Martin De Porres Village, Inc.

Transcription

1 Financial Statements and Supplementary Information December 31, 2017 and 2016

2 Table of Contents December 31, 2017 and 2016 Independent Auditors Report 1 Financial Statements Statements of Financial Position 4 Statements of Activities 5 Statements of Net Assets 6 Statements of Cash Flows 7 Notes to Financial Statements 9 Supplemental Information PAGE Schedules of Project Expenses 17 Schedule of Expenditures of Federal Awards 19 Supplemental Information Required by NJHMFA 20 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 25 Independent Auditors Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance 27 Schedule of Findings and Questioned Costs 30

3 Independent Auditors Report To The Board of Directors Martin De Porres Village, Inc. Paterson, New Jersey Report on the Financial Statements We have audited the accompanying financial statements of Martin De Porres Village, Inc., NJHMFA Project No. 714, (the Project ) which comprise the statements of financial position as of December 31, 2017, and the related statements of activities, net assets, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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 Project s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project 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 qualified audit opinion. Basis for Qualified Opinion It is the Project s policy to prepare its financial statements on the basis of accounting practices prescribed or permitted by the New Jersey Housing and Mortgage Finance Agency (the Agency). The Agency s required accounting for the provision for repair and replacement is a significant departure Burns, Draeger & Humphries, LLC 25A Hanover Road, Suite 103, Florham Park, NJ P F

4 from accounting principles generally accepted in the United States of America. As described in Note 2, the Project charges operations for a provision for repair and replacement. It also credits operations for reimbursements from the reserve for repair and replacement. In accordance with accounting principles generally accepted in the United States of America operations should only be charged with actual expenditures incurred or credited with actual income earned. If the financial statements were corrected for these departures from generally accepted accounting principles, changes in net assets would increase by $77,237 in Qualified Opinion In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly in conformity with accounting principles generally accepted in the United States of America, the financial position of the Project as of December 31, 2017, or the changes in its net assets or its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Report on Supplemental Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplemental information shown on pages 16 to 23 is presented for purposes of additional analysis as required by the New Jersey Housing and Mortgage Finance Agency, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards shown on page 18 as required 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. The above described supplemental information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Report Issued in Accordance with Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated March 30, 2018 on our consideration of Martin De Porres Village, Inc.,, internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the 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 Martin De Porres Village, Inc., s internal control over financial and compliance. 2.

5 Prior Period Financial Statements The financial statements of Martin De Porres Village, Inc.,, for the year ended December 31, 2016 were audited by another auditor who expressed a qualified opinion on those statements on March 27, The basis for the qualified opinion was the Project s policy to prepare its financial statements on the basis of accounting practices prescribed or permitted by the New Jersey Housing and Mortgage Finance Agency (the Agency). The Agency s required accounting for the provision for repair and replacement is a significant departure from accounting principles generally accepted in the United States of America. As described in Note 2, the Project charges operations for a provision for repair and replacement. It also credits operations for reimbursements from the reserve for repair and replacement. In accordance with accounting principles generally accepted in the United States of America operations should only be charged with actual expenditures incurred or credited with actual income earned. If the financial statements were corrected for these departures from generally accepted accounting principles, changes in net assets would increase by $77,237 in Florham Park, NJ March 30, 2018 Burns, Draeger & Humphries, LLC 3.

6 Statements of Financial Position December 31, 2017 and 2016

7 Statements of Financial Position December 31, 2017 and 2016 ASSETS Current assets Operating cash $ 391,109 $ 518,855 Diocese of Paterson CILA savings account 614, ,472 Short term investments, at fair value 1,247, ,564 Tenants accounts receivable 3, Agency receivable - 10,890 Prepaid expenses 39,518 35,273 Total current assets 2,296,945 2,061,034 Tenant security deposits held in trust 48,415 45,766 Restricted deposits Reserve for replacements 1,219,446 1,142,209 Mortgage escrow deposits 191, ,664 Total restricted deposits 1,411,280 1,321,873 Land, buildings and equipment Land 780, ,000 Land improvements 176, ,589 Buildings 4,439,117 4,437,607 Building improvements 834, ,853 Furniture and fixtures 416, ,717 Total 6,647,004 6,562,766 Accumulated depreciation (3,137,860) (2,900,923) Property and equipment, net 3,509,144 3,661,843 Other Assets Utility deposit 8,595 8,595 $ 7,274,379 $ 7,099,111 See accompanying notes to the financial statements.

