Financial Statements (and supplemental information) Years Ended December 31, 2016 and 2015

Transcription

1 (Alison House) HUD Project No. 047-HD029 Section 811 Direct Loan/Capital Advance Section 8 Assistance Program Financial Statements (and supplemental information) Years Ended December 31, 2016 and 2015

2 HUD Project No. 047-HD029 Contents Officers Certification 1 Management Agent s Certification 2 Independent Auditors Report 3 Financial Statements: Statements of Financial Position. 5 Statements of Activities 6 Statements of Cash Flows. 8 Notes to Financial Statements Supplementary Information 15 Schedule of Expenditures of Federal Awards. 18 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. 21 Schedule of Findings and Questioned Costs 23 Financial Data Templates 24 Page

3 HUD Project No. 047-HD029 Officers Certification We hereby certify that we have examined the accompanying financial statements and supplementary information of, HUD Project No. 047-HD029, and to the best of our knowledge and belief, the same is complete and accurate. Mary Sue Kamens, President Date Harold Sollenberger, Treasurer Date Employer Identification Number -1-

4 HUD Project No. 047-HD029 Management Agent s Certification I hereby certify that I have examined the accompanying financial statements and supplementary information of, HUD Project No. 047-HD029, and to the best of my knowledge and belief, the same is complete and accurate. James Gilbert, Division Director, Home & Community Affordable Living Date Employer Identification Number -2-

5 Board of Directors (Alison House) Lansing, Michigan Report on the Financial Statements Independent Auditor s Report We have audited the accompanying financial statements of Lutheran Nonprofit Housing Corporation- Lansing (a nonprofit organization), HUD Project No. 047-HD029, which comprise the statement of financial position as of December 31, 2016 and 2015, respectively, 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 opinions 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. -3-

6 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of, as of December 31, 2016 and 2015, respectively, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 16 to 18 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 March 22, 2017, on our consideration of 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 Lutheran Nonprofit Housing Corporation-Lansing s internal control over financial reporting and compliance. Barry E. Gaudette, CPA, PC March 22,

7 FINANCIAL STATEMENTS

8 HUD Project No. 047-HD029 Statements of Financial Position December 31, Assets Current Assets Cash-operations $ 9,558 $ 2,883 Total Current Assets 9,558 2,883 Deposits Held in Trust Tenant deposits held in trust 3,212 2,952 Restricted Deposits and Funded Reserves Replacement reserve savings 35,582 21,585 Total Restricted Deposits and Funded Reserves 35,582 21,585 Fixed Assets Land and improvements 127, ,381 Buildings and improvements 1,392,052 1,392,052 Furniture 25,629 25,629 1,545,062 1,545,062 Less accumulated depreciation (402,584) (361,942) Net Fixed Assets 1,142,478 1,183,120 Total Assets $ 1,190,830 $ 1,210,540

9 December 31, Liabilities and Net Assets Current Liabilities Accounts payable-operations $ 4,191 $ 3,752 Accounts payable-due to Samaritas 2,742 1,538 Accrued vacation payable 1,962 2,184 Total Current Liabilities 8,895 7,474 Deposit Liabilities Tenant deposits held in trust (contra) 2,721 2,460 Long-Term Liabilities Mortgage payable 1,206,400 1,206,400 Advance from related party 104, ,287 Total Long-Term Liabilities 1,310,687 1,310,687 Total Liabilities 1,322,303 1,320,621 Net Assets Unrestricted net deficit (131,473) (110,081) Total Liabilities and Net Assets $ 1,190,830 $ 1,210,540 See accompanying notes to financial statements -5-

10 HUD Project No. 047-HD029 Statements of Activities Year ended December 31, Revenues Potential rent revenue: Rent revenue-gross potential $ 31,864 $ 38,388 Tenant assistance payments 88,592 81,204 Total potential rent revenue 120, ,592 Vacancies-apartments (693) (4,652) Net rental revenue 119, ,940 Financial revenues: Revenue from investments-replacement reserve Total financial revenues Other revenues: Contributions 5,609 1,409 Laundry and vending revenue Forfeited security deposits 0 50 Other revenue Total other revenues 6,071 2,778 Total revenues 126, ,814 Expenses Administrative expenses: Advertising Conferences and meetings Other renting expense Office supplies 1,122 1,289 Management fee 7,952 7,728 Manager salaries 23,175 24,180 Legal expense Audit expense 3,500 3,500 Accounting fee 1,680 1,680 Miscellaneous administrative expenses 11,866 6,789 Total administrative expenses 50,814 46,489 Utilities expenses: Electricity 7,519 7,591 Water 2,596 2,772 Gas 2,236 2,781 Total utilities expenses 12,351 13,144-6-

