President Harry S. Truman Manor, Inc. HUD Project Number: 136-EE027

Transcription

1 Audited Financial Statements With HUD Required Supplemental Information and Single Audit Section President Harry S. Truman Manor, Inc. HUD Project Number: 136-EE027 December 31, 2017 and 2016 Nicholson & Olson, LLP Certified Public Accountants

2 Index Independent Auditor s Report Financial Statements Statements of Financial Position Statements of Activities... 5 Statements of Changes in Net Assets (Deficit)... 6 Statements of Cash Flows Notes to Financial Statements HUD Required Supplemental Information Statements of Financial Position Statements of Activities Statements of Changes in Net Assets (Deficit) Statements of Cash Flows Schedule of Replacement Reserve, Residual Receipts and Computation of Surplus Cash. 24 Schedule of Fixed Assets Single Audit Section Schedule of Expenditures of Federal Awards 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 On Internal Control Over Compliance Required By the Uniform Guidance Schedule of Findings and Questioned Costs Certification of Management Agent and Board of Directors Schedule of Lead Auditor... 33

3 Nicholson & Olson, LLP Certified Public Accountants To the Board of Directors President Harry S. Truman Manor, Inc. Carmichael, California INDEPENDENT AUDITOR S REPORT Report on the Financial Statements We have audited the accompanying financial statements of President Harry S. Truman Manor, Inc. (the Project) HUD Project Number 136-EE027, which comprise the statements of financial position as of December 31, 2017 and 2016, and the related statements of activities, changes in net assets (deficits), 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 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of President Harry S. Truman Manor, Inc. as of December 31, 2017 and 2016, and the changes in its net assets (deficits) and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits 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 Page Sunrise Avenue, Suite 303, Roseville, California Phone (916) Fax (916)

4 Nicholson & Olson, LLP Certified Public Accountants Other Matters (continued) procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 14, 2018, on our consideration of President Harry S. Truman Manor, Inc. 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 President Harry S. Truman Manor, Inc. s internal control over financial reporting and compliance. Nicholson & Olson Nicholson & Olson, CPAs Roseville, California March 14, 2018 Page Sunrise Avenue, Suite 303, Roseville, California Phone (916) Fax (916)

5 Statements of Financial Position December 31, 2017 and 2016 ASSETS Current Assets Cash and cash equivalents $ 1,977 $ 7,557 Accounts receivable - tenants 66 - Accounts receivable - HUD Prepaid expenses Total current assets 2,508 8,463 Tenant Deposits Held in Trust Tenant deposits held in trust 4,151 3,900 Restricted Deposits Replacement reserve 76,306 67,877 Residual receipts reserve 2,451 8,756 Total restricted deposits 78,757 76,633 Property and Equipment Land & land improvements 31,482 31,482 Buildings 785, ,495 Building equipment (portable) 10,066 8,385 Total property and equipment 826, ,362 Accumulated depreciation (428,382) (407,368) Net property and equipment 398, ,994 Total Assets $ 483,587 $ 500,990 See notes to financial statements. Page 3

6 Statements of Financial Position (continued) December 31, 2017 and 2016 LIABILITIES AND NET ASSETS (DEFICIT) Current Liabilities Accounts payable - operations $ 4,065 $ 5,646 Accrued wages payable Miscellaneous current liabilities Total current liabilities 5,477 6,693 Tenant Deposits Held in Trust Tenant deposits held in trust 3,279 3,842 Total Liabilities 8,756 10,535 Net Assets (Deficit) Unrestricted net assets (deficit) Designated - Section 202 Capital Advance 756, ,700 Undesignated (281,869) (266,245) Total Net Assets (Deficit) 474, ,455 Total Liabilities and Net Assets (Deficit) $ 483,587 $ 500,990 See notes to financial statements. Page 4

