SOUTH BROWARD JEWISH FEDERATION HOUSING II, INC. D/B/A FEDERATION GARDENS

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1 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH FINANCIAL STATEMENTS JULY 31, 2016

2 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH Lead Auditor: Rick Covert, CPA Address: 301 E Las Olas Blvd., 4 th Floor Fort Lauderdale, Florida Telephone No.: Federal Identification No.: The audit fieldwork was performed between October 17, 2016 and October 28, 2016 at the site's location in Broward County, Florida.

3 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1-2 FINANCIAL STATEMENTS Statement of Financial Position 3-4 Statement of Activities 5-6 Statement of Cash Flows 7 Notes to Financial Statements 8-11 SUPPLEMENTARY SCHEDULES AND RELATED INDEPENDENT AUDITOR S REPORTS 12 Schedule of Expenditures of Federal Awards and Notes to the Schedule of Expenditures of Federal Awards 13 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 14 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 17 Corrective Action Plan 18 SUPPLEMENTARY INFORMATION REQUIRED BY HUD CERTIFICATIONS 21 Certificate of Officers 22 Management Agent s Certification 23

4 INDEPENDENT AUDITOR S REPORT To the Board of Directors South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens Report on the Financial Statements We have audited the accompanying financial statements of South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens (PROJECT NO. FL-29-T ; 066-EH232-L8-WAH) (the Project ), which comprise the statement of financial position as of July 31, 2016, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 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 the Project, as of July 31, 2016, and the results of its changes in net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 13 to 20 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs 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 (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. An Independent Member of Baker Tilly International MIAMI 1450 Brickell Avenue, 18th Floor, Miami FL T F FORT LAUDERDALE 301 East Las Olas Boulevard, 4 th Floor, Fort Lauderdale, FL T F

5 To the Board of Directors South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens Page 2 Other Matters (Continued) 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 October 28, 2016, on our consideration of the Project 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 the Project s internal control over financial reporting and compliance. Fort Lauderdale, Florida October 28, 2016

6 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH STATEMENT OF FINANCIAL POSITION JULY 31, 2016 ASSETS CURRENT ASSETS 1120 Cash in bank $ 29, Accounts receivable HUD 30, Prepaid property and liability insurance 19, T TOTAL CURRENT ASSETS 79,525 DEPOSITS HELD IN TRUST FUNDED 1191 Tenants security deposits 22,256 RESTRICTED DEPOSITS AND FUNDED RESERVES 1320 Reserve for replacements 259,212 FIXED ASSETS 1410 Land 490, Buildings 3,263, Building equipment portable 536, Furniture 25, Furnishings 404, T TOTAL FIXED ASSETS 4,721, Accumulated depreciation 2,907, N NET FIXED ASSETS 1,813,753 OTHER ASSETS 1190 Utility deposits 7, T TOTAL ASSETS $ 2,182,346 The accompanying notes are an integral part of these financial statements. -3-

7 PROJECT NO. FL-29-T ;066-EH232-L8-WAH STATEMENT OF FINANCIAL POSITION (CONTINUED) JULY 31, 2016 LIABILITIES AND UNRESTRICTED NET DEFICIT CURRENT LIABILITIES 2110 Accounts payable due within 30 days $ 35, Accrued management fee payable 5, Accrued mortgage interest payable 20, Mortgage payable current portion 102, T TOTAL CURRENT LIABILITIES 163, TENANTS' SECURITY DEPOSITS HELD IN TRUST 21,918 LONG-TERM LIABILITIES 2320 Mortgage payable net of current portion 2,772, T TOTAL LIABILITIES 2,958, UNRESTRICTED NET DEFICIT (775,751) 2033T TOTAL LIABILITIES AND UNRESTRICTED NET DEFICIT $ 2,182,346 The accompanying notes are an integral part of these financial statements. -4-

