YEAR ENDED JUNE 30, 2017

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2017

2 TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 1-3 FINANCIAL STATEMENTS Statement of financial position 4 Statement of activities 5 Statement of cash flows 6 and 7 Notes to financial statements 8-10 SUPPLEMENTARY INFORMATION Supplementary information required by HUD Schedule of expenditures of federal awards 21 Notes to schedule of expenditures of federal awards 22 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 23 and 24 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS 28 CERTIFICATION OF OFFICERS 29 MANAGEMENT AGENT'S CERTIFICATION 30

3 INDEPENDENT AUDITOR'S REPORT Board of Directors Mobile VOA Living Center, Inc. Mobile, Alabama Report on the Financial Statements We have audited the accompanying financial statements of Mobile VOA Living Center, Inc., HUD Project No. 062-HH002, which comprise the statement of financial position as of June 30, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 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. -1- Smith, Dukes & Buckalew LLP Mobile 3800 Airport Blvd. Suite 101 Mobile, Alabama phone fax smithdukes.com Daphne 6475 Van Buren Ave. Suite 200 Daphne, Alabama phone fax

4 Board of Directors Mobile VOA Living Center, Inc. Page Two 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 reasonable basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mobile VOA Living Center, Inc., HUD Project No. 062-HH002, as of June 30, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and is not a required part of the financial statements. The accompanying supplementary information required by HUD on pages is also presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with the 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. -2-

5 Board of Directors Mobile VOA Living Center, Inc. Page Three Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated September 27, 2017, on our consideration of Mobile VOA Living Center, 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 the internal control over financial reporting and compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Mobile VOA Living Center, Inc. s internal control over financial reporting and compliance. Mobile, Alabama September 27,

6 FINANCIAL STATEMENT

7 STATEMENT OF FINANCIAL POSITION June 30, 2017 ASSETS Cash - operations $ 835 Tenant accounts receivable 4,240 Accounts receivable - HUD 408 Prepaid expenses 1,215 6,698 Property and equipment Building 941,271 Equipment 68,348 1,009,619 Accumulated depreciation (676,564) 333,055 Land 85, ,055 Restricted deposits Escrow deposits 100 Replacement reserve 16,443 Tenant deposits held in trust 4,307 20,850 Total assets $ 445,603 The Notes to Financial Statements are an integral part of these statements. -4-

8 LIABILITIES AND NET ASSETS (DEFICIT) LIABILITIES Accounts payable - operations $ 44,736 Accrued liabilities 64,680 Prepaid revenue 22 Mortgage payable 700,998 Total liabilities 810,436 NET ASSETS (DEFICIT) Unrestricted net assets (deficit) (364,833) Total liabilities and net assets (deficit) $ 445,603

9 STATEMENT OF ACTIVITIES For the Year Ending June 30, 2017 REVENUES Rent $ 174,033 Financial 2 Total revenue 174,035 EXPENSES Program services Administrative 36,472 Utilities 17,090 Operating and maintenance 30,433 Taxes and insurance 16,941 Interest 63,953 Depreciation 27,986 Total expenses 192,875 Change in net assets (18,840) Net assets (deficit) at beginning of year (345,993) Net assets (deficit) at end of year $ (364,833) The Notes to Financial Statements are an integral part of these statements. -5-

10 STATEMENT OF CASH FLOWS For the Year Ending June 30, 2017 CASH FLOWS FROM OPERATING ACTIVITIES Rental receipts $ 172,561 Interest receipts 2 Total receipts 172,563 Administrative 4,986 Management fee 7,238 Utilities 17,090 Salaries and wages 6,202 Operating and maintenance 30,433 Taxes and insurance 17,759 Tenant security deposits (23) Interest on mortgages 64,108 Total disbursements 147,793 Net cash provided by operating activities 24,770 CASH FLOWS FROM INVESTING ACTIVITIES Net deposits to reserve for replacement account (2,907) Net purchase of fixed assets (901) Net cash used in investing activities (3,808) CASH FLOWS FROM FINANCING ACTIVITIES Payments on mortgage payable (20,553) Net cash used in financing activities (20,553) Net increase in cash 409 CASH AT BEGINNING OF YEAR 426 CASH AT END OF YEAR $ 835 The Notes to Financial Statements are an integral part of these statements. -6-

11 STATEMENT OF CASH FLOWS For the Year Ending June 30, 2017 (Continued) CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (18,840) Adjustments to reconcile decrease in net assets to net cash provided by operating activities Depreciation 27,986 Decrease (increase) in: Tenant accounts receivable (1,498) Accounts receivable - other 39 Prepaid expenses (818) Cash restricted for tenant deposits held in trust (308) Increase (decrease) in: Accounts payable 11,264 Accrued liabilities 6,627 Tenant security deposits held in trust 331 Prepaid revenue (13) Net cash provided by operating activities $ 24,770 The Notes to Financial Statements are an integral part of these statements. -7-