7 Statements of Activities For the Years Ended December 31, 2017 and Revenue Net rental revenue $ 78,871 $ 77,317 Interest earned Other revenue 3,021 2,334 Total revenue 81,931 79,705 Expenses Administrative 29,478 28,539 Utilities 7,375 7,016 Operating and maintenance 22,529 20,636 Taxes and insurance 9,981 10,819 Total expenses 69,363 67,010 Change in Net Assets (Deficit) before Depreciation Expense 12,568 12,695 Depreciation expense 21,014 22,793 Operating Loss (8,446) (10,098) Corporate Expenses - residual receipts recapture 7,178 - Change in Net Assets (Deficit) $ (15,624) $ (10,098) See notes to financial statements. Page 5

8 Statements of Changes in Net Assets (Deficit) For the Years Ended December 31, 2017 and Unrestricted Net Assets (Deficit), Beginning of Year $ 490,455 $ 500,553 Change in Unrestricted Net Assets (Deficit) (15,624) (10,098) Unrestricted Net Assets (Deficit), End of Year $ 474,831 $ 490,455 See notes to financial statements. Page 6

9 Statements of Cash Flows For the Years Ended December 31, 2017 and Cash Flows from Operating Activities Rental receipts $ 78,611 $ 77,357 Interest receipts Other operating receipts 3,021 2,334 Total receipts 81,671 79,745 Administrative (9,860) (4,392) Management fee (7,680) (7,680) Utilities (7,375) (5,777) Salaries and wages (27,031) (28,482) Operating and maintenance (8,652) (9,711) Property insurance (1,717) (1,853) Miscellaneous taxes and insurance (7,629) (8,376) Tenant security deposits (814) 209 Other operating expenses (7,178) - Total disbursements (77,936) (66,062) Net Cash Provided by (Used in) by Operating Activities 3,735 13,683 Cash Flows from Investing Activities Net deposits to the replacement reserve account (8,429) (8,444) Net deposits to the residual receipts reserve account 6,305 (4) Net purchase of property and equipment (7,191) - Net Cash Provided by (Used in) Investing Activities (9,315) (8,448) Net Increase (Decrease) in Cash and Cash Equivalents (5,580) 5,235 Cash and Cash Equivalents, Beginning of Year 7,557 2,322 Cash and Cash Equivalents, End of Year $ 1,977 $ 7,557 See notes to financial statements. Page 7

10 Statements of Cash Flows (continued) For the Years Ended December 31, 2017 and Reconciliation of Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities Change in net assets (deficit) $ (15,624) $ (10,098) Adjustments to Reconcile Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities Depreciation expense 21,014 22,793 Decrease (increase) in tenant accounts receivable (66) 45 Decrease (increase) in accounts receivable - HUD (194) - Decrease (increase) in prepaid expenses 635 1,356 Decrease (increase) in cash restricted for tenant security deposits (251) (1) Increase (decrease) in accounts payable (1,581) (266) Increase (decrease) in accrued liabilities 365 (351) Increase (decrease) in tenant security deposits held in trust (563) 210 Increase (decrease) in deferred revenue - (5) Net Cash Provided by (Used in) Operating Activities $ 3,735 $ 13,683 See notes to financial statements. Page 8