8 Statements of Financial Position December 31, 2017 and 2016 LIABILITIES AND NET ASSETS Current liabilities Current portion of mortgage payable $ 405,112 $ 390,711 Accounts payable and accrued expenses 65,277 72,191 Accrued wages 4,938 10,089 Accrued PILOT payment 13,173 13,489 Prepaid rents 3,152 2,800 Total current liabilities 491, ,280 Tenant security deposits held in trust 48,415 45,766 Mortgage payable, net of current portion 1,729,517 2,134,629 Total liabilities 2,269,584 2,669,675 Net assets - unrestricted Repair and replacement reserve 1,219,446 1,142,209 Operating 3,785,349 3,287,227 Total net assets 5,004,795 4,429,436 $ 7,274,379 $ 7,099,111 See accompanying notes to the financial statements. 4.

9 Statements of Activities Years Ended December 31, 2017 and Revenues Rental income Apartments $ 2,697,108 $ 2,657,655 Less: Vacancy and collection losses (12,325) (10,513) Net rental income 2,684,783 2,647,142 Laundry income 11,122 13,222 Financial income 20,191 15,443 Other income 3,674 4,629 Total revenues 2,719,770 2,680,436 Operating Expenses Administrative expenses 73,844 79,258 Salaries and related charges 576, ,159 Maintenance and repairs 187, ,881 Maintenance contracts 256, ,078 Utilities expense 240, ,661 Management fees 157, ,124 Real estate taxes 214, ,527 Property and liability insurance 71,344 75,394 Total operating expenses 1,777,917 1,655,082 Net income before Depreciation, Interest and Reserves 941,853 1,025,354 Interest and reserves Interest on mortgage 86, ,397 Fees and charges 42,800 42,800 Provision for repairs and replacement reserve 140, ,317 Repairs and replacement refunds (63,090) (26,238) Total interest and reserves 206, ,276 Net income before Depreciation 735, ,078 Depreciation equivalent to mortgage amortization 390, ,822 Net income before excess depreciation 344, ,256 Depreciation (less then) in excess of mortgage amortization (153,774) (164,185) Change in net assets $ 498,122 $ 546,441 See accompanying notes to the financial statements. 5.

10 Statements of Net Assets Years Ended December 31, 2017 and 2016 Reserve for Replacement Operating Total Balance, January 1, 2016 $ 1,027,130 $ 2,740,786 $ 3,767,916 Change in net assets - 546, ,441 Restriction of net assets Interest income 2,151-2,151 Reserve funding 139, ,166 Release of restriction NJ HMFA approved withdrawals (26,238) - (26,238) Balance, December 31, ,142,209 3,287,227 4,429,436 Change in net assets - 498, ,122 Restriction of net assets Interest income 2,327-2,327 Reserve funding 138, ,000 Release of restriction NJ HMFA approved withdrawals (63,090) - (63,090) Balance, December 31, 2017 $ 1,219,446 $ 3,785,349 $ 5,004,795 See accompanying notes to the financial statements. 6.

