A.R. BANCROFT COMMUNITY DEVELOPMENT CORPORATION HUD PROJECT NO.: 000-EH EH EH EH EH-055

Transcription

1 A.R. BANCROFT COMMUNITY DEVELOPMENT CORPORATION HUD PROJECT NO.: 000-EH EH EH EH EH-055 FINANCIAL REPORT FOR HUD (IN ACCORDANCE WITH THE UNIFORM GUIDANCE) JUNE 30, 2016

2 TABLE OF CONTENTS June 30, 2016 INDEPENDENT AUDITORS REPORT 3 INDEPENDENT AUDITORS IDENTIFICATION INFORMATION 5 FINANCIAL STATEMENTS Statement of Financial Position 7 Statement of Activities 8 Statement of Cash Flows 10 Notes to Financial Statements 12 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 16 Note to Schedule of Expenditures of Federal Awards 17 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 18 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE 20 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 23 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 29 CORRECTIVE ACTION PLAN 31 SUPPLEMENTARY INFORMATION INDEPENDENT AUDITORS REPORT ON SUPPLEMENTARY INFORMATION 34 Supporting Data Required by HUD 35 Certificate of Officers 39 Managing Agent Certification 40 Page

3 HUD PROJECT NO.: 000-EH EH EH EH EH-055 INDEPENDENT AUDITORS REPORT To the Board of Directors A.R. Bancroft Community Development Corporation Rockville, Maryland Report on the Financial Statements We have audited the accompanying financial statements of A.R. Bancroft Community Development Corporation (a nonprofit Organization) HUD Nos. 000-EH-020, 000-EH-052, 000-EH-053, 000-EH- 054, and 000-EH-055, which comprise the statement of financial position as of June 30, 2016, 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. 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 auditors 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.

4 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 position of A.R. Bancroft Community Development Corporation as of June 30, 2016, 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 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 on page 16 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. 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 auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditures of Federal Awards is fairly stated in all material respects in relation to the financial statements as a whole. Report on Other Legal and Regulatory Requirements Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated September 30, 2016, on our consideration of A.R. Bancroft Community Development Corporation 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 and compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering A.R. Bancroft Community Development Corporation s internal control over financial reporting and compliance. September 30, 2016 Owings Mills, Maryland

5 HUD PROJECT NO.: 000-EH EH EH EH EH-055 Lead Auditor INDEPENDENT AUDITORS IDENTIFICATION INFORMATION Scott D. Rodgville, CPA, Partner-In-Charge Gorfine, Schiller & Gardyn, P.A Red Run Boulevard, Suite 250 Owings Mills, MD Auditors Federal Employer ID Number Gorfine, Schiller & Gardyn, P.A. #

6 FINANCIAL STATEMENTS

7 STATEMENT OF FINANCIAL POSITION June 30, 2016 HUD Beaverwood Washington Grove New Hampshire East Randolph Lawrence Total All Acct. No. 000-EH EH EH EH EH-055 HUD s CURRENT ASSETS 1120 Cash - operations $ 17,369 $ - $ 979 $ 18,581 $ 34,674 $ 71, Tenant accounts receivable Miscellaneous current assets 20,592 2,400 1, , T Total current assets 37,961 2,400 2,179 19,181 35,251 96, TENANT DEPOSITS HELD IN TRUST ,210 2,984 RESTRICTED DEPOSITS 1320 Reserve for replacements 227, , ,766 71, , ,119 FIXED ASSETS 1410 Land 32,500 35,000 28,000 39,500 55, , Buildings 189, , , , ,514 1,208, Building equipment 40,832 16,888 50,081 51,132 50, , T Total fixed assets 262, , , , ,282 1,608, Less accumulated depreciation (200,454) (183,766) (291,240) (287,230) (267,264) (1,229,954) 1400N Total fixed assets, net 62,511 59,686 74,052 90,357 92, , T TOTAL ASSETS $ 328,670 $ 208,257 $ 200,548 $ 181,625 $ 233,599 $ 1,152,699 The accompanying notes are an integral part of these financial statements.