11 Note 1 - Nature of Activities Notes to Financial Statements For the Years Ended December 31, 2017 and 2016 Background President Harry S. Truman Manor, Inc. (the Project), HUD Project 136-EE027, was formed as a California nonprofit corporation on April 28, The Project is a 10-unit apartment complex for older adults located in Susanville, California. The Project was organized for the purpose of acquiring real property and to construct and operate an apartment complex under Section 202 of the National Housing Act, as amended, and is regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Project is subject to a Project Rental Assistance Contract (PRAC) agreement with HUD and a significant portion of rental revenue is received from HUD. HUD provides rent subsidies on behalf of eligible lowerincome tenants for contract units, pursuant to Section 202 of the National Housing Act of 1959, as amended. The maximum number of contracted units and the dollar amount of annual housing assistance payments are limited by HUD. In addition, under the regulatory agreement entered into between the Project and HUD, the Project may not increase rents charged to tenants without HUD s approval. Mission Statement The Project s primary mission is to enhance the quality of life of seniors through innovative health, housing and social services. Note 2 - Significant Accounting Policies Accounting Method The Project s financial statements have been prepared on the accrual basis of accounting. 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 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 during the reporting period. Actual results could differ from those estimates. Subsequent Events Management has reviewed the results of operations for the period of time from its year end December 31, 2017 through March 14, 2018, the date the financial statements were available to be issued, and has determined that no adjustments are necessary to the amounts reported in the accompanying financial statements nor have any subsequent events occurred, the nature of which would require disclosure. Cash and Cash Equivalents For the purpose of the statement of cash flows, restricted deposits and funded reserves are not included with the total cash and cash equivalent amounts. In addition, the Project considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. The carrying amounts of cash, deposits held in trust, restricted deposits and funded reserves approximate fair value due to the type of investments and the maturity dates. Page 9

12 Notes to Financial Statements (continued) For the Years Ended December 31, 2017 and 2016 Note 2 - Significant Accounting Policies (continued) Accounts Receivable and Bad Debt Tenant rent for the current month is due on the first day of the month. Tenants who are evicted or move out are charged with damages and cleaning fees, if applicable. Accounts receivable consist of amounts due for rental income, charges for damages, and cleaning fees. The Project does not accrue interest on the balance. The Project uses the reserve method for recognizing bad debt. Accounts receivable are analyzed based on the aging and value of accounts and reserves are posted based on estimated collectability for accounts that are outside of normal aging patterns. Actual bad debt is written off and charged to the bad debt allowance in the period the Project determines that collection is not probable. Any recoveries or differences in estimates for bad debts are recorded in the period when such information is determined. As of December 31, 2017 and 2016, there were no accounts in the Project s judgment for which a reserve was necessary. Replacement Reserves Replacement reserves are restricted cash held by the Project to be used for capital expenditures and replacements. The Project makes a monthly deposit into the replacement reserve account. Disbursements from this reserve, for the purpose of effecting replacement of structural elements and mechanical equipment of the Project or for any other purpose, may be made only after receiving consent in writing from the Secretary of Housing and Urban Development. Residual Receipts Residual receipts are restricted cash held by the Project to be used for operating shortfalls. On an annual basis, a surplus cash calculation is performed. Based on this calculation, the Project may be required to deposit funds into the residual receipts reserve account. Disbursements from this reserve, for the purpose of the Project s operating shortfalls, may be made only after receiving consent in writing from the Secretary of Housing and Urban Development. In accordance with the Consolidated and Further Continuing Appropriations Act, HUD issued a memorandum (dated June 19, 2015) for the recapture of excess residual receipts from HUD projects subject to a Section 202 or 811 Project Rental Assistance Contract (PRAC). The Project is allowed to retain $250 per unit ($2,500 total) in the residual receipts reserve account for operating shortfalls. Until September 20, 2019, any residual receipts over $250 per unit must be remitted back to HUD. The Project remitted $7,178 to HUD in June 2017, representing the excess residual receipts over $250 per unit as of December 31, Property and Equipment Acquisitions of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the life of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the statement of activities. Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method. Page 10