11 HUD Project No. 047-HD029 Statements of Activities Year ended December 31, Expenses (continued) Maintenance expenses: Pest control Trash removal 1,890 1,712 Alarm service 1,371 1,323 Grounds maintenance 2,390 3,186 Grounds contract 4,553 4,239 Maintenance salaries 8,884 10,732 Maintenance supplies 1,582 2,086 Heating and cooling repairs 454 1,360 Snow removal 11,141 8,895 Painting 855 1,887 Building and equipment repairs 5,033 9,138 Total maintenance expenses 38,681 45,086 Taxes and insurance: Property taxes 5 6 FICA 2,492 2,631 Workmen s compensation Insurance 2,086 2,387 Health insurance and other employee benefits Total taxes and insurance 4,913 5,184 Corporate activity 22 0 Total Cost of Operations Before Depreciation 106, ,903 Change in Net Deficit Before Depreciation 19,250 4,911 Depreciation expenses 40,642 40,642 Change in Net Deficit (21,392) (35,731) Net Deficit, beginning of year (110,081) (74,350) Net Deficit, end of year $ (131,473) $ (110,081) See accompanying notes to financial statements -7-

12 HUD Project No. 047-HD029 Statements of Cash Flows Year ended December 31, Operating Activities Rental receipts $ 119,763 $ 111,940 Interest receipts Other revenue 6,071 2,729 Administrative (19,248) (21,854) Management fees (7,952) (7,728) Utilities (12,351) (13,144) Salaries and wages (31,077) (32,854) Maintenance (29,797) (34,354) Taxes and insurance (4,913) (4,747) Tenant deposits held in trust 1 (80) Corporate activity (22) 0 Net Cash From Operating Activities 20,672 4 Investing Activities Purchase of property and equipment 0 0 Decrease (increase) in: Replacement reserve savings (13,997) 342 Residual receipts reserve savings Net Cash From (For) Investing Activities (13,997) 1,078 Net Increase (Decrease) in Cash 6,675 1,082 Cash, beginning of year 2,883 1,801 Cash, end of year $ 9,558 $ 2,883-8-

13 HUD Project No. 047-HD029 Statements of Cash Flows (Continued) Year ended December 31, Reconciliation of Change in Net Deficit to Net Cash From (For) Operating Activities Change in net deficit $ (21,392) $ (35,731) Adjustments to reconcile change in net deficit to net cash from operating activities: Depreciation 40,642 40,642 Decrease (increase) in: Deposits held in trust (260) 613 Increase (decrease) in: Accounts payable-operations 217 (5,348) Accrued vacation payable 1, Tenant deposits held in trust (contra) 261 (693) Net Cash From Operating Activities $ 20,672 $ 4 See accompanying notes to financial statements -9-

14 NOTE 1: Significant Accounting Policies Organization HUD Project No. 047-HD029 Notes to Financial Statements (the Organization) was incorporated on March 7, 2003 as a Michigan nonprofit corporation for the purpose of constructing, owning, operating and managing housing facilities in Lansing, Michigan, for elderly and handicapped individuals, under Section 811 of the National Housing Act, the Organization s major program. The Organization is a 14-unit apartment complex, which was completed and began operations in January The Organization owns and operates a facility originally financed in part with the proceeds of a mortgage loan issued under Section 811 of the National Housing Act. The Organization continues to receive rent supplements from the government under the Section 8 program. Such projects are regulated by the Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The Organization is managed by Samaritas. The on-site manager is an employee of Samaritas. Basis of Presentation The financial statements of the Organization are prepared on the accrual basis of accounting and include the assets, liabilities, net assets and changes in net assets relating to the business of the Organization. The financial statements are presented in the format required by HUD, which is in accordance with generally accepted accounting principles. 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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Distributions The regulatory agreement with HUD stipulates, among other things, that the Organization will not make distributions of assets or income to any of its officers or directors. -10-

