) (88,334) Utilities (76,094) (79,040) Salaries and wages (77,343) (79,100) Operating and maintenance (233,899) (321,880) Real estate taxes (6,359) (6,737) Property insurance (26,221) (26,872) Miscellaneous taxes and insurance (31,363) (39,711) Tenant security deposits Miscellaneous financial (86) (39) Total disbursements (590,276) (693,478) Net cash provided by (used in) operating activities 235, ,957 Cash Flows From Investing Activities Net withdrawals from (deposits to) the escrow deposits - 8,276 Net withdrawals from (deposits to) the replacement reserve (64,202) (64,057) Net withdrawals from (deposits to) the residual receipts reserve (46) (2,954) Purchase of fixed assets (162,800) (66,000) Net cash provided by (used in) investing activities (227,048) (124,735) Net Increase (Decrease) in Cash 8,806 (21,778) Cash, Beginning of Year 5,795 27,573 Cash, End of Year $ 14,601 $ 5,795 See notes to financial statements. 7

10 Statements of Cash Flows (Continued) For the Years Ended December 31, 2016 and Reconciliation of change in net assets (deficit) to net cash provided by (used in) operating activities Change in net assets (deficit) $ 31,886 $ (78,842) Adjustments to reconcile change in net assets (deficit) to net cash provided by (used in) operating activities Depreciation 200, ,422 Decrease (increase) in tenant/member accounts receivable 457 (580) Decrease (increase) in prepaid expenses 650 (199) Decrease (increase) in cash restricted for tenant security deposits (675) (1,848) Increase (decrease) in accounts payable (927) (16,551) Increase (decrease) in accrued liabilities (266) 5,832 Increase (decrease) in tenant security deposits held in trust 1,203 1,879 Increase (decrease) in prepaid revenue 2,775 (156) Net cash provided by (used in) operating activities $ 235,854 $ 102,957 See notes to financial statements. 8

11 Notes to Financial Statements Note 1 Nature of Operations and Summary of Significant Accounting Policies General LA Gardens Community Association (Company) is a non-profit corporation organized under the laws of the State of California on July 25, The Company acquired land and buildings, and performed substantial rehabilitation to apartment units to provide housing for very low income and low income families located in Los Angeles, California. The Company now operates five scattered sites consisting of 101 units known as LA Garden Apartments (Project), Los Angeles, California, Project No NP. The Company is subject to a regulatory agreement and a use agreement and is regulated by HUD as to rent charges and operation method. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and other changes in net assets during the reporting period. Actual results could differ from those estimates. Net Asset Classification The financial statements have been prepared in accordance with the Statement of Financial Accounting Standards, Financial Statements of Not-for-Profit Organizations. This Statement requires, among other things, that the financial statements report the changes in and total of each of the net asset classes, based upon donor restrictions, as applicable. Net assets are to be classified as unrestricted, temporarily restricted, and permanently restricted. The following classes of net assets are maintained: Unrestricted Net Assets The unrestricted net asset class includes general assets and liabilities of the Company. The unrestricted net assets of the Company may be used at the discretion of management to support the Company s purposes and operations. Temporarily Restricted Net Assets The temporarily restricted net assets represent contributions and other inflows whose use is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Company pursuant to those stipulations. Permanently Restricted Net Assets Permanently restricted net assets represent contributions and other inflows of assets whose use is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Company. 9