11 Statements of Cash Flows Years Ended December 31, 2017 and Cash flows from operating activities Rentals receipts $ 2,693,095 $ 2,645,335 Interest receipts 20,191 15,443 Other operating receipts 14,796 17,851 Repair and replacement refunds 63,090 26,238 Total receipts 2,791,172 2,704,867 Administrative expenses 82,467 77,341 Salaries and related charges 581, ,869 Maintenance and repairs 190, ,878 Maintenance contracts 256, ,078 Utilities expense 235, ,955 Management fees 157, ,124 Real estate taxes 215, ,269 Property and liability insurance 75,589 62,641 Mortgage interest 86, ,646 Mortgage fees 42,800 42,800 Repairs and replacement reserve deposits 140, ,317 Total disbursements 2,064,427 1,917,918 Net cash provided by operating activities 726, ,949 Cash flows from investing activities Purchase of investments (359,380) (104,815) Mortgage escrow deposits (12,170) (19,387) Purchase of fixed assets (84,238) (142,506) Net cash used in investing activities (455,788) (266,708) Cash flows from financing activities Mortgage principal payments (390,711) (376,822) Net change in cash (119,754) 143,419 Cash and cash equivalents: Beginning of year 1,125, ,908 End of year $ 1,005,573 $ 1,125,327 Supplemental disclosures Interest Paid $ 86,757 $ 100,646 See accompanying notes to the financial statements. 7.

12 Statements of Cash Flows (continued) Years Ended December 31, 2017 and Cash flows from operating activities Change in net assets $ 498,122 $ 546,441 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 236, ,637 Noncash interest expense due to amortization of issuance costs - 7,751 Change in operating assets and liabilities Tenants accounts receivable (2,930) 747 Agency receivable 10,890 (3,702) Prepaid expenses (4,245) 12,753 Accounts payable and accrued expenses (6,914) 3,626 Accrued wages (5,151) 1,290 Accrued Pilot payment (316) 4,258 Prepaid rents 352 1,148 Net cash provided by Operating Activities $ 726,745 $ 786,949 See accompanying notes to the financial statements. 8.

13 Notes to Financial Statements December 31, 2017 and Organization Nature of Organization and Operations Martin De Porres Village, Inc. (the Project ) is a not-for-profit organization incorporated in the State of New Jersey on December 16, 1980 to acquire, construct or rehabilitate and operate a completed housing project on its own behalf, without profit or as a non-profit general partner of a limited dividend housing association. On October 8, 2002 the Project purchased the assets of a New Jersey limited partnership in which it was a general partner, consisting of land and buildings and certain related assets for $8,000,000. The Project is a 143-unit rental family apartment project in Paterson, New Jersey, with one of the units occupied by the superintendent. The Project is operated under Section 236 of the National Housing Act and regulated by the New Jersey Housing and Mortgage Finance Agency (NJHMFA) and the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Project is also subject to Section 8 Housing Assistance Payment agreements with the U.S. Department of Housing and Urban Development (HUD), and a portion of the Project s rental income is received from HUD. 2. Summary of Significant Accounting Policies Basis of Accounting The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. However as detailed below the Project is required to account for certain transactions in accordance with the policies and procedures set forth in the accounting manual of NJHMFA, which may not confirm with GAAP. Departure from GAAP The Project accounts for deposits and refunds associated with the reserve for repair and replacement in accordance with the accounting policies of the NJHMFA. Each year transactions in the reserve are charged or credited to operations. This policy departs from generally accepted accounting principles primarily because they are finance and investment activities rather than operating activities, and should not be included in the net income calculation. If the financial statements conformed to generally accepted accounting principles, changes in net assets would increase or (decrease) by the net amount deposited into or (withdrawn) from the reserve fund of $77,237 and $115,079, for years ended December 31, 2017 and 2016, respectively. 9.