15 Fixed Assets and Depreciation HUD Project No. 047-HD029 Notes to Financial Statements Fixed assets are stated at cost or at estimated fair value for donated property. Depreciation is computed over the estimated useful lives of the assets by the straight-line method. Useful lives range from 10 years for certain furniture and equipment to 40 years for buildings. Fixed asset costs are not capitalized unless they are $5,000 or greater. Any proceeds from the sale of land, building or building improvements must be used to pay on the mortgage. Rental Income and Security Deposits Rental income is recorded as earned and amounts received in advance are classified as deferred rent credit. Security deposits are segregated from rental income. All leases between the tenants and the Organization are operating leases. Income Taxes The Organization has received a determination that it is exempt from federal income taxes, except for tax on unrelated business income, under the provisions of Section 501(c)(3) of the Internal Revenue Code. The Organization is also exempt from Michigan taxes. The Organization had no unrelated business income for the years ended December 30, 2016 and 2015, respectively. In 2009, the Organization implemented the Financial Accounting Standards Board (FASB) provisions regarding accounting for uncertainty in income taxes, which had no material effect on the financial statements. Management records contingent liabilities in accordance with U.S. generally accepted accounting principles and believes the Organization has no material uncertain tax positions. Long-Lived Assets The Organization reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on expected future cash flows, then the loss will be recognized in the income statement and certain disclosures regarding the impairment will be made in the financial statements. Subsequent Events Management has evaluated subsequent events through March 22, 2017, the date the financial statements were issued. -11-

16 NOTE 2: Tenant Deposits HUD Project No. 047-HD029 Notes to Financial Statements Tenant deposits are held in a separate bank savings account in the name of the Organization. The covenants of the HUD loan agreement and HUD regulations require the Organization to maintain a security deposit trust account which must equal or exceed the aggregate of all outstanding obligations to the tenants for refundable security deposits. NOTE 3: Restricted Deposits and Funded Reserves Restricted deposits and funded reserves consist of: Replacement reserve - the regulatory agreement between HUD and the Organization requires a monthly deposit to a reserve fund for replacing assets of the Organization. Residual receipts reserve this account consists of accumulated surplus cash from operations. These funds are available for future project operations, with HUD approval, in the event of a deficiency in cash flow. NOTE 4: Mortgage Payable The mortgage note payable, which bears no interest, was provided by HUD as a capital advance to provide financing for the construction of the Organization s apartment complex. Under the terms of the agreement, provided that the Organization continues to operate the facility for the purpose of providing housing to very low income persons with disabilities in accordance with Section 811 of the National Affordable Housing Act, the note will be forgiven on its maturity date in November Failure to do so can result in HUD declaring default and billing the Organization for the entire non-amortizing mortgage outstanding plus interest. The mortgage note payable is collateralized by the land and building. The amount of the capital advance is $1,206,400. NOTE 5: Management Fees All staffing for the Organization is provided by Samaritas. The Organization reimburses Samaritas for all related staffing expenses. An employee of Samaritas serves as the on-site manager of the Organization. Samaritas provides certain management services to the Organization in accordance with a management services agreement. Under the terms of the agreement, the Organization is to pay Samaritas a management fee equal to 6.93% of rental income, which is limited to $44 per occupied unit per month. The management fees for 2016 and 2015 were $7,952 and $7,728, respectively. -12-

17 HUD Project No. 047-HD029 Notes to Financial Statements NOTE 6: Retirement Plan Samaritas offers employees the opportunity to participate in the ELCA Master Institutional Retirement Plan (Plan) administered by Portico and their relationship with Fidelity. Employees are eligible to defer a portion of their earnings on a pre-tax basis into the Plan to save for retirement. This Plan provides the employee the opportunity for future retirement savings through contributions into a number of investment options. Samaritas provides a matching contribution for full-time and part-time employees. All Samaritas employees will be eligible to participate in the Plan upon hire. If an employee is classified as a full-time or part-time employee, each employee will be eligible to participate in the Plan and each employee will be eligible for matching contributions. Employees are eligible to begin making salary deferrals into the Plan upon hire. Samaritas matching contributions will not be made until each employee completes twelve months of continuous service with Samaritas. Samaritas will match 133% for each dollar the employee contributes, up to 1.5% of earnings per pay. This means that for each dollar the employee contributes, Samaritas will contribute $1.33. The Samaritas contribution will be capped at 2% of earnings per pay. NOTE 7: Unrestricted Net Assets None of the Organization s net assets are subject to donor-imposed restrictions. Accordingly, all net assets are accounted for as unrestricted net assets. -13-