8 PROJECT NO. FL-29-T ;066-EH232-L8-WAH STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JULY 31, 2016 UNRESTRICTED REVENUES 5120 Rent income Apartments $ 192, Rent income HUD 798, T Total rent revenues 990, Vacancies apartments (2,029) 5152N Net rent revenues 988, Revenue from investments replacement reserve T Total financial revenues Laundry and vending revenue 3, Miscellaneous revenue 500 EXPENSES 5900T Total other revenues 3, T TOTAL UNRESTRICTED REVENUES 992, Office salaries 7, Office expenses 21, Management fee 49, Manager or superintendent salaries 61, Audit expense 11, Bookkeeping fees/accounting services 1, Resident services coordinator and activities 18, T Total administrative expenses 172, Electricity 20, Water 60, Gas 12, T Total utilities expense 93, Payroll 70, Supplies 23, Contracts 41, Garbage and trash removal 5, Security payroll/contract 42, T Total operating and maintenance expenses 183, Payroll taxes 14, Property and liability insurance 68, Fidelity bond insurance Workmen s compensation 6, Health insurance and other employee benefits 23, T Total taxes and insurance 112,593 The accompanying notes are an integral part of these financial statements. -5-

9 PROJECT NO. FL-29-T ;066-EH232-L8-WAH STATEMENT OF ACTIVITIES (CONTINUED) FOR THE YEAR ENDED JULY 31, 2016 EXPENSES (CONTINUED) 6820 Interest on mortgage payable $ 244, T Total cost of operations before depreciation 806, T Change in unrestricted net deficit before depreciation 185, Depreciation expense 111, Change in unrestricted net deficit 73,705 UNRESTRICTED NET DEFICIT AT BEGINNING OF YEAR (849,456) UNRESTRICTED NET DEFICIT AT END OF YEAR $ (775,751) Other information required by HUD: S Total mortgage principal payments required during the year $ 94,016 S Total of 12 monthly deposits during the year into the replacement reserve account, as required by the regulatory agreement $ 36,840 S Replacement reserve or residual receipts releases which are included 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 $ - The accompanying notes are an integral part of these financial statements. -6-

10 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JULY 31, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Rental receipts $ 958,067 Interest receipts 122 Other receipts 3,553 Administrative (33,142) Management fee (48,104) Utilities (94,880) Salaries and wages (198,342) Operating and maintenance (71,914) Property insurance, taxes and other (111,140) Interest on mortgage payable (245,107) NET CASH PROVIDED BY OPERATING ACTIVITIES 159,113 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (35,468) Net transfer to restricted deposits and funded reserves and interest retained in accounts (21,461) NET CASH USED IN INVESTING ACTIVITIES (56,929) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on HUD mortgage note (94,016) NET CASH USED IN FINANCING ACTIVITIES (94,016) NET INCREASE IN CASH IN BANK 8,168 CASH IN BANK, BEGINNING OF YEAR 21,758 CASH IN BANK, END OF YEAR $ 29,926 RECONCILIATION OF CHANGE IN UNRESTRICTED NET DEFICIT TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Change in unrestricted net deficit $ 73,705 Adjustments to reconcile change in unrestricted net deficit to net cash provided by operating activities: Depreciation 111,768 Change in assets and liabilities: Accounts receivable HUD (30,396) Prepaid property and liability insurance 1,453 Tenants security deposits (640) Accounts payable due within 30 days 1,818 Accrued management fee payable 1,421 Accrued mortgage interest payable (656) Tenants security deposits held in trust 640 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 159,113 The accompanying notes are an integral part of these financial statements. -7-