8 HUD Beaverwood Washington Grove New Hampshire East Randolph Lawrence Total All Acct. No. 000-EH EH EH EH EH-055 HUD s LIABILITIES AND NET ASSETS CURRENT LIABILITIES 2110 Accounts payable, operations $ 484 $ 502 $ 520 $ 614 $ 527 $ 2, Accrued interest payable - first mortgage , ,047 1,075 19, Current portion of mortgage payable 10,780 31,170 13,228 14,016 13,666 82, Miscellaneous current liabilities - 20, , T Total current liabilities 11,656 68,276 14,690 15,677 15, , TENANT DEPOSITS HELD IN TRUST ,210 2,984 LONG-TERM LIABILITIES 2320 Mortgage payable 44,549 56, , , , , T Total liabilities 56, , , , , ,397 NET ASSETS 3131 Unrestricted 271,772 83,470 76,377 43,594 94, , T Total liabilities and net assets $ 328,670 $ 208,257 $ 200,548 $ 181,625 $ 233,599 $ 1,152,699-7-

9 STATEMENT OF ACTIVITIES For the Year Ended June 30, 2016 HUD Beaverwood Washington Grove New Hampshire East Randolph Lawrence Total All Acct. No. 000-EH EH EH EH EH-055 HUD s REVENUE 5100 RENTAL REVENUE 5120 Rent revenue - gross potential $ 12,111 $ 15,480 $ 16,710 $ 17,187 $ 16,861 $ 78, Tenant assistance payments 68,325 69,048 89,902 84,605 81, , T Total rent potential 80,436 84, , ,792 98, , Vacancies - (84,528) (35,384) (16,348) (273) (136,533) 5152N Net rental revenue 80,436-71,228 85,444 98, , FINANCIAL REVENUE 5440 Revenue from investments, miscellaneous, reserve for replacement , T Total financial revenue , T Total revenue 80, ,464 85,580 98, ,449 EXPENSES 6200/6300 ADMINISTRATIVE EXPENSES 6311 Office expenses , Management fee 2,832-2,400 3,000 3,600 11, Audit expense 3,835 3,835 3,835 3,835 3,835 19, Accounting expense 3,888 3,888 3,888 3,888 3,888 19, T Total administrative expenses 11,293 8,453 10,877 11,477 12,061 54, UTILITY EXPENSES 6450 Electric 3, ,795 6,843 5,348 22, Water 1,598-4,147 6,819 3,375 15, Gas 1, , T Total utility expenses 6, ,098 13,813 8,855 41, OPERATING AND MAINTENANCE EXPENSES 6520 Contracts 5,595 3,183 6,427 6,590 6,463 28, Garbage and trash removal Miscellaneous operating and maintenance expenses 5, ,485 16,377 21,075 70, T Total operating and maintenance expenses $ 11,465 $ 3,392 $ 33,369 $ 23,331 $ 27,538 $ 99,095 The accompanying notes are an integral part of these financial statements. -8-

10 STATEMENT OF ACTIVITIES - Continued For the Year Ended June 30, 2016 HUD Beaverwood Washington Grove New Hampshire East Randolph Lawrence Total All Acct. No. 000-EH EH EH EH EH-055 HUD s 6700 TAXES AND INSURANCE EXPENSES 6720 Insurance $ 681 $ 699 $ 717 $ 811 $ 724 $ 3, Licenses and permits , T Total taxes and insurance expenses 1, ,188 1,219 1,362 5, FINANCIAL EXPENSES 6820 Interest on mortgage payable 5,557 16,012 12,855 14,262 14,332 63, T Total financial expenses 5,557 16,012 12,855 14,262 14,332 63, T Total cost of operations before depreciation 36,488 29,091 69,387 64,102 64, , T Changes in net assets before depreciation 44,382 (28,811) 2,077 21,478 34,107 73, DEPRECIATION 5,633 2,030 6,644 7,353 7,151 28, N/3250 Changes in unrestricted net assets 38,749 (30,841) (4,567) 14,125 26,956 44,422 UNRESTRICTED NET ASSETS, Beginning of year 233, ,311 80,944 29,469 67, ,880 UNRESTRICTED NET ASSETS, End of year $ 271,772 $ 83,470 $ 76,377 $ 43,594 $ 94,089 $ 569,302 The accompanying notes are an integral part of these financial statements. -9-