12 As of December 31, 2016 and 2015, all of the assets of the Company are considered to be unrestricted net assets. Cash and Cash Equivalents For the statement of cash flows, all unrestricted investments with the original maturities of three months or less are cash equivalents. As of December 31, 2016 and 2015, cash consists of an operating checking account and petty cash fund. As of December 31, 2016 and 2015 there were no cash equivalents. Tenant Security Deposits Tenant security deposits are maintained in a separate interest-bearing bank account in the name of the Company. Restricted Deposits and Funded Reserves Restricted deposits and funded reserves consist of funds required to be set aside by all projects insured under the National Housing Act. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method of depreciation. Depreciation is computed over the estimated useful lives of each individual asset. 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 recognized as income or loss for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Income Taxes The Company qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code; therefore, no provision for income taxes is recognized in the financial statements. It is exempt from income taxes under the provisions of Section 501(a) of the Code. In the event the Company was to lose its tax exempt status, income tax expense for the tax reporting entity would include federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. No such differences existed as of December 31, 2016 and The Company adopted the standard for Accounting for Uncertainty in Income Taxes and recognizes a tax benefit only if it is more likely than not the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the more-likely-than-not test, no tax benefit is recorded. Federal and state tax authorities (if applicable) generally have the right to examine and audit the previous three years of tax returns filed. 10

13 Accounting for the Impairment or Disposal of Long-Lived Assets Accounting for the Impairment or Disposal of Long-Lived Assets, requires that long-lived assets and certain identifiable intangibles 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. Accounting for the Impairment or Disposal of Long-Lived Assets has not materially affected the Company s reported earnings, financial condition or cash flows. Basis of Accounting The financial statements of the Company have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. Revenue and Cost Recognition Revenues are recognized when earned and costs are expensed when incurred. Risks and Uncertainties The Company is subject to various risks and uncertainties in the ordinary course of business that could have adverse impacts on its operating results and financial condition. Future operations could be affected by changes in the economy or other conditions in the geographical area where the property is located or by changes in federal low-income housing subsidies or the demand for such housing. Note 2 Management Agreement The Company is managed by California Commercial Investment Group, Inc. The management agreement allows for a management fee of 11.10% of gross collections. For the years ended December 31, 2016 and 2015, the Company incurred $91,190 and $88,388, respectively in management fees. Note 3 Capital Grant In 1996 the Company entered into a $6,574,432 capital grant agreement with HUD under the Low Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA) to perform substantial rehabilitation to the acquired housing facilities. The Company also signed a Use Agreement with HUD that states that the project shall be used solely as rental housing for low income tenants. The term of the Use Agreement is for the remaining useful life of the project, as defined in the agreement, but not less than fifty years from the date of the approval of the Plan of Action for the Company. Note 4 Related Party Transactions The Company is managed by California Commercial Investment Group, Inc. LA Gardens Community Association is a related entity because directors of the management agent are related 11

14 to the Company through membership in the non-profit partner. The following are related party transactions for the years ended December 31, 2016 and 2015: Service Provided Management fees $ 91,190 $ 88,388 The Company also uses REAC Ready Maintenance for some of its maintenance and repair work. REAC Ready is related to the management company because the ownership of the two is similar. The total expenses included in the financial statements for these payments to REAC Ready for the years ended December 31, 2016 and 2015, amounted to $359,974 and $345,791, respectively. Note 5 Cash Distributions and Residual Receipts Fund Pursuant to the terms of the Regulatory Agreement, no cash distributions may be made to the non-profit owners, nor can they incur obligations on behalf of the Company, to themselves or any officers, directors, stockholders, Directors, partners, beneficiaries under a trust, or any of their nominees without prior written approval of HUD. Surplus Cash as defined by HUD, existing at the end of the fiscal year must be deposited in a Residual Receipts Fund in the name of the Project within 90 days subsequent to the end of the fiscal year. Surplus cash to be deposited as of December 31, 2016 and 2015 is $0 and $0, respectively. Withdrawals from the Residual Receipts Fund may only be made with the approval of HUD. Note 6 Functional Expenses The functional expenses are as follows: Description Management and general $ 216,369 $ 215,513 Program services housing 574, ,500 $ 791,062 $ 876,013 Note 7 Current Vulnerability Due To Certain Concentrations The Company s sole asset is a 101-unit housing complex. The Company s operations are concentrated in the multifamily real estate market. In addition, the Company operates in a heavily regulated environment. The operations of the Company 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 12