14 Notes to Financial Statements December 31, 2017 and Summary of Significant Accounting Policies (continued) Use of Estimates The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial Statement Presentation The Organization reports information regarding its financial position and activities according to three classes of net assets based on the presence or absence of donor restrictions, as follows: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Currently the Project only has unrestricted assets. Cash and Cash Equivalents All highly liquid debt instruments with a maturity of three months or less at the time of purchase are considered to be cash equivalents for the purpose of the statement of cash flows. Tenant Accounts Receivable The Project utilizes the reserve method of accounting for doubtful accounts. Tenant receivables are reported net of the allowance for doubtful accounts. The allowance is based on historical collection experience and management s evaluation of uncollected tenant accounts receivable at the end of each year. As of December 31, 2017 and 2016, the allowance for doubtful accounts was $4,869 and $4,869, respectively. Land, Buildings and Equipment Land, buildings, and equipment are stated at cost or, if acquired by gift, at the fair value at the date of the gift. The Organization follows the practice of capitalizing all expenditures for land, buildings and equipment in excess of $500. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets which range from 3 to 40 years. Valuation of Long-Lived Assets The Project reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Management has determined that no assessment was required for the periods presented in these financial statements. 10.

15 Notes to Financial Statements December 31, 2017 and Summary of Significant Accounting Policies (continued) Revenue Recognition Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. Grants are treated as exchange contracts and, accordingly, are reported as unrestricted revenue when the expenses related to the grants are incurred in accordance with contractual terms. Federally Subsidized Rent Income The Project participates in Section 8 rental subsidy programs with HUD, administered by the NJHMFA; therefore, a significant portion of the Project's rental income is received from HUD. The Project is not allowed to increase the rent without prior approval from HUD/NJHMFA. Revenues from these programs are accounted for as exchange transactions and as a result, the revenue from such programs is not considered to be temporarily restricted. Income Taxes The Project is exempt from federal and state income taxes under Section 501(c)(4) of the Internal Revenue Code and comparable state law. Accounting for Uncertainty in Income Taxes The Project recognizes the effect of income tax positions only when they are more likely than not to be sustained. Management has determined that the Project had no uncertain tax positions that require financial statement recognition or disclosure. The Project is no longer subject to examination by the applicable taxing jurisdictions for periods prior to Distributions The Project s regulatory agreement with HUD stipulates, among other things, that the Project will not make distributions of assets or income to any of its officers or directors. 11.

16 Notes to Financial Statements December 31, 2017 and Summary of Significant Accounting Policies (continued) Recently Issued Accounting Pronouncements In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No , "Interest - Imputation of Interest, Subtopic , Simplifying the Presentation of Debt Issuance Costs", that simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the statement of financial position as a direct deduction from the carrying amount of that debt liability. Amortization is required to be included with interest expense in the statement of activities and changes in net assets. The amendments in ASU No are effective for financial statements issued for fiscal years beginning after December 15, The amendment is required to be applied retrospectively. The Project has elected to adopt this ASU for the year ended December 31, Subsequent Events Evaluation by Management Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through March 30, 2018, which is the date the financial statements were available to be issued. 3. Tenant Security Deposits Tenant security deposits are held in a separate interest-bearing bank account in the name of the Project in trust for the tenants. Under certain circumstances, tenant security deposits may be applied to unpaid rent or other tenant obligations. 4. Restricted Deposits Under terms of the mortgage commitment with NJHMFA the Project is required to make deposits into a reserve fund for property replacements. The monthly deposits must be paid into a separate account held by NJHMFA in the Project s name. Disbursements from the reserve fund are made by NJHMFA. As of December 31, 2017 and 2016 the reserve for replacement totaled $1,219,446 and $1,142,209, respectively, and was fully funded in accordance with NJHMFA requirements. The agreement also requires the Projects to maintain escrow accounts for property taxes and insurance which must be funded on a monthly basis. The accounts are also held by NJHMFA in the Project s name. Funds are disbursed by NJHMFA to pay tax and insurance obligations as they become due. As of December 31, 2017 and 2016 the tax escrow totaled $92,170 and $91,133 and the insurance escrow totaled $99,664 and $88,531, respectively, and were fully funded in accordance with NJHMFA requirements 12.