12 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization and Operations The Project is a 22-unit apartment project for the disabled located in Mobile, Alabama. The Project is operated under Section 202 of the National Housing Act and regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Project was founded when Section 202 covered both elderly and non-elderly disabled. The Project's major program is its Section 202 direct loan. The Project is also subject to Section 8 Housing Assistance Payments agreements with HUD, and a significant portion of the Project s rental income is received from HUD. The Project s non-major program is its Section 8 rent subsidy. Method of Accounting The accrual method of accounting is used for financial statement purposes. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straightline method over the estimated useful lives of the related assets. Income Taxes Neither the Project, nor its nonprofit corporate owner, is subject to income taxes. 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. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Cash Equivalents For the statement of cash flows, all unrestricted investment instruments with original maturities of three months or less are cash equivalents. The Project has no cash equivalents at June 30,

13 NOTE 2 - MORTGAGE PAYABLE Mortgage payable as of June 30, 2017, represents a permanent building loan provided by HUD. The balance due as of June 30, 2017 is $700,998. The monthly installments for principal and interest are $7,055 with a maturity date of August 1, Interest is being charged at 9%. The mortgage note is secured by the apartment project. Maturities of the mortgage note in each of the next five years are as follows: 2018 $ 22, , , , ,179 Thereafter 565,433 NOTE 3 - HUD-RESTRICTED DEPOSITS $700,998 Under the Regulatory Agreement, the Project is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. HUD restricted deposits, which approximate $16,443 at June 30, 2017, are held in separate accounts and generally are not available for operating purposes. NOTE 4 - UNRESTRICTED NET ASSETS None of the Project's net assets are subject to donor-imposed restrictions. Accordingly, all net assets are accounted for as unrestricted net assets. NOTE 5 - RENT INCREASES Under the Regulatory Agreement, the Project may not increase rents charged to tenants without HUD approval. NOTE 6 - MANAGEMENT FEE The Project pays a management fee equal to 5.76% of gross revenues to the managing agent, VOA Southeast, Inc. NOTE 7 - FUNCTIONAL ALLOCATION OF EXPENSES Expenditures incurred in connection with project operations have been summarized on a functional basis in the statement of activities. -9-

14 NOTE 8 - RELATED PARTY Volunteers of America Southeast, Inc. (VOASE), the managing agent of the Project, is related by common control. VOASE earns a management fee from the project and pays various expenses on behalf of the Project. Below is a summary of the management fees incurred by the Project during the year and the amount due VOASE for various expenses paid on the Project s behalf as of June 30, 2017: Management fee incurred $ 9,521 Other payables due VOASE $ 69,944 Management fee payable $ 25,254 NOTE 9 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Project's sole asset is a 22-unit apartment project. The Project's operations are concentrated in the multifamily real estate market. In addition, the Project operates in a heavily regulated environment. The operations of the Project are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. NOTE 10 - SUBSEQUENT EVENTS Management has evaluated subsequent events through September 27, 2017, the date at which the financial statements were available to be issued. -10-

15 SUPPLEMENTARY INFORMATION

16 INDEX TO SUPPLEMENTARY INFORMATION REQUIRED BY HUD Year Ended June 30, 2017 ITEM Statement of Financial Position Data Statement of Activities Data Statement of Cash Flows Data Computation of Surplus Cash, Distributions, and Residual Receipts Annual Schedule of Changes in Fixed Asset Accounts Schedule of Reserve for Replacements -11-

17 STATEMENT OF FINANCIAL POSITION DATA June 30, 2017 Account No. ASSETS CURRENT ASSETS 1120 Cash - operations $ Tenant accounts receivable 4, Accounts receivable - HUD Prepaid expenses 1, T Total current assets 6, Tenant deposits held in trust 4,307 RESTRICTED DEPOSITS 1310 Escrow deposits Replacement reserve 16, T Total deposits 16,543 PROPERTY AND EQUIPMENT 1410 Land 85, Building 941, Furniture for project/tenant use 68, T Total fixed assets 1,094, Accumulated depreciation (676,564) 1400N Net fixed assets 418, T Total assets $ 445,