11 STATEMENT OF CASH FLOWS For the Year Ended June 30, 2016 HUD Beaverwood Washington Grove New Hampshire East Randolph Lawrence Total All Acct. No. 000-EH EH EH EH EH-055 HUD s CASH FLOWS FROM OPERATING ACTIVITIES S Rental income $ 80,436 $ - $ 72,387 $ 86,524 $ 98,566 $ 337,913 S Total receipts 80,436-72,387 86,524 98, ,913 S Administrative 20,744-17,496 14,873 13,283 66,396 S Utilities 7,255-11,098 13,813 8,855 41,021 S Operating and maintenance 14,857-32,912 22,967 27,538 98,274 S Taxes and insurance 2,152-1,188 1,219 1,362 5,921 S Interest on first mortgage 5,557-12,855 14,262 14,332 47,006 S Total disbursements 50,565-75,549 67,134 65, ,618 S Net cash provided by (used in) operating activities 29,871 - (3,162) 19,390 33,196 79,295 CASH FLOWS FROM INVESTING ACTIVITIES S Net deposits into reserve for replacement accounts (21,299) (280) (8,123) (2,150) (44,603) (76,455) CASH FLOWS FROM FINANCING ACTIVITIES S Principal payments - first mortgage (9,904) - (12,064) (12,782) (12,463) (47,213) NET CHANGE IN CASH AND CASH EQUIVALENTS (1,332) (280) (23,349) 4,458 (23,870) (44,373) CASH AND CASH EQUIVALENTS, Beginning of year 18, ,328 14,123 58, ,976 CASH AND CASH EQUIVALENTS, End of year $ 17,369 $ - $ 979 $ 18,581 $ 34,674 $ 71,603 The accompanying notes are an integral part of these financial statements. -10-

12 STATEMENT OF CASH FLOWS - Continued RECONCILIATION OF CHANGES IN NET ASSETS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES For the Year Ended June 30, 2016 Beaverwood Washington Grove New Hampshire East Randolph Lawrence Total All 000-EH EH EH EH EH-055 HUD s CASH FLOWS FROM OPERATING ACTIVITIES Change in unrestricted net assets $ 38,749 $ (30,841) $ (4,567) $ 14,125 $ 26,956 $ 44,422 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 5,633 2,030 6,644 7,353 7,151 $ 28,811 Changes in operating assets and liabilities Accounts receivable - - (41) Prepaid expenses Miscellaneous current assets (14,914) 14, Accounts payable 485 (502) (628) (454) 339 (760) Accrued expenses (82) 14,399 (4,618) (2,115) (1,761) 5,823 Total adjustments (8,878) 30,841 1,405 5,265 6,240 34,873 Net cash provided by (used in) operating activities $ 29,871 $ - $ (3,162) $ 19,390 $ 33,196 $ 79,295 The accompanying notes are an integral part of these financial statements. -11-

13 NOTES TO FINANCIAL STATEMENTS June 30, 2016 HUD PROJECT NO.: 000-EH EH EH EH EH-055 NOTE A NATURE OF ORGANIZATION AND OPERATIONS A.R. Bancroft Community Development Corporation (the Organization) is a non-profit Corporation incorporated on November 8, 1979, to acquire an interest in real property located in Montgomery County, Maryland, and to construct and manage housing and other facilities for those with developmental disabilities. The Organization 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 rent charges and operating methods. The Organization is also subject to Section 8 Housing Assistance Payment agreements with HUD and a significant portion of the s rental income is received from HUD. All rent increases must be approved by HUD. The Organization is subject to certain surplus cash limitations. Any surplus cash calculated at the end of the Organization s fiscal year is to be deposited into the replacement reserve account. Withdrawals from the account can only be made with the approval of HUD. In addition, the Organization is required to file the Organization s financial statement annually, as presented, in accordance with the financial presentation recommended by HUD. The elements of this presentation are consistent with generally accepted accounting principles. The Organization s major programs are its Section 202 Direct Loan and Section 8 Housing Choice Vouchers. NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Accounting These financial statements have been prepared on the accrual basis of account and utilize the principles outlined in the Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 958 Not-For-Profit Entities, which requires the Organization to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. As of June 30, 2016, the Organization had only unrestricted net assets. 2. Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Income Tax Status The Organization is exempt from income taxes under 501(c)(4) of the Internal Revenue Code, as other than private foundation; therefore no income tax provision has been included in the financial statements. -12-