15 with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. Note 8 Credit Risk The Company may at times maintain cash balances in financial institutions in excess of the federally insured limits of $250,000. Company management monitors the financial ratings of such financial institutions and believes the risk of loss is minimal. Note 9 Subsequent Events The Company did not have any other subsequent events through March 1, 2017, which is the date the financial statements were available to be issued, for events requiring recording or disclosure in the financial statements for the year ended December 31,

16 Supplemental HUD Information 14

17 Supporting Data Required by HUD - Statements of Financial Position As of December 31, 2016 and 2015 Assets Current Assets 1120 Cash - operations $ 14,601 $ 5, Tenant/member accounts receivable N Net tenant accounts receivable Accounts receivable - HUD Prepaid expenses 21,943 22, T Total current assets 36,717 28,968 Deposits Held in Trust 1191 Tenant/patient deposits held in trust 26,366 25,691 Restricted Deposits 1320 Replacement reserve 931, , Residual receipts reserve 91,442 91, T Total deposits 1,023, ,979 Property and Equipment 1410 Land 496, , Buildings 7,643,310 7,491, Building equipment - portable 75,563 65, Furnishings 129, , T Total fixed assets 8,345,081 8,182, Accumulated depreciation (4,305,315) (4,104,514) 1400N Net fixed assets 4,039,766 4,077, T Total Assets $ 5,126,076 $ 5,091,405 15

18 Supporting Data Required by HUD - Statements of Financial Position (Continued) As of December 31, 2016 and 2015 Liabilities and Net Assets Current Liabilities 2110 Accounts payable - operations $ 7,428 $ 8, Accounts payable - Section 8 & other 1,073 1, Accrued wages payable 4,553 4, Accrued management fee payable Prepaid revenue 3, T Total current liabilities 16,547 14,965 Deposit Liabilities 2191 Tenant/patient deposits held in trust (contra) 25,819 24,616 Long-Term Liabilities 2322 Other mortgages payable (long-term) 6,574,432 6,574, T Total long-term liabilities 6,574,432 6,574, T Total Liabilities 6,616,798 6,614, Unrestricted Net Assets (1,490,722) (1,522,608) 3130 Total net assets (1,490,722) (1,522,608) 2033T Total Liabilities and Net Assets $ 5,126,076 $ 5,091,405 16

19 Supporting Data Required by HUD - Statements of Activities For the Years Ended December 31, 2016 and Rent revenue 5120 Rent revenue - gross potential $ 348,287 $ 315, Tenant assistance payments 471, , T Total rent revenue 819, ,880 Vacancies 5220 Apartments (1,688) (367) 5200T Total vacancies (1,688) (367) 5152N Net rental revenue (rent revenue less vacancies) 817, ,513 Financial revenue 5410 Financial revenue - project operations Revenue from investments - residual receipts reserve Revenue from investments - replacement reserve T Total financial revenue Other revenue 5910 Laundry and vending revenue 2,046 1, Tenant charges 2, T Total other revenue 4,159 1, T Total revenue 822, ,171 Project Expense Accounts Administrative expenses 6310 Office salaries 17,099 19, Office expenses 38,919 37, Management fee 91,190 88, Manager or superintendent salaries 60,244 59, Audit expense 6,445 5, Bookkeeping fees/accounting services - 2, Bad debts Miscellaneous administrative expense 2,012 3, T Total administrative expenses 216, ,513 17

