EDWARD ROMERO TERRACE PROJECT NO. 116-EE041 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015

2 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015 CONTENTS Independent Auditor s Report Financial Statements: Statements of Financial Position Statements of Activities... 5 Statements of Cash Flows Notes to the Financial Statements Supplementary Information: Supplementary Information Required by HUD Schedule of Expenditures of Federal Awards Summary Schedule of Prior Audit Findings Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by The Uniform Guidance Schedule of Findings and Questioned Costs Corrective Action Plan Certification of Officers Certification of Management Agent Independent Accountant s Report on Applying Agreed-Upon Procedure

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors of Edward Romero Terrace Albuquerque, NM Report on the Financial Statements We have audited the accompanying financial statements of Edward Romero Terrace, HUD Project No. 116-EE041, which comprise the statements of financial position as of September 30, 2016 and 2015, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edward Romero Terrace as of September 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. -1-

4 Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 14 to 24 is presented for purposes of additional analysis as required by the Uniform Financial Reporting Standards issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 6, 2016, on our consideration of Edward Romero Terrace s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Edward Romero Terrace s internal control over financial reporting and compliance. Bellows Associates, P.A. Plantation, Florida December 6,

5 STATEMENTS OF FINANCIAL POSITION SEPTEMBER 30, 2016 AND ASSETS Cash - operations $ 16,347 $ 11,689 Tenant accounts receivable Accounts receivable - HUD 6,601 13,993 Prepaid expenses 10,194 11,502 33,588 37,458 PROPERTY AND EQUIPMENT Building 4,647,140 4,642,727 Furniture for project/tenant use 17,325 17,325 Furnishings 11,093 - Office furniture and equipment 1,244 1,244 Maintenance equipment 1,481 1,481 4,678,283 4,662,777 Accumulated depreciation (766,568) (641,405) 3,911,715 4,021,372 Land 600, ,000 4,511,715 4,621,372 DEPOSITS Escrow deposits 21,680 16,843 Replacement reserve 59,006 97,445 Tenant deposits held in trust 13,882 14,187 Total Deposits 94, ,475 TOTAL ASSETS $ 4,639,871 $ 4,787,305 See accompanying notes to the financial statements -3-

6 STATEMENTS OF FINANCIAL POSITION (CONTINUED) SEPTEMBER 30, 2016 AND LIABILITIES Notes payable $ 1,400,000 $ 1,400,000 Accounts payable - operations 11,704 32,284 Accounts payable - other 9,351 - Accrued wages payable 15,084 11,846 Accrued payroll taxes payable Accrued management fee payable 33,672 48,312 Accrued property taxes 14,297 14,297 Miscellaneous liabilities 9,765 9,592 Prepaid revenue Tenant deposits held in trust 12,536 12,930 TOTAL LIABILITIES 1,507,026 1,529,484 NET ASSETS Unrestricted net assets (479,256) (354,280) Temporarily restricted net assets 3,612,101 3,612,101 Permanently restricted net assets - - TOTAL NET ASSETS 3,132,845 3,257,821 TOTAL LIABILITIES AND NET ASSETS $ 4,639,871 $ 4,787,305 See accompanying notes to the financial statements -4-

7 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND REVENUES Rent $ 360,178 $ 316,074 Financial Other 23,535 1,145 TOTAL REVENUES 383, ,593 EXPENSES Administrative 84,255 77,209 Utilities 43,039 43,081 Operating and maintenance 85,840 57,755 Taxes and insurance 105,107 95,163 Depreciation 125, ,054 Multifamily housing service coordinators 65,496 65,403 TOTAL EXPENSES 508, ,665 CHANGES IN NET ASSETS (124,976) (144,072) NET ASSETS AT BEGINNING OF YEAR 3,257,821 3,401,893 NET ASSETS AT END OF YEAR $ 3,132,845 $ 3,257,821 See accompanying notes to the financial statements -5-