17 Notes to Financial Statements December 31, 2017 and Investments At December 31, 2017 and 2016 the Project s investments consist of money market funds, mutual funds and certificates of deposit with varying original maturity dates of no longer than one year, all of which are FDIC insured. The Project considers all investments maturing within one year of the date of the statements of financial position to be short-term. Investments maturing more than one year from the date of the statements of financial position are reported as longterm. Investments are stated at fair value and consist of the following at December 31: December 31, 2017 Investments - Available for Sale Cost Net Unrealized Gain (loss) Fair Value Money market fund $ 988,992 $ - $ 988,992 Mutual funds 258,980 (28) 258,952 Total $ 1,247,972 $ (28) $ 1,247,944 December 31, 2016 Investments - Available for Sale Cost Net Unrealized Gain (loss) Fair Value Money market fund $ 297,519 $ - $ 297,519 Certificates of deposit 590,000 1, ,045 Total $ 887,519 $ 1,045 $ 888,564 Fair value measurements are defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three defined hierarchical levels based on the quality of inputs used that directly relate to the amount of subjectivity associated with the determination of fair value. The fair value hierarchy defines the three levels as follows: Level 1: Level 2: Level 3: Valuations based on quoted prices (unadjusted) in an active market that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Valuations based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data. Valuations based on unobservable inputs are used when little or no market is available. The fair value hierarchy gives lowest priority to Level 3 inputs. 13.

18 5. Investments (continued) Martin De Porres Village, Inc. Notes to Financial Statements December 31, 2017 and 2016 The following table presents information about investments measured at fair value: December 31, 2017 Level 1 Level 2 Level 3 Total Money market fund $ 988,992 $ - $ - $ 988,992 Mutual funds 258, ,952 Investments at Fair Value $ 1,247,944 $ - $ - $ 1,247,944 December 31, 2016 Level 1 Level 2 Level 3 Total Money market fund $ 297,519 $ - $ - $ 297,519 Certificates of deposit - 591, ,045 Investments at Fair Value $ 297,519 $ 591,045 $ - $ 888,564 At December 31, 2017 and 2016, unrealized gains and losses from these certificates of deposit are included in financial income in the statements of activities. 6. Long-Term Debt Mortgage debt consists of the following at December 31, 2017 and 2016: Mortgage note of $4,000,000 payable to Boiling Springs Savings Bank with fixed interest payable at 3.625%, which approximates the effective interest rate. The mortgage requires 120 monthly payments of $39,789 and has a maturity date of December 31, The mortgage note is secured by the apartment project. $ 2,180,484 $ 2,571,195 Unamortized debt issuance costs (45,855) (45,855) 2,134,629 2,525,340 Less: current portion (405,112) (390,711) Long-term debt $ 1,729,517 $ 2,134,

19 6. Long-Term Debt (continued) Martin De Porres Village, Inc. Notes to Financial Statements December 31, 2017 and 2016 Maturities of the mortgage payable in each of the next five years and in aggregate are as follows: Year ended December 31, Amount 2018 $ 405, , , , ,224 Total 2,180,484 Less:Unamortized debt issuance costs 45,855 Mortgage payable, net of unamortized debt issuance costs $ 2,134, Management Fee The Project paid management fees of $157,890 and $154,124 for the years ended December 31, 2017 and 2016 respectively to Management fees are calculated on a unit fee structure as determined by NJHMFA. The calculation of amounts charged and due under this agreement is presented in the supplementary information accompanying the basic financial statements as required by NJHMFA. 8. Real Estate Taxes The Project has a payment in lieu of taxes (PILOT) agreement with the City of Paterson, New Jersey. The agreement specifies that the Project pay the City 8% of its gross annual rents. The calculation of amounts charged and due under this agreement is presented in the supplementary information accompanying the financial statements as required by NJHMFA. 9. Retirement Plans Effective July 1, 1992, the Project has participated with other corporations in a defined benefit pension plan sponsored by The Diocese of Paterson. The Diocese maintains all information relative to the Plan and has informed the Project that the Plan is Non-Qualified according to the Internal Revenue Code. The Project has no input or responsibility in the management of the Plan which covers all eligible employees whom elect to participate in the Plan. For the years ended December 31, 2017 and 2016 all eligible employees had elected not to participate and thus the project had no expense. This plan was frozen effective June 30, Effective January 1, 2012 the Project has a retirement plan for its employees under the provisions of Section 401(k) of the Internal Revenue Code. Employees may elect to defer amounts limited to a maximum annual amount as set periodically by the Internal Revenue Service. The company may make discretionary matching as well as profit sharing contributions. Matching contributions to the plan for the years ended December 31, 2017 and 2016 totaled $8,213 and $7,392, respectively. There were no profit sharing contributions. 15.