14 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued The Organization follows the provisions of the Financial Accounting Standards Codification, Accounting for Income Taxes. This topic requires the Organization to recognize or disclose any tax positions that would result in unrecognized tax benefits. The Organization has no positions that would require disclosure or recognition under this topic. The Organization s income tax returns for fiscal years after June 30, 2012 are subject to examination by IRS and state taxing authorities. 4. Cash and Cash Equivalents For purposes of the statement of cash flows, cash and cash equivalents represent deposits in checking and savings accounts and certificates of deposit with original maturities of ninety days or less. 5. Tenant Accounts Receivable All accounts receivable balances are considered collectible at June 30, Accordingly, no allowance for doubtful accounts has been established. 6. Property and Equipment Property is recorded at cost. The Organization capitalizes all items over $2,500 that have a useful life of at least one year. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Buildings Building equipment 30 years 5 years 7. Subsequent Events In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through September 30, 2016, the date the financial statements were available to be issued. During this period, the Organization did not have any material subsequent events. 8. Recent Accounting Pronouncements In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update Not-for-Profit Entities, which contains significant changes to the financial statements requirements under the Not-for-Profit Entities topic of the Accounting Standards Codification. The new standard is effective for the year ending June 30, The Organization will evaluate the effect that implementation of the new standard will have on its financial position, results of operations and cash flows. NOTE C AFFILIATED CORPORATION Management Fees The Organization is managed by The Arc Montgomery County, Inc. (the Arc), an Affiliated Corporation, pursuant to management agreements approved by HUD. The management fees are based on various percentages ranging between 4.35%-5.19% of gross collections as defined. Management fees were $11,832 for the year ended June 30,

15 NOTE C AFFILIATED CORPORATION Continued Due to Affiliate The Arc paid certain expenditures on behalf of the Organization. The net amount due of $2,647 as of June 30, 2016, is non-interest bearing and due on demand. This amount is included in accounts payable, operations on the statement of financial position. NOTE D CASH CONCENTRATION Periodically during the year, the cash balance may have exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limitation. The Organization has not experienced any losses in such accounts and believes they are not exposed to any significant risk on cash and cash equivalents. NOTE E DEPOSITS HELD IN TRUST HUD requires tenant security deposits to be segregated into its own cash account and is not available for operating purposes. The balance of deposits held in trust for tenant security deposits was $2,984 at June 30, NOTE F RESTRICTED DEPOSITS Replacement Reserve Under the terms of the Regulatory Agreement, the Organization is required to set aside specified amounts for the replacement of property and other project expenditures as approved by HUD. Restricted funds with a balance of $674,119 on June 30, 2016 are held in separate accounts and generally are not available for operating purposes. HUD approval must be obtained before any of the funds can be disbursed. Residual Receipts Under the terms of the regulatory agreement, the Organization is required to deposit any surplus project funds remaining at the end of the fiscal year into a residual receipts reserve account within sixty days following the end of the fiscal year. Withdrawals from the residual receipts account may be made only for project purposes and with the approval of HUD. The Organization has been instructed by HUD to maintain both reserves for replacement and residual receipts balances in the same interest-bearing bank account. NOTE G MORTGAGE PAYABLE The Organization financed its mortgages with HUD and the mortgages payable are secured by the property to which they apply. Mortgage payable balances on each property are as follows at June 30, 2016: Interest Rate Monthly Payments -14- Maturity Date Current Long Term Total Beaverwood 000EH % $ 1,256 11/1/2020 $ 10,780 $ 44,549 $ 55,329 Washington Grove 000EH % 1,344 9/1/ ,170 56,511 87,681 New Hampshire 000EH % 1,998 5/1/ , , ,158 East Randolph 000EH % 2,166 8/1/ , , ,840 Lawrence Avenue 000EH % 2,145 10/1/ , , ,698 $ 82,860 $ 454,846 $ 537,706

16 NOTE G MORTGAGE PAYABLE Continued Scheduled future maturities of the above mortgages are as follows for future years ending June 30: 2017 $ 82, , , , ,289 Thereafter 150,642 $ 537,706 NOTE H CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Organization s operations are concentrated in the multifamily real estate market. In addition, the Organization operates in a heavily regulated environment. The operations of the Organization are subject to the administrative directives, rules, and regulations of federal, state, and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules, and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. NOTE I HUD CONTRACT The U.S. Department of Housing and Urban Development (HUD) requires that organizations receiving funding under Section 202 of the Housing Act of 1959 may not engage in any other business or activity (including to operation of any other rental project) other than that for which the HUD financing was received. The Organization holds five HUD contracts (Section 8 and FHA ). The effective and expiration dates for each of the five contracts are as follows: Renewed Expires 000-EH /30/ /30/ EH /16/ /13/ EH /17/ /22/ EH /03/ /22/ EH /17/ /28/