13 Notes to Financial Statements (continued) For the Years Ended December 31, 2017 and 2016 Note 2 - Significant Accounting Policies (continued) Net Assets The financial statements have been prepared in accordance with Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations. SFAS 117 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 classes of net assets and a brief description are as follows: Unrestricted Net Assets: General assets and liabilities of the Project with no donor-imposed restrictions. Unrestricted net assets may be used at the direction of management to support the Project s purposes and operations. All net assets at December 31, 2017 and 2016 were considered unrestricted. Temporarily Restricted Net Assets: A donor-imposed restriction that permits the Project to use up or expend the donated assets as specified and is satisfied either by the passage of time or by actions of the Project. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the statement of activities as net assets released from restrictions. There were no temporarily restricted net assets at December 31, 2017 and Permanently Restricted Net Assets: A donor-imposed restriction that stipulates that resources be maintained permanently, but permits the Project to use up or expend part or all of the income (or other economic benefits) derived from the donated assets. There were no permanently restricted net assets at December 31, 2017 and Recognition of Rent Revenue The Project recognizes net rent revenue in the period in which the rent is earned. In accordance with HUD financial reporting requirements, gross potential rent revenue represents total possible rent revenue as if all units were 100% occupied during the year. Net rent revenue earned represents gross potential rent revenue less vacancies. Rents collected in advance are deferred until the rental income is earned. Project Rental Assistance Contract The Project has a PRAC contract which covers 10 units. The term of the PRAC agreement is for 20 years, expiring on December 31, Advertising Expense The Project expenses advertising costs as they are incurred. Income Taxes The Project is exempt from federal and state income tax under the provisions of Section 501(c)(3) of the Internal Revenue Code; therefore, no provision for income taxes has been made in these financial statements. The Project has also been classified as an entity that is not a private foundation within the meaning of Section 509(a) and qualifies for deductible contributions as provided in Section 170(b)(1)(A)(vi). Page 11

14 Notes to Financial Statements (continued) For the Years Ended December 31, 2017 and 2016 Note 2 - Significant Accounting Policies (continued) Regulatory Agreement The Project has entered into a formal Regulatory Agreement with HUD. Within this agreement are the following: The Project shall maintain a replacement reserve in a separate account by making monthly payments of $700 during the year ended December 31, The Project is prohibited from increasing rent without approval from HUD. Any funds collected as security deposits shall be kept separate from all other funds in a trust account. The Project shall establish and maintain a residual receipts reserve in a separate account by depositing residual receipts, as defined, within 90 days after the end of the annual fiscal period. The Regulatory Agreement also prohibits: a) distribution of assets or income except out of surplus cash, as defined by the Regulatory Agreement, and b) without the prior written approval of HUD, any conveyance, transfer or encumbrance of all or any part of the Project s real and personal property including any remodeling, additions, reconstruction, or demolitions. In the event of default of the Regulatory Agreement, HUD may declare default, terminate any management agreement, and collect all rent or appoint a receiver. Statement of Financial Accounting Standards No Impairment of Long-Lived Assets In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management reviews long-lived assets for impairments when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of an asset may not be recoverable, a write-down to fair value is recorded. Fair Value Measurements The Project adopted a framework for defining and measuring fair value in accordance with generally accepted accounting principles, which did not impact the Project s valuation methods. The Project reports using Level 1 inputs, where quoted prices and active markets for identical assets and liabilities are used to identify fair value. Uncertain Tax Positions Management has determined that the Project does not have any uncertain tax positions and associated unrecognized benefits that materially impact the financial statements or related disclosures. Generally, the Project s tax returns remain open three years for federal and four years for state income tax examinations. Note 3 - Capital Advance In August 1997, the Project entered into a capital advance agreement with HUD for building and operation of a 10-unit low-income older adult housing project. Under this agreement, a mortgage note was signed in an amount equal to advances made, not to exceed $756,700, which expires in August The capital advance does not bear interest and need not be repaid as long as the housing remains available to older adults for at least 40 years. Failure to keep the housing available for older adults would result in HUD s billing the Project for the entire capital advance outstanding plus interest since the date of the first advance. The advance is secured by land, buildings, furniture and fixtures. Page 12