8 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND CASH FLOWS FROM OPERATING ACTIVITIES Rental receipts $ 376,814 $ 301,806 Interest receipts Other operating receipts 23,535 1,145 Total receipts 400, ,325 Administrative (33,136) (35,016) Management fee (32,208) - Utilities (43,039) (45,512) Salaries and wages (101,175) (97,768) Operating and maintenance (49,454) (29,386) Real estate taxes (20,039) (19,063) Property insurance (21,415) (22,252) Miscellaneous taxes and insurance (116,147) (67,029) Tenant security deposits (89) 101 Total disbursements (416,702) (315,925) Net cash (used in) operating activities (16,142) (12,600) CASH FLOWS FROM INVESTING ACTIVITIES Deposits to escrow and interest retained in account (66,650) (44,284) Withdrawals from escrow 61,813 69,210 Deposits to reserve for replacements and interest retained in account (18,100) (10,423) Withdrawals from reserve for replacements 56,539 8,015 Net purchase of fixed assets (12,802) - Net cash provided by investing activities 20,800 22,518 NET INCREASE IN CASH 4,658 9,918 BEGINNING OF YEAR CASH 11,689 1,771 END OF YEAR CASH $ 16,347 $ 11,689 SUPPLEMENTAL DISCLOSURES: Noncash investing activities: Purchase of fixed assets 2,704 - Accounts payable (2,704) - Total noncash investing activities $ - $ - See accompanying notes to the financial statements -6-

9 STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (124,976) $ (144,072) Adjustments to reconcile changes in net assets to net cash (used in) operating activities: Depreciation expenses 125, ,054 Increase or decrease in: Tenant accounts receivable (172) (19) Accounts receivable - HUD 7,392 (13,977) Prepaid expenses 1,308 1,096 Cash restricted for tenant security deposits Accounts payable (13,933) 355 Accrued liabilities (10,900) 20,868 Tenant security deposits held in trust (394) (166) Prepaid revenue 65 (6) Net cash (used in) operating activities $ (16,142) $ (12,600) See accompanying notes to the financial statements -7-

10 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Edward Romero Terrace (the Project) was organized as a non-profit corporation in the State of New Mexico to acquire real property located in Albuquerque, New Mexico. The Project has constructed and operates an apartment complex of 40 units under Section 202 of the National Housing Act of The U.S. Department of Housing and Urban Development (HUD) regulates such projects in respect to rent charges and operating methods. The Regulatory Agreement prohibits any distribution of surplus cash available at the end of each year. The Project s major program is its Section 202 supportive housing for the elderly capital advance and project rental assistance contract (PRAC). The Project s PRAC provides for a significant portion of the Project s rental income through rental assistance subsidies from HUD. The following significant accounting policies have been followed in the preparation of the financial statements: Fixed Assets Fixed assets are stated at cost. The Project capitalizes expenditures for fixed assets in excess of $1,000 and all lesser items are expensed currently. Depreciation of fixed assets is provided using the straight-line method over the estimated useful lives of the assets, as follows: Years Building and equipment 5-39 Furniture and equipment 5 Depreciation expense for the years ended September 30, 2016 and 2015 was $125,163 and $123,054, respectively. Financial Statement Presentation Income Taxes The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. The Project presents information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. The Project s capital advance of $3,612,101 is temporarily restricted for 40 years and is intended for the operations of very low-income housing. The Project is currently exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The Project s Forms 990, Return of Organization Exempt from Income Tax, for the years ending 2012, 2013, 2014, and 2015 are subject to examination by the Internal Revenue Service, generally for three years after they were filed. Currently, no year is under examination. -8-

11 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and 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. Cash and Cash Equivalents For the statements 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 September 30, 2016 and Date of Management s Review Management has evaluated subsequent events through December 6, 2016, which is the date the financial statements were available to be issued. NOTE 2 - RELATED PARTIES The Project is sponsored by the Elderly Housing Development and Operations Corporation (EHDOC). The bylaws of the Project require that the Board of Directors be composed of at least seven members with the President and Executive Director of EHDOC as directors, provided that the President of EHDOC is a voting director and the Executive Director is the non-voting director. Six additional voting directors are appointed by the Executive Committee of EHDOC. EHDOC manages the Project and provides accounting services, for which EHDOC receives fees. The total amount charged by EHDOC for management fees for the years ended September 30, 2016 and 2015 was $17,568 for each year, which is approximately % of residential income capped at $36.60 per unit per month. The total amount charged by EHDOC for accounting services for the years ended September 30, 2016 and 2015 was $3,360 for both years. The total amount charged by EHDOC for quality assurance services for the years ended September 30, 2016 and 2015 was $3,438 and $3,465, respectively. For the years ended September 30, 2016 and 2015 the Project incurred other costs to EHDOC in the amount of $94,874 and $88,791, respectively, which may include reimbursements for insurance, pension and other project expenses. The total due to EHDOC as of September 30, 2016 and 2015 was $42,817 and $84,373, respectively. -9-