17 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2016 EIN Federal Program Federal CFDA HUD or Award Expenditures Grantor/Program Title Number Number Amount (Allowable) U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (Section 202) * EH-020 $ 65, EH , EH , EH , EH ,622 Section 8 Housing Assistance Payments Program * EH , EH EH , EH , EH-055 $ 81,258 $ 584,919 ** 281,334 *** $ 866,253 *Major Program. **Represents the outstanding mortgage balance as of July 1, ***Represents rental billings under the Housing Assistance Payment Contract for the year ended June 30, The accompanying note to schedule of expenditures of federal awards is an integral part of this schedule. -16-

18 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 2016 HUD PROJECT NO.: 000-EH EH EH EH EH-055 NOTE A SIGNIFICANT ACCOUNTING POLICY The accompanying schedule of expenditures of federal awards includes the federal grant activity of A.R. Bancroft Community Development Corporation and is presented on the accrual basis of accounting. The information on this schedule is presented in accordance with the requirements of the Uniform Guidance. Therefore, some amounts presented in this schedule may differ from the amounts presented in, or used in the preparation of, the basic financial statements. The Company has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance. NOTE B MORTGAGE BALANCES The accompanying schedule of expenditures of federal awards shows the balances as of July 1, 2015 for the mortgages payable. Below are the balances as of June 30, 2016: Beaverwood 000-EH-020 $ 55,329 Washington Grove 000-EH ,681 New Hampshire 000-EH ,158 East Randolph 000-EH ,840 Lawrence 000-EH ,698 $ 537,

19 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 Members A.R. Bancroft Community Development Corporation Rockville, Maryland We have audited, in accordance with the 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 A.R. Bancroft Community Development Corporation HUD Nos. 000-EH-020, 000-EH-052, 000-EH-053, 000-EH-054, and 000-EH-055, which comprise the statement of financial position as of June 30, 2016, 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 30, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered A.R. Bancroft Community Development Corporation 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 A.R. Bancroft Community Development Corporation s internal control. Accordingly, we do not express an opinion on the effectiveness of A.R. Bancroft Community Development Corporation 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 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. 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, and therefore, material weaknesses or significant deficiencies may exist that were note identified. 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. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs that we consider to be a significant deficiency as item

20 Compliance and Other Matters As part of obtaining reasonable assurance about whether A.R. Bancroft Community Development Corporation s financial statements are free from 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. September 30, 2016 Owings Mills, Maryland

21 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE To the Board Members A.R. Bancroft Community Development Corporation Rockville, Maryland Report on Compliance for Each Major Federal Program We have audited A.R. Bancroft Community Development Corporation 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 A.R. Bancroft Community Development Corporation s major federal programs for the year ended June 30, A.R. Bancroft Community Development Corporation s major federal programs are identified in the summary of auditors 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. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of A.R. Bancroft Community Development Corporation 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. An audit includes examining, on a test basis, evidence about A.R. Bancroft Community Development Corporation 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 A.R. Bancroft Community Development Corporation s compliance.

22 Opinion on Each Major Federal Program In our opinion, A.R. Bancroft Community Development Corporation 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, Other Matters The results of our auditing procedures disclosed instances of noncompliance with the compliance requirements referred to above that are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items through Our opinion on each major federal program is not modified with respect to these matters. A.R. Bancroft Community Development Corporation s response to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs and corrective action plan. A.R. Bancroft Community Development Corporation s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of A.R. Bancroft Community Development Corporation 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 A.R. Bancroft Community Development Corporation 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 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 A.R. Bancroft Community Development Corporation 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. 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, and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items through that we consider to be significant deficiencies.