15 Note 4 - Management Fees Notes to Financial Statements (continued) For the Years Ended December 31, 2017 and 2016 The Project has entered into a HUD-approved management agreement with Eskaton Properties, Inc. (the management agent). The management agreement allows a fee equal to $64 and $64 per unit per month for the years ended December 31, 2017 and 2016, respectively. During the years ended December 31, 2017 and 2016, management fees of $7,680 and $7,680, respectively, were earned. Note 5 - Functional Expenses Functional expenses for the years ended December 31, 2017 and 2016, were as follows: Management and general $ 29,478 $ 28,539 Program services housing 68,077 61,264 $ 97,555 $ 89,803 The Project did not engage in any fundraising activities for the years ended December 31, 2017 and Note 6 - Cash Distributions and Residual Receipts Reserve Under the terms of the Regulatory Agreement, no cash distributions may be made to the nonprofit owners, nor can they incur obligations on behalf of the Project, to themselves or any officers, directors, trustee, beneficiaries under the trust, or any of their nominees without written approval from HUD. Surplus cash, as defined by HUD, existing at the end of the fiscal year must be deposited in a residual receipts reserve in the name of Project within 90 days subsequent to the end of the fiscal year. Surplus cash to be deposited as of December 31, 2017 was $0. Note 7 - Current Vulnerability Due to Certain Concentrations The Project s sole asset is a 10-unit apartment project. The Project s operations are concentrated in the multifamily real estate market, which is a heavily regulated environment. The Project s operations 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 costs, including additional administrative burden, to comply with a change. Project Rental Assistance Contract (PRAC) payments received from HUD represented 65% and 66% of total rental revenue for the years ended December 31, 2017 and 2016, respectively. Note 8 - Concentrations of Credit Risk The Project may at times maintain cash balances in financial institutions in excess of the federally insured limits. The Project monitors the financial ratings of such financial institutions and believes the risk of loss is minimal. Page 13

16 Note 9 - Related Parties Notes to Financial Statements (continued) For the Years Ended December 31, 2017 and 2016 Certain employees of Eskaton Properties, Inc., the management agent, serve as officers of the Project. Furthermore, all staff and management personnel of the Project are employees of the management agent and are leased to the Project. This arrangement covers the actual cost of salaries, wages and related fringe benefits. Payroll and payroll related expenses amounted to $33,080 and $32,466 for the years ended December 31, 2017 and 2016, respectively. Page 14

17 HUD Required Supplemental Information

18 Statements of Financial Position December 31, 2017 and 2016 ASSETS Current Assets 1120 Cash and cash equivalents 1977 $ 7, Accounts receivable - tenants Accounts receivable - HUD Prepaid expenses T Total current assets 2,508 8,463 Tenant Deposits Held in Trust 1191 Tenant deposits held in trust 4,151 3,900 Restricted Deposits 1320 Replacement reserve 76,306 67, Residual receipts reserve 2,451 8, T Total deposits 78,757 76,633 Property and Equipment 1410 Land & land improvements 31,482 31, Buildings 785, , Building equipment (portable) 10,066 8, T Total property and equipment 826, , Accumulated depreciation (428,382) (407,368) 1400N Net property and equipment 398, , T Total Assets $ 483,587 $ 500,990 Page 16

19 Statements of Financial Position (continued) December 31, 2017 and 2016 LIABILITIES AND NET ASSETS (DEFICIT) Current Liabilities 2110 Accounts payable - operations $ 4,065 $ 5, Accrued wages payable Miscellaneous current liabilities T Total current liabilities 5,477 6,693 Tenant Deposits Held in Trust 2191 Tenant deposits held in trust 3,279 3, T Total Liabilities 8,756 10,535 Net Assets 3131 Unrestricted net assets (deficit) 474, , Total Net Assets (Deficit) 474, , T Total Liabilities and Net Assets (Deficit) $ 483,587 $ 500,990 Page 17