20 Supporting Data Required by HUD - Statements of Activities (Continued) For the Years Ended December 31, 2016 and Utility expenses 6450 Electricity 13,949 13, Water 27,166 28, Gas 11,936 11, Sewer 22,683 22, T Total utilities expense 75,734 75,808 Operating and maintenance expenses 6515 Supplies 188, , Contracts 27,286 41, Garbage and trash removal 14,328 13, Security payroll/contract Heating/cooling repairs and maintenance 3,512 2, T Total operating and maintenance expenses 233, ,110 Taxes and insurance 6710 Real estate taxes 6,359 6, Payroll taxes (project's share) 8,257 8, Property and liability insurance (hazard) 26,871 26, Fidelity bond Workmen's compensation 2,810 7, Miscellaneous taxes, licenses, permits and insurance - Earthquake insurance 20,268 23, T Total taxes and insurance 64,593 73,121 Financial expenses 6890 Miscellaneous financial expenses T Total financial expenses Operating Results 6000T Total cost of operations before depreciation 590, , T Change in net assets (deficit) before depreciation 232, , Depreciation expense 200, , N Operating profit or (loss) 31,886 (78,842) Change in unrestricted net assets (deficit) $ 31,886 $ (78,842) Change in net assets from operations 3247 Change in unrestricted net assets from operations $ 31,886 $ (78,842) 3250 Change in total net assets from operations $ 31,886 $ (78,842) 18

21 Part II LA Gardens Community Association Supporting Data Required by HUD Part II For the Year Ended December 31, 2016 S Total mortgage (or bond) principal payments required during the audit year (12 monthly payments). This applies to all direct loans and HUD-held and fully insured mortgages. $ - S Total of 12 monthly deposits in the audit year into the replacement reserve account, as required by the Regulatory Agreement even if payments may be temporarily suspended or reduced. $ 63,300 S Replacement reserve, or residual receipts and releases which are included as expense items on the profit and loss statement. $ - S Project improvement reserve releases under the flexible subsidy program that are included as expense items on the profit and loss statement. $ - 19

22 Supporting Data Required by HUD Statements of Changes in Net Assets For the Years Ended December 31, 2016 and S Previous Year Unrestricted Net Assets $ (1,522,608) $ (1,443,766) 3247 Change in Unrestricted Net Assets from Operations 31,886 (78,842) 3131 Unrestricted Net Assets $ (1,490,722) $ (1,522,608) S Previous Year Total Net Assets $ (1,522,608) $ (1,443,766) 3250 Change in Total Net Asset from Operations 31,886 (78,842) 3130 Total Net Assets $ (1,490,722) $ (1,522,608) 20

23 Supporting Data Required by HUD - Statements of Cash Flows For the Years Ended December 31, 2016 and Cash Flows From Operating Activities S Rental receipts $ 821,015 $ 793,777 S Interest receipts S Other operating receipts 4,159 1,778 S Total receipts 826, ,435 S Administrative (48,256) (51,796) S Management fees (91,182) (88,334) S Utilities (76,094) (79,040) S Salaries and wages (77,343) (79,100) S Operating and maintenance (233,899) (321,880) S Real estate taxes (6,359) (6,737) S Property insurance (26,221) (26,872) S Miscellaneous taxes and insurance (31,363) (39,711) S Tenant security deposits S Miscellaneous financial (86) (39) S Total disbursements (590,276) (693,478) S Net cash provided by (used in) operating activities 235, ,957 Cash Flows From Investing Activities S Net deposits to the mortgage escrow account - 8,276 S Net deposits to the reserve for replacement account (64,202) (64,057) S Net deposits to the residual receipts account (46) (2,954) S Net purchase of fixed assets (162,800) (66,000) S Net cash provided by (used in) investing activities (227,048) (124,735) S Net Increase (Decrease) in Cash and Cash Equivalents 8,806 (21,778) S Beginning of Period Cash 5,795 27,573 S1200T End of Period Cash $ 14,601 $ 5,795 21