23 A.R. Bancroft Community Development Corporation s responses to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. A.R. Bancroft Community Development Corporation s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. 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. September 30, 2016 Owings Mills, Maryland

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2016 HUD PROJECT NO.: 000-EH EH EH EH EH-055 A. SUMMARY OF AUDITORS RESULTS 1. The auditors report expresses an unmodified opinion on the financial statements of A.R. Bancroft Community Development Corporation as of and for the year ending June 30, One significant deficiency relating to the audit of the financial statements is reported in the 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. This deficiency is not considered a material weakness 3. No instances of noncompliance material to the financial statements of A.R. Bancroft Community Development Corporation were disclosed during the audit. 4. Four significant deficiencies relating to the audit of the major federal award programs are reported in the Independent Auditors Report on Compliance For and Each Major Federal Program; Report on Internal Control over Compliance; And Report on Schedule of Federal Awards Required By The Uniform Guidance. These deficiencies are not considered material weaknesses. 5. The auditors report on compliance for the major federal award programs for A.R. Bancroft Community Development Corporation expresses an unmodified opinion on all major federal programs. 6. There were four audit findings relative to the major federal award programs for A.R. Bancroft Community Development Corporation to be reported in Part C of this schedule. 7. The programs tested as major programs were: Supportive Housing for the Elderly (Section 202) program (CFDA #14.157) Section 8 Housing Assistance Payments (CFDA # ) 8. The threshold for distinguishing Type A and B programs was $750, A.R. Bancroft Community Development Corporation was not determined to be a low-risk auditee. -23-

25 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Continued June 30, 2016 B. FINDINGS FINANCIAL STATEMENTS AUDIT FINDING : Criteria: Condition: Effect: Special Tests and Provisions Mortgage Payments Principal and interest payments must be made on time each month as outlined by the mortgage agreement. Principal and interest payments were not made on project 000-EH-052 (Washington Grove ) for the entire year under audit. HUD approval to stop payments was not obtained. 000-EH-052 mortgage is in default. Population & Sample Size: Number Dollars Population 12 months on all houses N/A Sample N/A N/A Not in Compliance 1 house for 12 months $36,291 Questioned Costs: $-0- Cause: Background: Recommendation: Response: Due to a mold problem, the home became uninhabitable in the fiscal year ended June 30, The Organization did not collect tenant or assistance rent for the entire fiscal year ended June 30, 2016 due to the home being unoccupied. This property developed a mold problem in December 2012, which rendered the property uninhabitable. Since that time, the Organization s Board of Directors and the management team have attempted to get direction and guidance for the sale or disposition of the property. To this date there has not been resolution from HUD. HUD is aware that the property is not inhabited and the former tenants have been moved elsewhere. The Organization has been in contact with HUD about the state of the Washington Grove (00-EH-052) home since December The last conversation with HUD was on July 29, 2014, at that time the Organization was told that once verification of the welfare of the former tenants was made, HUD would issue permission to use the Reserve for Replacements to pay off the mortgage and HUD would consider the next step. The Organization has continued to put forth efforts to resolve this issue, and have been waiting on action and approval from HUD to repay debt from Reserves and dispose of the home. The Organization should continue to communicate with HUD on getting the matter resolved. The Organization should request to pay the monthly principal and interest payments from the replacement reserve account. Management agrees with the recommendation. See management s corrective action plan. -24-

26 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Continued June 30, 2016 C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAM AUDIT U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CFDA Supportive Housing for the Elderly (Section 202) FINDING : Criteria: Condition: Effect: Special Tests and Provisions Mortgage Payments Principal and interest payments must be made on time each month as outlined by the mortgage agreement. Principal and interest payments were not made on project 000-EH-052 (Washington Grove ) for the entire year under audit. HUD approval to stop payments was not obtained. 000-EH-052 mortgage is in default. Population & Sample Size: Number Dollars Population 12 months on all houses N/A Sample N/A N/A Not in Compliance 1 house for 12 months $36,291 Questioned Costs: $-0- Cause: Background: Due to a mold problem, the home became uninhabitable in the fiscal year ended June 30, The Organization did not collect tenant or assistance rent for the entire fiscal year ended June 30, 2016 due to the home being unoccupied. This property developed a mold problem in December 2012, which rendered the property uninhabitable. Since that time, the Organization s Board of Directors and the management team have attempted to get direction and guidance for the sale or disposition of the property. To this date there has not been resolution from HUD. HUD is aware that the property is not inhabited and the former tenants have been moved elsewhere. The Organization has been in contact with HUD about the state of the Washington Grove (00-EH-052) home since December The last conversation with HUD was on July 29, 2014, at that time the Organization was told that once verification of the welfare of the former tenants was made, HUD would issue permission to use the Reserve for Replacements to pay off the mortgage and HUD would consider the next step. The Organization has continued to put forth efforts to resolve this issue, and have been waiting on action and approval from HUD to repay debt from Reserves and dispose of the home. -25-