12 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015 NOTE 3 - HUD RESTRICTED DEPOSITS Reserve for Replacement Under the regulatory agreement, the Project is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. Replacement reserve deposits, which approximate $59,006 and $97,445 at September 30, 2016 and 2015, respectively, are held in a separate account and generally are not available for operating purposes. The required monthly deposits to the replacement reserve account were suspended indefinitely, provided the Project maintains a $50,000 balance in the replacement reserve account. The Project is in compliance as of September 30, 2016 and NOTE 4 - CAPITAL ADVANCE The Project entered into an agreement with HUD on July 30, 2009 for a capital advance of $3,612,101. The capital advance bears no interest and is not required to be repaid so long as the housing remains available to elderly persons (or disabled persons) for at least 40 years and in accordance with Section 202 of the National Housing Act of Failure to comply with HUD requirements would result in HUD s billing the owner for the entire capital advance outstanding plus interest since the date of the first advance. NOTE 5 - NOTES PAYABLE The Project entered into an agreement with the City of Albuquerque (the City) for a loan in principal of $1,400,000, of which $800,000 represents the City loan (HOME funds) and $600,000 represents the appraised value of the city-owned land. The HOME funds and the value of land will be forgiven at the end of the Affordability Period which is 40 years from the completion of the Project. Interest accrues at the New Mexico statutory rate, but shall not be payable on the principal balance, except in the event of default. The Project has not accrued interest on this note for the years ended September 30, 2016 and NOTE 6 - RENT INCREASES Under the regulatory agreement, the Project may not increase rents charged to tenants without HUD approval. NOTE 7 - EMPLOYEE BENEFIT - PENSION PLAN The employees of the Project are covered under a defined benefit pension plan. The collectively bargained plan is sponsored by the Service Employees International Union. Pension expense for the years ended September 30, 2016 and 2015 was $23,720 and $20,362, respectively. -10-

13 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2016 AND 2015 NOTE 8 - FUNCTIONAL ALLOCATION OF EXPENSES Expenditures incurred in connection with project operations and expenditures made for corporate (mortgagor entity) purposes have been summarized by natural expense classification basis in the statements of activities. For the years ended September 30, 2016 and 2015, the Project expended $508,900 and $461,665, respectively. They have estimated that on a functional classification basis these expenses would be allocated as follows: Program services $ 424,645 $ 384,456 General and administrative 84,255 77,209 Fundraising - - Total $ 508,900 $ 461,665 NOTE 9 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Project s sole asset is a 40-unit apartment complex. 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 administrative burden, to comply with a change. The Project maintains its cash balances at one financial institution. Cash balances at the financial institution are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2016 and 2015, the Project s cash balances did not exceed FDIC limits. The Project has not experienced any loss in such accounts. NOTE 10 - RECLASSIFICATIONS Certain items in the September 30, 2015 report have been reclassified to conform to current year classification. Such reclassifications had no effect on previously reported net income. -11-

14 SUPPLEMENTARY INFORMATION

15 INDEX TO SUPPLEMENTARY INFORMATION REQUIRED BY HUD FOR THE YEAR ENDED SEPTEMBER 30, 2016 Statement of Financial Position Data Statement of Activities Data Statement of Equity Data Statement of Cash Flows Data Computation of Surplus Cash Schedule of Changes in Fixed Asset Accounts Schedule of Reserve for Replacement Schedule of Expenditures of Federal Awards... 24

16 STATEMENT OF FINANCIAL POSITION DATA SEPTEMBER 30, 2016 ASSETS CURRENT ASSETS 1120 Cash - operations $ 16, Tenant accounts receivable Accounts receivable - HUD 6, Prepaid expenses 10, T Total Current Assets 33, TENANT DEPOSITS HELD IN TRUST 13,882 DEPOSITS 1310 Escrow deposits 21, Replacement reserve 59, T Total Deposits 80,686 PROPERTY AND EQUIPMENT 1410 Land 600, Building 4,647, Furniture for project/tenant use 17, Furnishings 11, Office furniture and equipment 1, Maintenance equipment 1, T Total Fixed Assets 5,278, Accumulated depreciation 766, N Net Fixed Assets 4,511, T TOTAL ASSETS $ 4,639,871 See Independent Auditor's Report -14-