18 Account No. LIABILITIES AND NET ASSETS (DEFICIT) CURRENT LIABILITIES 2110 Accounts payable - operations $ 44, Accrued wages payable 26, Accrued management fee payable 25, Accrued interest payable - first mortgage 5, Mortgage payable - first mortgage (short-term) 22, Miscellaneous current liabilities Accrued audit expense 3, Prepaid revenue T Total current liabilities 127,762 LONG-TERM LIABILITIES 2191 Tenant security deposits 4, Mortgage payable - first mortgage 678, T Total long-term liabilities 682, T Total liabilities 810,436 NET ASSETS (DEFICIT) 3131 Unrestricted net assets (deficit) (364,833) 3130 Total net assets (deficit) (364,833) 2033T Total liabilities and net assets (deficit) $ 445,603

19 STATEMENT OF ACTIVITIES DATA For the Year Ending June 30, 2017 Account No. REVENUES 5120 Rent revenue - gross potential $ 53, Tenant assistance payments 138, T Total rent revenue 192, Vacancies - apartments (18,159) 5200T Total vacancies (18,159) 5152N Net rental revenue 174, Financial revenue - project operations Revenue from investments - replacement reserve T Total financial revenue T Total revenue 174,035 EXPENSES 6210 Advertising and marketing Office expenses 1, Management fee 9, Manager or superintendent salaries 10, Administrative rent free unit 8, Audit expense 3, Bookkeeping fees/accounting services 2, T Total administrative expenses 36,

20 STATEMENT OF ACTIVITIES DATA For the Year Ending June 30, 2017 (Continued) Account No. EXPENSES (continued) 6450 Electricity 8, Water 2, Sewer 5, T Total utilities expense 17, Payroll 1, Supplies 7, Contracts 17, Garbage and trash removal 2, Heating/cooling repairs and maintenance 1, T Total operating and maintenance expenses 30, Payroll taxes Property and liability insurance 14, Workmen's compensation Health insurance and other employee benefits 1, T Total taxes and insurance 16, Interest on mortgage payable 63, T Total financial expenses 63, T Total cost of operations before depreciation 164, T Change in net assets before depreciation 9, Depreciation expense 27, Change in net assets $ (18,840) -14-

21 STATEMENT OF ACTIVITIES DATA For the Year Ending June 30, 2017 (Continued) Account No. EXPENSES (continued) 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 mortgage should be included in the figures. $ 20,553 S Total of 12 monthly deposits in the audit year into the Replacement Reserve account, as required by the Regulatory Agreement, even if payments may be temporarily suspended or reduced. $ 3,000 S Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss Statement. $ 94 S Project Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. N/A -15-

22 STATEMENT OF CASH FLOWS DATA For the Year Ending June 30, 2017 Account No. CASH FLOWS FROM OPERATING ACTIVITIES S Rental receipts $ 172,561 S Interest receipts 2 S Total receipts 172,563 S Administrative (4,986) S Management fee (7,238) S Utilities (17,090) S Salaries and wages (6,202) S Operating and maintenance (30,433) S Taxes and insurance (17,759) S Tenant security deposits 23 S Interest on mortgages (64,108) S Total disbursements (147,793) S Net cash provided by operating activities 24,770 CASH FLOWS FROM INVESTING ACTIVITIES S Net deposits to reserve for replacement account (2,907) S Net purchase of fixed assets (901) S Net cash used in investing activities (3,808) CASH FLOWS FROM FINANCING ACTIVITIES S Principal payments - first mortgage (20,553) S Net cash used in financing activities (20,553) S Net increase in cash 409 S CASH AT BEGINNING OF YEAR 426 S1200T CASH AT END OF YEAR $

23 STATEMENT OF CASH FLOWS DATA For the Year Ending June 30, 2017 (Continued) Account No. CASH FLOWS FROM OPERATING ACTIVITIES 3250 Change in net assets $ (18,840) Adjustments to reconcile decrease in net assets to net cash provided by operating activities 6600 Depreciation 27,986 Decrease (increase) in: S Tenant accounts receivable (1,498) S Accounts receivable - other 39 S Prepaid expenses (818) S Cash restricted for tenant deposits held in trust (308) Increase (decrease) in: S Accounts payable 11,264 S Accrued liabilities 6,627 S Tenant security deposits held in trust 331 S Prepaid revenue (13) S Net cash provided by operating activities $ 24,

24 SUPPLEMENTARY DATA REQUIRED BY HUD Year Ended June 30, 2017 Computation of Surplus Cash, Distributions, and Residual Receipts - Annual Part A Cash S Cash $ 5, Tenant subsidy due for period covered by financial statements 408 S Total cash 5,550 Current obligations S Accrued mortgage interest payable 5,257 S Accounts payable due within 30 days 44,736 S Accrued expenses 55, Prepaid revenue Tenant security deposits liability 4,157 S Other current obligations 2,047 S Total current obligations 111,485 S Cash deficiency $ (105,935) -18-