18 HUD Project No. 047-HD029 Notes to Financial Statements NOTE 8: Functional Expenses For the years ended December 31, 2016 and 2015, respectively, expenses are functionally allocated as follows: December 31, Program services $ 96,609 $ 104,056 General and administrative 50,814 46,489 Total Functional Expenses $ 147,423 $ 150,545 Costs have been allocated between program services and general and administrative services on several bases and estimates. Although the methods of allocation are considered appropriate, other methods could be used that would produce different amounts. NOTE 9: Rent Increases to Tenants Under the regulatory agreement, the Organization may not increase rents charged to tenants without HUD approval. NOTE 10: Current Vulnerability The Organization s sole asset is a 14-unit apartment project. The Organization s operations are concentrated in the multi-family 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 additional administrative burden, to comply with a change. NOTE 11: Concentrations of Credit Risk The Organization maintains its cash accounts in a national bank and does not consider there to be a significant credit risk arising from deposits in excess of federally insured limits. -14-

19 SUPPLEMENTARY INFORMATION

20 HUD Project No. 047-HD029 Supplementary Information Replacement Reserve In accordance with the provisions of the regulatory agreement, restricted cash is held by a federally insured bank to be used for the replacement of property with the approval of HUD as follows: Balance, January 1, 2016 $ 21,585 Monthly deposits ($1, x 12) 13,800 Interest earned 197 Balance, December 31, 2016 $ 35,

21 HUD Project 047-HD029 Supplementary Information Statement of Changes in Fixed Assets Balance Balance 12/31/15 Additions Deductions 12/31/16 Land and improvements $ 127,381 $ 0 $ 0 $ 127,381 Buildings 1,392, ,392,052 Furniture 25, ,629 Total 1,545,062 $ 0 $ 0 1,545,062 Accumulated depreciation (361,942) $ (40,642) $ 0 (402,584) Net Book Value $ 1,183,120 $ 1,142,

22 HUD Project No. 047-HD029 Supplementary Information Computation of Surplus Cash, Distributions And Residual Receipts Year ended December 31, 2016 Cash $ 12,770 Total Cash 12,770 Current Obligations Accounts payable due within 30 days 6,933 Accrued wages and vacation payable 1,962 Tenant security deposits 2,721 Total Current Obligations 11,616 Surplus Cash (Deficiency) $ 1,154 Deposit Due Residual Receipts $ 1,

23 HUD Project No. 047-HD029 Schedule of Expenditures of Federal Awards Federal Federal Grantor Type CFDA # Expenditures U.S. Department of HUD Section 811 Direct Loan/Capital Advance A Major $ 1,206,400 (balance at year-end) Section 8 Housing Assistance Payments B Nonmajor ,592 Total Federal Financial Awards $ 1,294,992 Threshold for Type A/Type B Program $ 750,000 NOTES TO THE SCHEDULE OF FEDERAL AWARDS Basis of Accounting - The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal grant activity of the Organization under programs of the federal government for the year ended December 31, Expenditures reported on the Schedule are reported on the same basis of accounting as the financial statements, although the basis for determining when federal awards are expended 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). In addition, expenditures reported on the Schedule are recognized following the cost principles contained in OMB Omnicircular, 2 CFR , wherein certain types of expenditures are not allowable or are limited as to reimbursement. Therefore, some amounts presented in this Schedule may differ from amounts presented in, or used in the preparation of the financial statements. Because the Schedule presents only a selected portion of the operations of the Organization, it is not intended to and does not present the financial position, changes in net assets, or cash flows, if applicable, of the Organization. -18-