17 STATEMENT OF FINANCIAL POSITION DATA (CONTINUED) SEPTEMBER 30, 2016 LIABILITIES AND NET ASSETS CURRENT LIABILITIES 2110 Accounts payable - operations $ 11, Accounts payable - other 9, Accrued wages payable 15, Accrued payroll taxes payable Accrued management fee payable 33, Accrued property taxes 14, Miscellaneous current liabilities Accrued audit expense 4, Accrued health and pension 3, Accrued other accounting fees 1, Prepaid revenue T Total Current Liabilities 94, TENANT DEPOSITS HELD IN TRUST 12,536 LONG TERM LIABILITIES 2310 Notes payable 1,400, T Total Long Term Liabilities 1,400, T Total Liabilities 1,507,026 NET ASSETS 3131 Unrestricted net assets (479,256) 3132 Temporarily restricted net assets 3,612, Permanently restricted net assets Total Net Assets 3,132, T TOTAL LIABILITIES AND NET ASSETS $ 4,639,871 See Independent Auditor's Report -15-

18 STATEMENT OF ACTIVITIES DATA FOR THE YEAR ENDED SEPTEMBER 30, 2016 REVENUES 5120 Rent revenue - gross potential $ 133, Tenant assistance payments 226, T Total Rent Revenue 360, Vacancies - apartments T Total Vacancies N Net Rental Revenue 360, Revenue from investments - replacement reserve Revenue from investments - miscellaneous Escrow deposits T Total Financial Revenue Tenant charges Miscellaneous revenue Warranty claim 22, Contributions T Total Other Revenue 23, T Total Revenue 383,924 EXPENSES 6203 Conventions and meetings Advertising and marketing Office expenses 13, Management fee 17, Manager or superintendent salaries 39, Legal expense Audit expense 4, Bookkeeping fees/accounting services 5, Miscellaneous administrative expenses 2, T Total Administrative Expenses 84, Electricity 25, Water 7, Gas 4, Sewer 5, T Total Utilities Expense 43,039 See Independent Auditor's Report -16-

19 STATEMENT OF ACTIVITIES DATA (CONTINUED) FOR THE YEAR ENDED SEPTEMBER 30, Payroll $ 33, Supplies 7, Contracts 32, Garbage and trash removal 4, Security payroll/contract 5, Heating/cooling repairs and maintenance 1, T Total Operating and Maintenance Expenses 85, Real estate taxes 20, Payroll taxes 8, Property & liability insurance 22, Workmen's compensation 3, Health insurance and other employee benefits 50, Miscellaneous taxes, licenses, permits and insurance T Total Taxes and Insurance 105, Multifamily housing service coordinators 65, T Total Cost of Operations Before Depreciation 383, T Profit before Depreciation Depreciation expenses 125, N Operating (Loss) (124,976) 3247 Change in Unrestricted Net Assets from Operations (124,976) 3248 Change in Temporarily Restricted Net Assets from Operations Change in Permanently Restricted Net Assets from Operations Change in Total Net Assets from Operations $ (124,976) S Total first mortgage principal payments required during the audit period. $ - S The total of all monthly reserve for replacement deposits required during the $ 17,371 audit period even if deposits have been temporarily waived or suspended. S Replacement reserves, or residual receipts and releases which are included $ 27,387 as expense items on this profit and loss statement. S Project improvement reserve releases under the flexible subsidy program $ - that are included as expense items on this profit and loss statement. See Independent Auditor's Report -17-

20 STATEMENT OF EQUITY DATA (CONTINUED) FOR THE YEAR ENDED SEPTEMBER 30, 2016 S Previous Year Unrestricted Net Assets $ (354,280) 3247 Change in Unrestricted Net Assets from Operations (124,976) S Other Changes in Unrestricted Net Assets Unrestricted Net Assets (479,256) S Previous Year Temporarily Restricted Net Assets 3,612, Change in Temporarily Restricted Net Assets from Operations - S Other Changes in Temporarily Restricted Net Assets Temporarily Restricted Net Assets 3,612,101 S Previous Year Permanently Restricted Net Assets Change in Permanently Restricted Net Assets from Operations - S Other Changes in Permanently Restricted Net Assets Permanently Restricted Net Assets - S Previous Year Total Net Assets 3,257, Change in Total Net Assets from Operations (124,976) S Other Changes in Total Net Assets Total Net Assets $ 3,132,845 See Independent Auditor's Report -18-