20 Statements of Activities For the Years Ended December 31, 2017 and Rent Revenue 5120 Rent revenue - gross potential $ 27,718 $ 26, Tenant assistance payments 51,153 51, T Total rent revenue 78,871 77,317 Vacancies 5220 Apartments T Total vacancies N Net rental revenue (rent revenue less vacancies) 78,871 77,317 Financial Revenue 5430 Revenue from investments - residual receipts Revenue from investments - replacement reserve T Total financial revenue Other Revenue 5910 Laundry and vending revenue 2,514 2, Tenant charges Miscellaneous revenue T Total other revenue 3,021 2, T Total revenue 81,931 79,705 Administrative Expenses 6210 Advertising and marketing Office salaries 5,448 5, Office expenses 1,713 1, Management fee 7,680 7, Manager or superintendent salaries 8,028 7, Legal expense - project Audit expense 4,350 4, Bookkeeping fees/accounting services Miscellaneous administrative expenses 1,748 1, T Total administrative expenses 29,478 28,539 Utilities Expenses 6450 Electricity 3,387 2, Water 1,240 1, Sewer 2,748 2, T Total utilities expenses 7,375 7,016 Page 18

21 Statements of Activities (continued) For the Years Ended December 31, 2017 and Operating & Maintenance Expenses 6510 Payroll $ 13,877 $ 13, Supplies 1,429 1, Contracts 2,931 2, Garbage and trash removal 1,250 1, Security payroll/contract Heating/cooling repairs and maintenance Snow removal Vehicle and maintenance equipment operation and repairs 1,955 1, T Total operating and maintenance expenses 22,529 20,636 Taxes & Insurance Expenses 6711 Payroll taxes 2,081 1, Property & liability insurance (hazard) 2,352 2, Workers' compensation 1,389 1, Health insurance and other employee benefits 4,159 4, T Total taxes and insurance expenses 9,981 10,819 Operating Results 6000T Total cost of operations before depreciation expense 69,363 67, T Change in net assets (deficit) before depreciation expense 12,568 12, Depreciation expense 21,014 22, N Change in net assets (deficit) (8,446) (10,098) Corporate Expenses 7190 Other expenses - residual receipts recapture 7, T Net corporate expenses 7,178 - Change in Net Assets (Deficit) 3247 Change in unrestricted net assets (deficit) (15,624) (10,098) 3250 Change in total net assets (deficit) $ (15,624) $ (10,098) Page 19

22 Statements of Activities (continued) For the Year Ended December 31, 2017 Part II S S S S Total mortgage principal payments required during the audit year [12 monthly payments]. This applies to all direct loans and HUD-held and fully insured mortgages. Any HUD approved second mortgages should be included in this figure. 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. Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss statement. Project Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss statement. $ $ $ $ - 8,400 7,178 - Page 20

23 Statements of Changes in Net Assets (Deficit) For the Years Ended December 31, 2017 and S Unrestricted Net Assets (Deficit), Beginning of Year $ 490,455 $ 500, Change in Unrestricted Net Assets (Deficit) (15,624) (10,098) 3131 Unrestricted Net Assets (Deficit), End of Year $ 474,831 $ 490,455 S Total Net Assets (Deficit), Beginning of Year $ 490,455 $ 500, Change in Total Net Assets (Deficit) (15,624) (10,098) 3130 Total Net Assets (Deficit), End of Year $ 474,831 $ 490,455 Page 21

24 Statements of Cash Flows For the Years Ended December 31, 2017 and Cash Flows from Operating Activities S Rental receipts $ 78,611 $ 77,357 S Interest receipts S Other operating receipts 3,021 2,334 S Total Receipts 81,671 79,745 S Administrative (9,860) (4,392) S Management fee (7,680) (7,680) S Utilities (7,375) (5,777) S Salaries and wages (27,031) (28,482) S Operating and maintenance (8,652) (9,711) S Property insurance (1,717) (1,853) S Miscellaneous taxes and insurance (7,629) (8,376) S Tenant security deposits (814) 209 S Other operating expenses (7,178) - S Total Disbursements (77,936) (66,062) S Net Cash Provided by (Used in) Operating Activities 3,735 13,683 Cash Flows from Investing Activities S Net deposits to the replacement reserve account (8,429) (8,444) S Net deposits to the residual receipts reserve account 6,305 (4) S Net purchase of property and equipment (7,191) - S Net Cash Provided by (Used in) Investing Activities (9,315) (8,448) S Net Increase (Decrease) in Cash and Cash Equivalents (5,580) 5,235 S Cash and Cash Equivalents, Beginning of Year 7,557 2,322 S1200T Cash and Cash Equivalents, End of Year $ 1,977 $ 7,557 Page 22