24 Supporting Data Required by HUD - Statements of Cash Flows (Continued) For the Years Ended December 31, 2016 and Reconciliation of change in net assets (deficit) to net cash provided by (used in) operating activities 3250 Change in total net assets from operations $ 31,886 $ (78,842) Adjustments to reconcile change in net assets (deficit) to net cash provided by (used in) operating activities 6600 Depreciation 200, ,422 S Decrease (increase) in tenant/member accounts receivable 457 (580) S Decrease (increase) in accounts receivable-other (50) - S Decrease (increase) in prepaid expenses 650 (199) S Decrease (increase) in cash restricted for tenant security deposits (675) (1,848) S Increase (decrease) in accounts payable (927) (16,551) S Increase (decrease) in accrued liabilities (266) 5,832 S Increase (decrease) in tenant security deposits held in trust 1,203 1,879 S Increase (decrease) in prepaid revenue 2,775 (156) S Net cash provided by (used in) operating activities $ 235,854 $ 102,957 22

25 Supporting Data Required by HUD Other Information and Replacement Reserves December 31, 2016 Schedule of Replacement Reserves 1320P Balance at beginning of the year $ 867, DT Total monthly deposits 63, INT Interest on replacement reserve account Balance at end of the year $ 931, R Deposits suspended or waived indicator No Schedule of Residual Receipts 1340P Balance at beginning of the year $ 91, INT Interest on residual receipts account Balance at end of the year $ 91,442 23

26 Supporting Data Required by HUD Computation of Surplus Cash December 31, 2016 Computation of Surplus Cash, Distributions, and Residual Receipts (Annual) Account Value S Cash $ 40, Accounts receivable - HUD $ 50 S Other $ - S Total cash $ 41,017 S Accrued mortgage (or bond) interest payable $ - S Delinquent mortgage (or bond) principal payments $ - S Delinquent deposits to reserve for replacements $ - S Accounts payable - 30 days $ 7,428 S Loans and notes payable (due within 30 days) $ - S Deficient tax insurance or mip escrow deposits $ - S Accrued expenses (not escrowed) $ 4, Prepaid revenue $ 3, Tenant/patient deposits held in trust (contra) $ 25,819 S Other current obligations - Section 8 $ 1,073 S Total current obligations $ 42,366 S Surplus cash (deficiency) $ (1,349) S Annual distribution earned during fiscal period covered by this statement $ - S Distribution accrued and unpaid as of the end of the prior fiscal period $ - S Distributions and entity expenses paid during fiscal period covered by $ - this statement S Distribution earned but unpaid $ - S Amount available for distribution during next fiscal period $ - S Incentive performance fee payable $ - S Percentage surplus cash split Description S Surplus cash available for second mortgage payments $ - S Surplus cash available for distribution $ - S Deposit due residual receipts $ - 24

27 Supporting Data Required by HUD Fixed Assets and Accumulated Depreciation December 31, 2016 Change in Fixed Assets Fixed Assets December 31, December 31, 2015 Additions Deductions Land $ 496,549 $ - $ - $ 496, Buildings 7,491, ,300-7,643, Building equipment - portable 65,063 10,500-75, Furnishings 129, ,659 $ 8,182,281 $ 162,800 $ - $ 8,345,081 December 31, December 31, 2015 Additions Deductions Accum. Deprec. $ 4,104,514 $ 200,801 $ - $ 4,305,315 Fixed asset additions for the year ended December 31, 2016: Roofing $ 103,300 Building liners 49,000 Security cameras $ 10, ,800 25

28 Single Audit Section 26

29 Schedule of Expenditures of Federal Awards For the Year Ended December 31, 2016 Federal CFDA Number Federal Expenditures Federal Grantor/Pass-through Grantor/Program Title Department of Housing and Urban Development: Capital Grant Agreement under LIHPRA $ 6,574,432 Section 8 Housing Assistance Payments ,234 Total $ 7,045,666 Note 1 Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of LA Gardens Community Association 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 (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Note 2 Summary of Significant Accounting Policies Expenditures reported on the Schedule of Expenditures of Federal Awards are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited to reimbursement. Pass-through identifying numbers are presented where available. Note 3 Capital Grant Agreement The Company entered into a capital grant agreement with HUD under the Low Income Housing Preservation and Resident Home Ownership Act of 1990 in the amount of $6,574,432. As of December 31, 2016 the balance was $6,574,