20 10. Functional Allocation of Expenditures Martin De Porres Village, Inc. Notes to Financial Statements December 31, 2017 and 2016 All expenditures were incurred in connection with project operations. No expenditures were made for (mortgagor entity) purposes. 11. Risk Concentrations Demand Deposits The Project maintains cash balances at Wells Fargo Bank and the Diocese of Paterson Central Investing and Lending Agency. Accounts are insured by the FDIC up to the aggregate of $250,000 at December 31, 2017 and Cash balances exceeded the insured limits by $564,496 and $674,450 at December 31, 2017 and 2016, respectively. Funding Concentration The Project s primary asset is a 143 unit apartment project. The Project s operations are concentrated in the multifamily real estate market. In addition, the Project operates in a heavily regulated environment. The operations of the Project are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, NJHMFA. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by NJHMFA. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. Approximately 75% and 74% of the Project s net rental revenues for the years ended December 31, 2017 and 2016, respectively, are from Section 8 housing assistance payments from HUD. 12. Tax Returns At December 31, 2017 and 2016, all required tax returns have been filed. 13. Related Party Transactions Martin De Porres Village, Inc. has engaged the managing agent, to provide bookkeeping services for the Project. Total bookkeeping fees were $13,000 and $12,000 for the years ended December 31, 2017 and 2016, respectively. 16.

21 Schedules of Project Expenses Years Ended December 31, 2017 and Administrative expenses Stationery supplies $ 1,494 $ 1,701 Telephone 11,650 12,219 Postage 1,204 1,781 Inspection fee 6,507 6,281 Legal services 3,970 - Auditing 12,100 12,100 Social services 688 1,235 Bookkeeping and accounting 13,000 12,000 Computer charges 5,972 5,349 Misc. Administrative 17,259 26,592 Total administrative expenses $ 73,844 $ 79,258 Salaries and related charges Super's salary $ 51,424 $ 49,895 Janitorial salaries 30,955 30,033 Social services salaries 106, ,329 Office salary 129, ,434 Maintenance salaries 62,904 61,017 Other salaries 52,720 45,909 Employee benefits 99,822 81,399 Employer payroll taxes 31,171 20,055 Workmen's compensation 11,471 13,088 Total salaries and related charges $ 576,295 $ 531,159 Maintenance and repairs Masonry $ - $ 1,700 Carpentry - 6,330 Plumbing 17,816 20,847 Electrical 6,215 12,895 Vehicles & equipment Snow removal 22,805 12,809 Grounds & landscaping - 9,733 Painting and decorating 9,277 8,138 Janitorial supplies 13,862 17,309 Hardware supplies - 1,791 Misc. supplies 75,611 43,329 Other 41,736 27,415 Total maintenance and repairs $ 187,512 $ 162,881 See independent auditors' report. 17.

22 Schedules of Project Expenses (Continued) Years Ended December 31, 2017 and Maintenance contracts Monitoring & Protection $ 68,124 $ 74,737 Elevator contract 7,755 10,041 Rubbish Removal Contract 27,170 25,812 HVAC Maintenance 35,682 24,708 Grounds parking landscape 13,320 14,225 Exterminating contract 17,531 16,020 Painting & Decorating 42,600 17,480 Other contracts 44,040 31,055 Total maintenance contracts $ 256,222 $ 214,078 Utilities expense Water $ 47,825 $ 46,829 Sewer Charges 19,645 30,281 Electricity 34,374 34,486 Gas 138, ,065 Total utilities expense $ 240,028 $ 231,661 See independent auditors' report. 18.