25 Statements of Cash Flows (continued) For the Years Ended December 31, 2017 and Reconciliation of Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities 3250 Change in net assets (deficit) $ (15,624) $ (10,098) Adjustments to Reconcile Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities 6600 Depreciation expense 21,014 22,793 S Decrease (increase) in tenant accounts receivable (66) 45 S Decrease (increase) in accounts receivable - HUD (194) - S Decrease (increase) in prepaid expenses 635 1,356 S Decrease (increase) in cash restricted for tenant security deposits (251) (1) S Increase (decrease) in accounts payable (1,581) (266) S Increase (decrease) in accrued liabilities 365 (351) S Increase (decrease) in tenant security deposits held in trust (563) 210 S Increase (decrease) in deferred revenue - (5) S Net Cash Provided by (Used in) Operating Activities $ 3,735 $ 13,683 S Comments: None Page 23

26 Schedule of Replacement Reserve, Residual Receipts and Computation of Surplus Cash For the Year Ended December 31, 2017 Schedule of Replacement Reserve 1320P Balance at beginning of year $ 67, DT Total monthly deposits 8, INT Interest on replacement reserve accounts OWT Other withdrawals - bank service fees (7) 1320 Balance at end of year $ 76, R Deposits suspended or waived indicator No Schedule of Residual Receipts 1340P Balance at beginning of year $ 8, DT Total deposits INT Interest on residual receipt accounts OWT Other withdrawals - residual receipts recapture & bank fees (7,230) 1340 Balance at end of year $ 2,451 Computation of Surplus Cash Annual S Cash $ 6, Accounts receivable - HUD 194 S Total cash 6,322 S Accounts payable - 30 days 4,065 S Accrued expenses (not escrow) 1, Tenant deposits held in trust (contra) 3,279 S Total current obligations 8,756 S Surplus cash (deficiency) $ (2,434) S Deposit due residual receipts $ - Page 24

27 Schedule of Fixed Assets For the Year Ended December 31, 2017 Beginning Ending Balance Additions Disposals Balance 1410 Land & land improvements $ 31,482 $ - $ - $ 31, Buildings 779,495 5, , Building equipment (portable) 8,385 1,681-10,066 Total fixed assets $ 819,362 $ 7,191 $ - $ 826, Accumulated depreciation $ 407,368 $ 21,014 $ - $ 428,382 Fixed asset additions for the year ended December 31, 2017 Carpet/vinyl $ 1,827 Cabinet & counter top 3,683 Buildings $ 5,510 Dryer $ 1,681 Building equipment (portable) $ 1,681 Fixed asset disposals for the year ended December 31, 2017 None Page 25

28 Single Audit Section Page 26

29 Schedule of Expenditures of Federal Awards For the Year Ended December 31, 2017 Federal CFDA Federal Federal Grantor/Program Title Number Expenditures U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (Section 202) Capital Advance Mortgage $ 756,700 Project Rental Assistance Contract (PRAC) ,153 Total Federal Expenditures $ 807,853 Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal granting activity of President Harry S. Truman Manor, Inc. (the Project), HUD Project 136-EE027, 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 - Capital Advance The accompanying schedule of expenditures of federal awards includes a non-amortizing HUD mortgage loan (Capital Advance) balance outstanding at January 1, 2017 of $756,700. During the year ended December 31, 2017, principal payments of $0 were paid on the Capital Advance. At December 31, 2017, the Capital Advance balance outstanding was $756,700. Note 3 - De Minimis The Project has elected to not use the 10 percent de minimis indirect cost rate as covered in section of the Uniform Guidance for Federal Awards. Instead of electing a 10 percent de minimis indirect cost rate, the Project has a HUD-approved management agreement allowing a per unit per month fee to cover administrative fees as set forth in the agreement. Page 27