21 STATEMENT OF CASH FLOWS DATA FOR THE YEAR ENDED SEPTEMBER 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES S Rental receipts $ 376,814 S Interest receipts 211 S Other operating receipts 23,535 S Total receipts 400,560 S Administrative (33,136) S Management fee (32,208) S Utilities (43,039) S Salaries and wages (101,175) S Operating and maintenance (49,454) S Real estate taxes (20,039) S Property insurance (21,415) S Miscellaneous taxes and insurance (116,147) S Tenant security deposits (89) S Total disbursements (416,702) S Net cash (used in) operating activities (16,142) CASH FLOWS FROM INVESTING ACTIVITIES S Net deposits to the mortgage escrow account (4,837) S Net deposits to the reserve for replacement account 38,439 S Net purchase of fixed assets (12,802) S Net cash provided by investing activities 20,800 S NET INCREASE IN CASH AND CASH EQUIVALENTS 4,658 S BEGINNING OF PERIOD CASH 11,689 S1200T END OF PERIOD CASH $ 16,347 See Independent Auditor's Report -19-

22 STATEMENT OF CASH FLOWS DATA (CONTINUED) FOR THE YEAR ENDED SEPTEMBER 30, 2016 RECONCILIATION OF NET (LOSS) TO NET CASH (USED IN) OPERATING ACTIVITIES 3250 Change in total net assets from operations $ (124,976) Adjustments to reconcile change in net (loss) to net cash (used in) operating activities 6600 Depreciation expenses 125,163 Increase or decrease in: S Tenant accounts receivable (172) S Accounts receivable - other 7,392 S Prepaid expenses 1,308 S Cash restricted for tenant security deposits 305 S Accounts payable (13,933) S Accrued liabilities (10,900) S Tenant security deposits held in trust (394) S Prepaid revenue 65 S Net cash (used in) operating activities $ (16,142) See Independent Auditor's Report -20-

23 COMPUTATION OF SURPLUS CASH FOR THE YEAR ENDED SEPTEMBER 30, 2016 Surplus Cash, Distributions, and Residual Receipts (Annual) Cash S Cash $ 30, Accounts receivable - HUD 6,601 S Total Cash 36,830 Current Obligations S Accounts payable - 30 days 11,704 S Accrued expenses 58, Prepaid revenue Tenant deposits held in trust 12,536 S Other current obligations - accounts payable - other 9,351 S Total Current Obligations 92,729 S Cash (Deficiency) $ (55,899) S Deposit Due Residual Receipts $ - See Independent Auditor's Report -21-

24 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS FOR THE YEAR ENDED SEPTEMBER 30, P Beginning Balance Land $ 600, AT Additions DT Deductions Ending Balance Land 600, P Beginning Balance Building 4,642, AT Additions 4, A-030 Circuit board $ 1, A-030 Compressor - office area 2, DT Deductions Ending Balance Building 4,647, P Beginning Balance Furniture for Project/tenant use 17, AT Additions DT Deductions Ending Balance Furniture for Project/tenant use 17, P Beginning Balance Furnishings AT Additions 11, A-010 Hallway carpet (3) 11, DT Deductions Ending Balance Furnishings 11, P Beginning Balance Office Furniture and Equipment 1, AT Additions DT Deductions Ending Balance Office Furniture and Equipment 1, P Beginning Balance Maintenance Equipment 1, AT Additions DT Deductions Ending Balance Maintenance Equipment 1, PT Total Beginning Balance for Fixed Assets 5,262, AT Total Asset Additions 15, DT Total Asset Deductions T Total Fixed Assets 5,278, P Beginning Balance for Accumulated Depreciation 641, Total Provisions 125, ADT Total Accumulated Depreciation from Disposed Assets Ending Balance for Accumulated Depreciation 766, N Total Net Book Value $ 4,511,715 See Independent Auditor's Report -22-

25 SCHEDULE OF RESERVE FOR REPLACEMENT FOR THE YEAR ENDED SEPTEMBER 30, 2016 Reserve for Replacement: 1320P Balance at beginning of year $ 97, ODT 1320INT 1320WT Other deposits HAP loan repayment Interest on replacement reserve accounts Approved withdrawals 17, (56,539) 1320 Balance at end of the year, confirmed by mortgagee $ 59, R Deposits suspended or waived indicator Y See Independent Auditor s Report -23-