25 SUPPLEMENTARY DATA REQUIRED BY HUD Year Ended June 30, 2017 Schedule of Changes in Fixed Asset Accounts Beginning Balance Additions Account Account No. Amount No. Amount Land 1410P $ 85, AT $ - Buildings 1420P 941, AT - Furniture for project/ 1450P 67, AT 901 tenant use TOTAL 1400PT $ 1,093, AT $ 901 Accumulated depreciation 1495P $ 648, $ 27,

26 Deductions Ending Balance Net Book Value Account Account Account No. Amount No. Amount No. Amount 1410DT $ $ 85,000 $ 85, DT , , DT ,348 2, DT $ T $ 1,094, N $ 418, ADT $ $ 676,564

27 SUPPLEMENTARY DATA REQUIRED BY HUD Year Ended June 30, 2017 Schedule of Reserve for Replacements 1320P Balance at beginning of year $ 13, DT Total monthly deposits 3, INT Interest on replacement reserve account OWT Other withdrawals (94) 1320 Balance at end of year $ 16,

28 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2017 Federal Grantor/Passthrough Grantor/Program Title U.S. Department of Housing and Urban Development: Federal CFDA Number Federal Expenditures Supportive Housing for the Elderly (Section 202) $700,998 Section 8 Housing Assistance Payments - Special Allocations ,909 $839,

29 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2017 NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Mobile VOA Living Center, Inc., HUD Project No. 062-HH002, 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 (Uniform Guidance). 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 FEDERAL LOAN PROGRAMS The amount of federal expenditures in the accompanying schedule of expenditures of federal awards includes the outstanding balance of a mortgage payable to HUD of $700,998 as of June 30, See Note 2 of the preceding Notes to Financial Statements for additional information. NOTE 3 INDIRECT COST RATE The Project has not elected to use the 10-percent de minimis cost rate allowed under the Uniform Guidance. -22-

30 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Independent Auditor s Report Board of Directors Mobile VOA Living Center, Inc. Mobile, Alabama 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 Mobile VOA Living Center, Inc., which comprise the statement of financial position as of June 30, 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 September 27, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Mobile VOA Living Center, 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 opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Mobile VOA Living Center, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Mobile VOA Living Center, 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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance Smith, Dukes & Buckalew LLP Mobile 3800 Airport Blvd. Suite 101 Mobile, Alabama phone fax smithdukes.com Daphne 6475 Van Buren Ave. Suite 200 Daphne, Alabama phone fax

31 Board of Directors Mobile VOA Living Center, Inc. Page Two 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 Mobile VOA Living Center, Inc.'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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Mobile, Alabama September 27,

32 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE Board of Directors Mobile VOA Living Center, Inc. Mobile, Alabama Independent Auditor s Report Report on Compliance for Each Major Federal Program We have audited Mobile VOA Living Center, Inc. s compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of Mobile VOA Living Center, Inc. s major federal programs for the year ended June 30, Mobile VOA Living Center, 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 the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Mobile VOA Living Center, 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 (CFR) 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 Smith, Dukes & Buckalew LLP Mobile 3800 Airport Blvd. Suite 101 Mobile, Alabama phone fax smithdukes.com Daphne 6475 Van Buren Ave. Suite 200 Daphne, Alabama phone fax

33 Board of Directors Mobile VOA Living Center, Inc. Page Two An audit includes examining, on a test basis, evidence about Mobile VOA Living Center, Inc. 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 Mobile VOA Living Center, Inc.'s compliance. Opinion on Each Major Federal Program In our opinion, Mobile VOA Living Center, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control over Compliance Management of Mobile VOA Living Center, Inc. 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 Mobile VOA Living Center, Inc.'s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program as a basis for designing 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 the 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 Mobile VOA Living Center, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. -26-

34 Board of Directors Mobile VOA Living Center, Inc. Page Three 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. Mobile, Alabama September 27,

35 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2017 SUMMARY OF AUDIT RESULTS 1. The auditor's report expresses an unmodified opinion on the financial statements of Mobile VOA Living Center, Inc. 2. No material weaknesses were identified during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements of Mobile VOA Living Center, Inc. were disclosed during the audit. 4. No material weaknesses were identified during the audit of the major federal award program. 5. The auditor's report on compliance for the major federal award program for Mobile VOA Living Center, Inc. expresses an unmodified opinion. 6. There are no audit findings relative to the major federal award program for Mobile VOA Living Center, Inc. 7. The program tested as a major program included: Supportive Housing for the Elderly, CFDA The threshold for distinguishing Types A and B programs was $750, Mobile VOA Living Center, Inc. qualified as a low-risk auditee. FINDINGS-FINANCIAL STATEMENTS AUDIT NONE FINDINGS-MAJOR FEDERAL AWARDS PROGRAM AUDIT NONE -28-

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