30 Nicholson & Olson, LLP Certified Public Accountants Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards To the Board of Directors President Harry S. Truman Manor, Inc. Carmichael, 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 President Harry S. Truman Manor, Inc., HUD Project Number 136-EE027 (the Project), which comprise the financial position as of December 31, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March 14, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we 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 our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Project s internal control. Accordingly, we do not express an opinion on the effectiveness of the Project s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Project s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Project 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 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. Nicholson & Olson Nicholson & Olson, LLP Certified Public Accountants Roseville, California March 14, 2018 Page 28

31 Nicholson & Olson, LLP Certified Public Accountants Independent Auditor s Report On Compliance For Each Major Program and On Internal Control Over Compliance Required By the Uniform Guidance To the Board of Directors President Harry S. Truman Manor, Inc. Carmichael, California Report on Compliance for Each Major Federal Program We have audited President Harry S. Truman Manor, Inc. s, HUD Project 136-EE027 (the Project), compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Project s major federal programs for the year ended December 31, 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 federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Project s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Project s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Project s compliance. Opinion on Each Major Federal Program In our opinion, the Project 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 December 31, 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 our audit of compliance, we 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 our 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 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 Page 29

32 Nicholson & Olson, LLP Certified Public Accountants Report on Internal Control over Compliance (continued) type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Nicholson & Olson Nicholson & Olson, LLP Certified Public Accountants Roseville, California March 14, 2018 Page 30

33 Schedule of Findings and Questioned Costs For the Year Ended December 31, 2017 I. Summary of Independent Auditor s Results Financial Statements Type of auditor s report issued: Unmodified Going concern explanatory paragraph included? Yes _ No X Internal control over financial reporting: Material weakness(es) identified? Yes _ No X Significant deficiencies identified? Yes _ No X Noncompliance material to financial statements noted? Yes _ No X Federal Awards Type of auditor s report issued on compliance with major programs: Unmodified Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Does the auditee qualify as low-risk auditee? Yes X No _ Internal control over major programs: Material weakness(es) identified? Yes _ No X Significant deficiencies identified? Yes _ No X Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Uniform Guidance? Yes _ No X Identification of major program: CFDA Number(s) Name of federal program Supportive Housing for the Elderly (Section 202) II. Financial Statement Findings Current Year: None Prior Year: None III. Federal Award Findings and Questioned Costs Current Year: None Prior Year: None Page 31

34 Certification of Management Agent and Board of Directors For the Years Ended December 31, 2017 and 2016 Board of Directors Certification We hereby certify that we have examined the accompanying financial statements and supplemental information for President Harry S. Truman Manor, Inc. Project Number 136-EE027 and, to the best of our knowledge and belief, they represent a true statement of the data set forth therein for the years ended December 31, 2017 and March 14, 2018 President Harry S. Truman Manor, Inc. Date Jeff Crawford, Board Member March 14, 2018 President Harry S. Truman Manor, Inc. Date Bill Pace, CFO 5105 Manzanita Avenue Carmichael, CA Phone (916) Contact Name: Cathy Sailor Contact Title: Vice-President, Affordable Housing Management Agent s Certification We hereby certify that we have examined the accompanying financial statements and supplemental information for President Harry S. Truman Manor, Inc. Project Number 136-EE027 and, to the best of our knowledge and belief, the same is complete and accurate for the years ended December 31, 2017 and March 14, 2018 Cathy Sailor Date Vice-President, Affordable Housing Eskaton Properties, Inc. TIN: Name of Property Manager: Peggy Wood 5105 Manzanita Avenue Carmichael, CA (916) Page 32