30 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 Board of Directors LA Gardens Community Association Los Angeles, California We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the LA Gardens Community Association which comprise the statement of financial position as of December 31, 2016, and the related statements activities and changes in net assets, and cash flows for the year then ended, and the related notes to the financial statements and have issued our report thereon March 1, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered LA Gardens Community Association s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the LA Gardens Community Association s internal control. Accordingly, we do not express an opinion on the effectiveness of the LA Gardens Community Association s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the LA Gardens Community Association 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. 28 Comer, Nowling and Associates, P.C Allisonville Road, Suite 120 Indianapolis, Indiana office

31 Compliance and Other Matters As part of obtaining reasonable assurance about whether LA Gardens Community Association s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of LA Gardens Community Association s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering LA Gardens Community Association s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Comer, Nowling And Associates, P.C. Comer, Nowling And Associates, P.C. Indianapolis, Indiana March 1,

32 Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Board of Directors LA Gardens Community Association Los Angeles, California Report on Compliance for Each Major Program We have audited LA Gardens Community Association s compliance with the types of compliance requirements described in the Uniform Guidance, that could have a direct and material effect on each of LA Gardens Community Association s major federal programs for the year ended December 31, LA Gardens Community Association s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of LA Gardens Community Association 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; Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the major federal programs occurred. An audit includes examining, on a test basis, evidence about LA Gardens Community Association 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 with each major program. However, our audit does not provide a legal determination of LA Gardens Community Association s compliance Allisonville Road, Suite 120 Indianapolis, IN office fax

33 Opinion on Each Major Program In our opinion, LA Gardens Community Association complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs identified above for the year ended December 31, Report on Internal Control Over Compliance Management of LA Gardens Community Association 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 LA Gardens Community Association s internal control over compliance with the types of requirements that could have a direct and material effect on each major 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 the LA Gardens Community Association s internal control over compliance. A deficiency in internal control over compliance 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, noncompliance with a type of compliance requirements 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 compliance requirement will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit the 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, as defined above. However, material weaknesses may exist that have not been identified. 31

34 The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of our testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Comer, Nowling And Associates, P.C. Comer, Nowling And Associates, P.C. Indianapolis, Indiana March 1,

35 Schedule of Findings and Questioned Costs For the Year Ended December 31, 2016 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiencies identified? Yes No Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes No Significant deficiencies identified? Yes No Type of auditors report issued: Unmodified Any audit findings disclosed required to be reported in Accordance with the Uniform Guidance Yes No Identification of major programs audited CFDA Number(s) Name of Federal Program or Cluster Capital Grant Agreement under LIHPRA Dollar threshold used to distinguish between type A and type B programs $750,000 Auditee qualified as low-risk auditee? Yes No Section II Financial Statement Findings See schedule of findings and questioned costs. Section III Federal Award Findings and Questioned Costs See schedule of findings and questioned costs. 33

36 For the Year Ended December 31, 2016: LA Gardens Community Association Schedule of Findings and Questioned Costs For the Year Ended December 31, 2016 There were no findings or questioned costs for the year ended December 31, For the Year Ended December 31, 2015: There were no findings or questioned costs for the year ended December 31,

37 Mortgagor s Certification We hereby certify that we have examined the accompanying financial statements and supplementary information of LA Gardens Community Association, and, to the best of our knowledge and belief, the same is complete and accurate. Tom Lungin President of LA Gardens Community Association March 1, 2017 Date March 1, 2017 Stephen Watson Date Secretary of LA Gardens Community Association 35

38 Management Agent s Certification We hereby certify that we have examined the accompanying financial statements and supplementary information of LA Gardens Community Association, and, to the best of our knowledge and belief, the same is complete and accurate. Mr. Lou Mellman, President California Commercial Investment Group, Inc E. Thousand Oaks Blvd, Ste 100 West Lake Village, CA Phone Number EIN Number March 1, 2017 Date Yana Janvelian Property Manager 36