24 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

25 Independent Auditors Report Board of Directors (Alison House) Lansing, Michigan 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 Lutheran Nonprofit Housing Corporation-Lansing, which comprise the statement of financial position as of December 31, 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 March 22, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Lutheran Nonprofit Housing Corporation-Lansing 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 Lutheran Nonprofit Housing Corporation-Lansing s internal control. Accordingly, we do not express an opinion on the effectiveness of 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. -19-

26 Compliance and Other Matters As part of obtaining reasonable assurance about whether Lutheran Nonprofit Housing Corporation- Lansing 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. Barry E. Gaudette, CPA, PC March 22,

27 Independent Auditor s Report on Compliance for Each Major HUD Program and on Internal Control over Compliance Required by the Uniform Guidance

28 Independent Auditors Report Board of Directors (Alison House) Lansing, Michigan Report on Compliance for Each Major Federal Program We have audited compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of s major federal programs for the year ended December 31, s major HUD 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 Lutheran Nonprofit Housing Corporation-Lansing 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 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 Lutheran Nonprofit Housing Corporation-Lansing s compliance. -21-

29 Opinion on Each Major Federal Program In our opinion, complied, in all material respects, with the types compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Report on Internal Control Over Compliance Management of 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 Lutheran Nonprofit Housing Corporation-Lansing 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 Lutheran Nonprofit Housing Corporation-Lansing 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 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. Barry E. Gaudette, CPA, PC March 22,

30 SCHEDULE OF FINDINGS AND QUESTIONED COSTS

31 Section I - Summary of Auditors Results HUD Project No. 047-HD029 Schedule of Findings and Questioned Costs Year Ended December 31, 2016 Financial Statements Type of auditors report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)? Noncompliance material to financial statements noted? No none reported No Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)? Type of auditors report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance the OMB Uniform Administrative Requirements Cost Principles and Audit Requirements for Federal Awards? No none reported Unmodified No Identification of major programs; CFDA Number Name of Federal Program or Cluster Section 811 Direct Loan/Capital Advance Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? Yes Section II - Findings Related to the Financial Statements There were no findings which are required to be reported under Government Auditing Standards. Section III - Findings and Questioned Costs for Federal Awards There were no findings or questioned costs. -23-

32 FINANCIAL DATA TEMPLATES

33 Independent Accountant s Report on Applying Agreed-Upon Procedure We have performed the procedure described in the second paragraph of this report, which was agreed to by 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. Lutheran Nonprofit Housing Corporation-Lansing 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 requirements of OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, for Lutheran Nonprofit Housing Corporation-Lansing as of and for the year ended December 31, 2016, and have issued our report thereon dated March 22, 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 March 22, 2017, was expressed in relation to the financial statements of 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 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 Lutheran Nonprofit Housing Corporation- Lansing 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. Barry E. Gaudette, CPA, PC March 22,

34 Attachment to Independent Accountant s Report on Applying Agreed-Upon Procedure UFRS Rule Information Hard Copy Documents Findings Balance Sheet, Revenue and Financial Data Templates (i.e. Supplemental Agrees and Expense and Cash Flow Data Schedules) Footnotes Footnotes to Audited Financial Statements Agrees Type of Opinion on the Financial Auditor s Reports on the Financial Statements, Agrees Statements and Auditor Reports Compliance, and Internal Control Type of Opinion on Financial Data Auditor s Supplemental Report on Financial Agrees Templates (i.e. Supplementary Data Templates Data) Audit Findings Narrative Schedule of Findings and Questioned Costs Agrees General Information Schedule of Findings and Questioned Costs Agrees And Federal Awards Data -25-

35 March 22, 2017 To the Board of Directors We have audited the financial statements of for the year ended December 31, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Government Auditing Standards, and OMB s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated January 11, Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during We noted no transactions entered into by the Entity during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate(s) affecting the financial statements was (were): Management s estimate of the depreciation expense is based on the useful life of each fixed asset. We evaluated the key factors and assumptions used to develop the depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole.

36 Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated March 22, Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a second opinion on certain situations. If a consultation involves application of an accounting principle to the Entity s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Entity s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with U.S. generally accepted accounting principles, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. This information is intended solely for the use of Board of Directors and management of Lutheran Nonprofit Housing Corporation-Lansing and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, Barry E. Gaudette, CPA, PC Barry E. Gaudette, CPA, PC