23 Schedule of Expenditures of Federal Awards Year Ended December 31, 2017 Federal Federal Grantor/Pass-Through CFDA Agency Grantor/ Program Title Number Number Expenditures U.S. Department of Housing and Urban Development Passed through New Jersey Housing and Mortgage Finance Agency: Existing Section 8 Housing Assistance Payments NJ39H $ 2,013,253 Total $ 2,013,253 Note 1. Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal award activity of Martin De Porres Village, Inc. under programs of the federal government for the year ended December 31, The information on this Schedule is prepared in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of Martin De Porres Village, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flows of Martin De Porres Village, Inc. NJHMFA Project No. 714 Note 2. Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Guidance, wherein certain types of expenditures may or may not be allowable or may be limited as to reimbursement. During the year ended December 31, The Project did not provide any funds relating to their federal programs to subrecipients. The Project has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. Note 3. Federally Funded and Insured Mortgages As of December 31, 2017 there were no outstanding loans or loan guarantee programs for the Project. 19.

24 Supplemental Information Required by NJHMFA Year Ended December 31, 2017 Beginning Ending Balance Additions Deductions Balance Schedule of Changes in Fixed Assets Land $ 780,000 $ - $ - $ 780,000 Land improvements 176, ,589 Buildings 4,437,607 1,510-4,439,117 Building improvement 758,853 75, ,653 Furniture and fixtures 409,717 6, ,645 Total $ 6,562,766 $ 84,238 $ - $ 6,647,004 Accumulated depreciation $ 2,900,923 $ 236,937 $ - $ 3,137,860 Property and equipment, net $ 3,661,843 $ 3,509,144 See independent auditors' report 20.

25 Supplemental Information Required by NJHMFA (continued) Year Ended December 31, 2017 Beginning Ending Balance Deposits Transfers Interest Disbursements Balance Schedule of Changes in Restricted Deposits and Funded Reserves Real estate tax escrow $ 91,133 $ 216,000 $ - $ 136 $ (215,099) $ 92,170 Insurance escrow 88,531 85, (74,282) 99,664 Reserve for repair and replacement 1,142, ,000-2,327 (63,090) 1,219,446 Totals $ 1,321,873 $ 439,200 $ - $ 2,678 $ (352,471) $ 1,411,280 See independent auditors' report 21.

26 Supplemental Information Required by NJHMFA (Continued) Year Ended December 31, 2017 Schedule of Accounts Payable and Accrued Expenses Vendor Amount AES NJ Cogen Co. 2,060 Alex Clark Associates 6,492 AT&T 97 Bath Fitter 4,245 Benefits 21, LLC 420 Central Warehouse Inc. (205) Cooperative Industries 8,558 Duplitron 205 Grand Hardware Inc. 164 Hammond & Burns, LLC 12,100 HD Supply Facilities 353 Home Depot (610) Interstate Waste Services 2,090 Prestige Laboratories 617 Raymond P. Marzulli Co., Inc. 27,107 Treasurer, State of New Jersey 974 Washofer Contracting LLC. 346 White & Shauger Inc 264 Total $ 65,277 See independent auditors' report 22.

27 Supplemental Information Required by NJHMFA (Continued) Year Ended December 31, 2017 Period Months Fee per Unit Units Monthly Fee Total Computation of Management Fees January to December $ $ 11, $ 143,869 Managing Agent Evaluation Bonus ,021 Total $ 157,890 See independent auditors' report 23.