26 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Federal Grantor/Pass through Federal CFDA Grantor/Program Title Number Expenditures U.S. Department of Housing and Urban Development Section 202 Supportive Housing for the Elderly Capital Advance $ 3,612,101 Section 202 Supportive Housing for the Elderly Project Rental Assistance Contract (PRAC) ,923 Total $ 3,839,024 NOTE A - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Edward Romero Terrace, HUD Project No. 116-EE041, 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 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 Edward Romero Terrace, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Edward Romero Terrace. NOTE B - 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 the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Edward Romero Terrace has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance. NOTE C U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CAPITAL ADVANCE PROGRAM Edward Romero Terrace has received a U.S. Department of Housing and Urban Development capital advance under Section 202 of the National Housing Act. The capital advance balance outstanding at the beginning of the year is included in the federal expenditures presented in the schedule. Edward Romero Terrace received no additional loans during the year. The balance of the capital advance outstanding at September 30, 2016 is $3,612,101. See Independent Auditor s Report -24-

27 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED SEPTEMBER 30, 2016 No matters are reportable. -25-

28 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of Edward Romero Terrace Albuquerque, NM 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 Edward Romero Terrace, which comprise the statement of financial position as of September 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 December 6, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Edward Romero Terrace 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 Edward Romero Terrace s internal control. Accordingly, we do not express an opinion on the effectiveness of Edward Romero Terrace 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. 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. -26-

29 Compliance and Other Matters As part of obtaining reasonable assurance about whether Edward Romero Terrace 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. Bellows Associates, P.A. Plantation, Florida December 6,

30 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors of Edward Romero Terrace Albuquerque, NM Report on Compliance for Each Major Federal Program We have audited Edward Romero Terrace 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 Edward Romero Terrace s major federal programs for the year ended September 30, Edward Romero Terrace 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 and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Edward Romero Terrace s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Edward Romero Terrace 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 Edward Romero Terrace s compliance. Opinion on Each Major Federal Program In our opinion, Edward Romero Terrace 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 September 30,

31 Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item Our opinion on each major federal program is not modified with respect to this matters. Edward Romero Terrace s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Edward Romero Terrace 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 Edward Romero Terrace 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 Edward Romero Terrace s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing 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 Edward Romero Terrace 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. 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. Bellows Associates, P.A. Plantation, Florida December 6,

32 SUMMARY OF AUDITOR S RESULTS EDWARD ROMERO TERRACE SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, The auditor s report expresses an unmodified opinion on whether the financial statements of the Project were prepared in accordance with GAAP. 2. No material weaknesses in internal control were identified during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements of the Project were disclosed during the audit. 4. No material weaknesses in internal control were identified during the audit of the major federal award programs. 5. The auditor s report on compliance for the major federal award programs for the Project expresses an unmodified opinion. 6. Audit findings that are required to be reported in accordance with 2 CFR section (a) are reported in this Schedule. 7. The Project s program tested as major was: Name of Federal Program or Cluster CFDA Number U.S. Department of Housing & Urban Development Section 202 Supportive Housing for the Elderly 8. The threshold for distinguishing Types A and B programs was $750, The Project was not determined to be a low-risk auditee. FINDINGS FINANCIAL STATEMENT AUDIT No matters are reportable. -30-

33 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR THE YEAR ENDED SEPTEMBER 30, 2016 FINDINGS MAJOR FEDERAL AWARD PROGRAM AUDIT FINDING No : Finding Resolution Status: Information on Universe Population Size: Sample Size Information: Identification of Repeat Finding and Finding Reference Number: Criteria: Statement of Condition: Cause: Effect or Potential Effect: Auditor Non-Compliance Code: Reporting Views of Responsible Officials: Recommendation: Section 202 Supportive Housing for the Elderly, CFDA Resolved. Forty-three tenants. Five tenants were randomly selected for compliance testing. No. HUD requires all applicants to have background checks performed prior to acceptance as new tenants and these documents must be adequately maintained. The Project did not adequately maintain documentation for the criminal background checks for two of the selected tenants. The property manager was not able to access the original criminal background checks that were performed for two of the tenants at the time of move-in. Unable to verify eligibility. Cost of assistance and residency may be disallowed. Z other The Project agrees with the finding and the auditor s recommendations will be adopted. Implement procedures to ensure that applicants have background checks performed prior to acceptance as new tenants and ensure that these documents are adequately maintained. -31-