27 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Continued June 30, 2016 C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAM AUDIT Recommendation: Response: The Organization should continue to communicate with HUD on getting the matter resolved. The Organization should request to pay the monthly principal and interest payments from the replacement reserve account. Management agrees with the recommendation. See management s corrective action plan. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CFDA Supportive Housing for the Elderly (Section 202) CFDA Section 8 Housing Assistance Payments FINDING : Criteria: Condition: Effect: Special Tests and Provisions Residual Receipts Account Any funds in the project funds account (including earned interest) at the end of the fiscal year shall be deposited in a federally insured account within 60 days following the end of the fiscal year. Withdrawals from this account may be made only for project purposes and with the approval of HUD. Any cash in excess of any current obligations due in 30 days, or surplus cash, must be deposited into a residual receipts account. The deposit of surplus cash was not deposited into the residual receipts account within the acceptable timeframe. Population & Sample Size: Number Dollars Population Surplus Cash N/A Sample N/A N/A Not in Compliance N/A $66,485 Questioned Costs: $-0- Cause: Recommendation: Response: Management was unsure regarding the amount to deposit regarding the Washington Grove project. The Organization should make sure that any surplus cash be deposited within 60 days after year end into the appropriate residual receipts account (included in the replacement reserve account). Management agrees with the recommendation. See management s corrective action plan. -26-

28 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Continued June 30, 2016 C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAM AUDIT U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CFDA Supportive Housing for the Elderly (Section 202) FINDING : Criteria: Condition: Effect: Allowable Costs One HUD project paying for another HUD project s receiving HUD funds are prohibited from paying other HUD projects. Expenses for the Washington Grove were paid by the Beaverwood. Unallowable costs were incurred in the Beaverwood. Population & Sample Size: Number Dollars Population N/A N/A Sample N/A N/A Not in Compliance N/A $20,592 Questioned Costs: $-0- Cause: Recommendation: Response: Washington Grove is not generating any income, as the property is vacant and in default. However, the project is still incurring expenses, which are being paid for by the Beaverwood. These expenses are not allowable for the other projects. The Company should request financial assistance from The Arc Montgomery County, Inc. (management company) until the funds requested from the Reserve for Replacement is approved by HUD for operating funds.. Management agrees with the recommendation. See management s corrective action plan. -27-

29 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Continued June 30, 2016 C. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAM AUDIT U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CFDA Supportive Housing for the Elderly (Section 202) FINDING : Criteria: Condition: Effect: Allowable Costs Management Fees incorrectly calculated Management fees are determined based on the regulatory agreement which is a percentage of collections. For some of the projects, the management fees were based on a fixed amount. Unallowable costs being charged to the project. Population & Sample Size: Number Dollars Population Management fees $11,832 Sample N/A N/A Not in Compliance N/A $4,200 Questioned Costs: $-0- Cause: Recommendation: Response: The Organization was paying the management fee based on gross potential rent. Per the regulatory agreements, the management fee is to be paid based on a percentage of gross rental collections. For 3 of the projects with vacancies, this caused an overpayment of management fees paid to the management company. Pay management fees based on the calculation approved by HUD. Management agrees with the recommendation. See management s corrective action plan. -28-

30 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS June 30, 2016 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FINDING Condition: Current Status: Previous Response: Narrative: Cash balances exceeded the federally insured limits during the fiscal year. This finding does not warrant further action as two years have passed since the audit report in which the finding occurred was submitted to the Federal clearinghouse. The Organization will pursue several options. 1. Request of HUD permission to separate cash balances for each project in accordance with the HUD Handbook. This should eliminate the problem of exceeding the federally insured limits. 2. Investigate collateralization of excess funds from the bank. The Organization should monitor cash balances throughout the year. If cash balances exceed federally insured amounts, an arrangement with the bank should be made to collateralize excess deposits, or the Organization should submit a request to HUD to transfer cash balances to an account which is fully insured. FINDING Condition: Current Status: Previous Response: Narrative: Security deposits must be repaid in accordance with time restrictions stipulated in the HUD handbook. The Organization has processes in place to ensure all security deposit refund checks are issued within the allowable time frame. All checks issued in the current year were issued within the allowable time frame. The Organization developed a weekly tenant status update meeting. This meeting provides an opportunity to discuss move-in or move-out dates. Refunding of security deposits is now an agenda item during this meeting. The Organization should issue security deposit refund checks within the allowable time frame. -29-