28 Supplemental Information Required by NJHMFA (continued) Year Ended December 31, 2017 Computation of Real Estate Taxes in accordance with Pilot Agreement Net Rental Income $ 2,684,783 Pilot Rate 8% Payment in Lieu of Taxes 214,783 Adjustment to prior year accrual (1) Net real estate tax expense $ 214,782 Computation of Balance due at year end Balance due as of January 01, 2017 $ 13,489 Payment in Lieu of taxes due for the year 214,783 Total due 228,272 Less: Payments made to the City of Paterson (215,099) Less: Adjustment to prior year accrual - Balance due as of December 31, 2017 $ 13,173 See independent auditors' report 24.

29 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To The Board of Directors Martin De Porres Village, Inc. Paterson, New Jersey 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 Martin De Porres Village, Inc.,, which comprise the statement of financial position as of December 31, 2017, and the related statements of activities, net asset and cash flows for the year then ended, and the related notes to the financial statements and have issued our report thereon, dated March 30, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Martin De Porres Village, Inc., '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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Martin De Porres Village, Inc., 's internal control. Accordingly, we do not express an opinion on the effectiveness of the Martin De Porres Village, Inc., '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 Martin De Porres Village, Inc., '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. Burns, Draeger & Humphries, LLC 25A Hanover Road, Suite 103, Florham Park, NJ P F

30 Compliance and Other Matters As part of obtaining reasonable assurance about whether Martin De Porres Village, Inc., NJHMFA Project No. 714'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 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 Martin De Porres Village, Inc., 's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Martin De Porres Village, Inc., 's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.. Burns, Draeger & Humphries, LLC Florham Park, NJ March 30,

31 Independent Auditors Report on Compliance for Each Major Federal Program and on Internal Control over Compliance Required by the Uniform Guidance To The Board of Directors Martin De Porres Village, Inc. Paterson, New Jersey Report on Compliance for Each Major Program We have audited Martin De Porres Village, Inc., 's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Martin De Porres Village, Inc., 's major federal programs for the year ended December 31, Martin De Porres Village, Inc., '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 federal statutes, regulations, and the terms of conditions of its federal awards applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of Martin De Porres Village, Inc., '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 compliance requirements referred to above that could have a direct and material effect on the major federal programs occurred. An audit includes examining, on a test basis, evidence about Martin De Porres Village, Inc., NJHMFA Project No. 714'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 Martin De Porres Village, Inc., 's compliance. Burns, Draeger & Humphries, LLC 25A Hanover Road, Suite 103, Florham Park, NJ P F

32 Opinion on Each Major Program In our opinion, Martin De Porres Village, Inc., 's 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, Other Matters We also attest to you that we have reviewed the following on a test basis: 1. All reports required by HUD for timely filing and accuracy. 2. The validity of the HUD contract and amendments thereto. 3. The accuracy of the maximum chargeable rents. 4. The qualifications of the tenants as to admission and their required monthly contributions. 5. The certification and recertification of tenants. 6. The files located at the project and managing agent s office for adequacy. Based upon our review of the items 1 to 6 above, no material violations were found that would invalidate the future and uninterrupted receipts of the federal subsidies under existing rules and regulations. Report on Internal Control over Compliance Management of Martin De Porres Village, Inc., 's 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 Martin De Porres Village, Inc., '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 Martin De Porres Village, Inc., '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 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 the attention by those charged with governance.. 28.

33 . 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. 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. Florham Park, NJ March 30, 2018 Burns, Draeger & Humphries, LLC 29.

34 Schedule of Findings and Questioned Costs Year Ended December 31, 2017 Section I - Summary of Auditors' Results Financial Statements Type of auditors' report issued on whether the financial statements were prepared in accordance with GAAP: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes No Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major program: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes No Type of auditors' report issued on compliance for major program: Unmodified Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance? Yes No Identification of Major Programs: Grant/Contract Number Name of Program NJ39H Name of Program Section 8 Housing Assistance Payments 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 During our audit we noted no material findings for the year ended December 31, 2017 Section III Federal Award Findings and Questioned Costs During our audit we noted no material instances of noncompliance and none of the costs reported in the Federal Awards assisted programs are questioned or recommended to be disallowed. 30.