34 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR THE YEAR ENDED SEPTEMBER 30, 2016 FINDINGS MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED) FINDING No : Response Indicator: Section 202 Supportive Housing for the Elderly, CFDA Agree. Completion Date: 11/28/2016 Response: The necessary background checks were obtained for the selected tenants as of the issuance of the financial statements. Also, training has been put in place to ensure that all tenant background checks and eligibility certifications are obtained prior to move-in. -32-

35 CORRECTIVE ACTION PLAN FOR THE YEAR ENDED SEPTEMBER 30, 2016 Oversight Agency for Audit, Edward Romero Terrace respectfully submits the following corrective action plan for the year ended September 30, Name and address of independent public accounting firm: Bellows Associates, P.A., 7890 Peters Rd., Suite G-102, Plantation, Florida Audit period: October 1, 2015 through September 30, 2016 The finding from the September 30, 2016 schedule of findings and questioned costs is discussed below. FINDINGS MAJOR FEDERAL AWARD PROGRAM AUDIT FINDING NO : Section 202 Supportive Housing for the Elderly, CFDA Recommendation: Action Taken: Implement procedures to ensure that applicants have background checks performed prior to acceptance as new tenants and ensure that these documents are adequately maintained. The necessary background checks were obtained for the selected tenants as of the issuance of the financial statements. Also, training has been put in place to ensure that all tenant background checks and eligibility certifications are obtained prior to move-in. If the audit Oversight Agency has questions regarding these plans, please call Hubert Reuter at Sincerely yours, Hubert Reuter Vice President of Finance & Accounting -33-

36 CERTIFICATION OF OFFICERS FOR THE YEAR ENDED SEPTEMBER 30, 2016 We hereby certify that we have examined the accompanying financial statements and supplemental data of Edward Romero Terrace, and, to the best of our knowledge and belief, the same is complete and accurate. Signature Title Telephone Number Signature Title Telephone Number Federal Employer Identification Number -34-

37 CERTIFICATION OF MANAGEMENT AGENT FOR THE YEAR ENDED SEPTEMBER 30, 2016 We hereby certify that we have examined the accompanying financial statements and supplemental data of Edward Romero Terrace, and, to the best of our knowledge and belief, the same is complete and accurate. Management Agent s Name Signature Agent s Representative Title Federal Employer Identification Number -35-

38 INDEPENDENT ACCOUNTANT S REPORT ON APPLYING AGREED-UPON PROCEDURE To the Board of Directors of Edward Romero Terrace Albuquerque, NM We have performed the procedure described in the second paragraph of this report, which was agreed to by Edward Romero Terrace, and the U.S. Department of Housing and Urban Development, Public Indian Housing-Real Estate Assessment Center (PIH-REAC), solely to assist them in determining whether the electronic submission of certain information agrees with the related hard copy documents included within the OMB Uniform Administrative Requirements reporting package. Edward Romero Terrace is responsible for the accuracy and completeness of the electronic submission. This agreed-upon procedure engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and the standards applicable to attestation engagements contained in Government Auditing Standards issued by the Comptroller General of the United States. The sufficiency of the procedure is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedure described below either for the purpose for which this report has been requested or for any other purpose. We compared the electronic submission of the items listed in the UFRS Rule Information column with the corresponding printed documents listed in the Hard Copy Documents column. The results of the performance of our agreed-upon procedure indicate agreement or non-agreement of the electronically submitted information and hard copy documents as shown in the attached chart. We were engaged to perform an audit in accordance with the audit requirements of OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards for Edward Romero Terrace as of and for the year ended September 30, 2016, and have issued our reports thereon dated December 6, The information in the Hard Copy Documents column was included within the scope, or was a by-product of that audit. Further, our opinion on the fair presentation of the supplementary information dated December 6, 2016, was expressed in relation to the basic financial statements of Edward Romero Terrace taken as a whole. A copy of the reporting package required by OMB Uniform Administrative Requirements, which includes the auditor s reports, is available in its entirety from Edward Romero Terrace. We have not performed any additional auditing procedures since the date of the aforementioned audit reports. Further, we take no responsibility for the security of the information transmitted electronically to the U.S. Department of Housing and Urban Development, PIH-REAC. This report is intended solely for the information and use of Edward Romero Terrace and the U.S. Department of Housing and Urban Development, PIH-REAC, and is not intended to be and should not be used by anyone other than these specified parties. Bellows Associates, P.A. Plantation, Florida December 6,