11 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH NOTES TO FINANCIAL STATEMENTS JULY 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens (the Project ), a not-for-profit organization, was incorporated in 1987, as a Florida corporation, without capital stock. The Project owns and operates a residential apartment complex for the elderly under Section 8 of the National Housing Act and Section 202 of the Housing Act of The Project, consisting of 79 units, is located in Broward County, Florida, and is regulated by the United States Department of Housing and Urban Development ( HUD ) as to rental charges and operating methods. The Section 8 Housing Assistance Payments Program was formed under Section 8 of the United States Housing Act of The Act provides that assistance be made available to the handicapped and/or low-income families and the elderly. Under the program, assisted tenants pay the landlord a set portion of the rent and HUD contracts to pay the difference. Revenue Recognition Rental income, including supplements from HUD, is primarily from short-term leases on apartment units and is recognized as the rentals become due. Fixed Assets Fixed assets are recorded at cost, or if donated to the Project, at fair value at the date of the donation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets (40 years for buildings, 10 years for fixed equipment, furniture, and furnishings and 5 years for portable equipment). If donors stipulate how long the assets must be used, the contributions are recorded as temporarily restricted support. In the absence of such stipulations, contributions of building and equipment are recorded as unrestricted support. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Taxes The Project is exempt from federal and state income taxes, under section 501(c)(3) of the Internal Revenue Code, as well as state sales tax and local property taxes. Accordingly, no provision has been made for these taxes in the accompanying financial statements. The Project recognizes and measures tax positions taken or expected to be taken in its tax return based on their technical merit and assesses the likelihood that the positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. Interest and penalties on tax liabilities, if any, would be recorded in interest expense and other non-interest expense, respectively. The U.S. Federal jurisdiction is the major tax jurisdiction where the Project files income tax returns. The Project is generally no longer subject to U.S. Federal examinations by tax authorities for years before Cash in Bank The Project considers all liquid assets with original maturities of three months or less from the date of purchase to be cash in bank. -8-

12 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH NOTES TO FINANCIAL STATEMENTS JULY 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Management Estimates The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates. Unrestricted Net Assets The Project s net assets are not subject to donor-imposed restrictions. Accordingly, all net assets are accounted for as unrestricted net assets in accordance with an accounting standard for Not-for-Profit Organizations. Concentration of Credit Risk Financial instruments that potentially subject the Project to concentrations of credit risk consist primarily of temporary cash deposits. At times, such balances may be in excess of the insurance limits of the Federal Deposit Insurance Corporation. The Project has not experienced losses in such accounts. Recent Accounting Pronouncements Lease accounting In February 2016, the Financial Accounting Standards Board ( FASB ) issued an accounting standard update which amends existing lease guidance. The update requires lessees to recognize a right-of-use asset and related lease liability for many operating leases now currently off-balance sheet under current U.S. GAAP. Accounting by lessors remains largely unchanged from current U.S. GAAP. The update is effective using a modified retrospective approach for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020, with early application permitted. The Project is currently evaluating the effect the update will have on its financial statements. Presentation of Financial Statements of Not-for-Profit Entities In August 2016, the FASB issued an accounting standard update which aims to improve information provided to creditors, donors, grantors, and others while also reducing complexity and costs. The update is the first phase of a project regarding not-for-profits which aims to improve and simplify net asset classification requirements and improve the information presented and disclosed in financial statements about liquidity, cash flows, and financial performance. The update is effective retrospectively for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018, with earlier application permitted. The Project is currently evaluating the effect the update will have on its financial statements. Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued an accounting standard update to reduce diversity in practice on eight specific statement of cash flows issues. The update is effective retrospectively for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted. The Project is currently evaluating the effect the update will have on its financial statements. Subsequent Events The Project has evaluated subsequent events through October 28, 2016, which is the date the financial statements were available to be issued. -9-

13 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH NOTES TO FINANCIAL STATEMENTS JULY 31, TENANTS' SECURITY DEPOSITS The Project is required to maintain the security deposits collected from the tenants in a separate bank account in the name of the Project. The balance in this account must equal or exceed the outstanding obligation. The bank account maintained by the Project for this purpose met the required balance at July 31, RESERVE FOR REPLACEMENTS The Project is required to maintain a reserve fund for replacements by a monthly allocation to such fund, in a separate account with the mortgagee. The required reserve deposit was $3,070 per month. Disbursements from such fund, whether for the purpose of replacing structural elements and mechanical equipment of the Project, or for any other purpose, may be made only after receiving written consent from the Federal Housing Commissioner. As of July 31, 2016, all required deposits had been made. Authorized withdrawals made from the reserve fund amounted to $15,501 for the year ended July 31, RESERVE FOR RESIDUAL RECEIPTS The Project is required to establish and maintain a residual receipts fund for surplus cash by depositing, with the mortgagee within ninety days following the end of the fiscal year, such monies as may remain after provision for: (a) the payment of all amounts due or currently required to be paid under the terms of the mortgage; (b) all amounts due to the reserve for replacements fund; (c) funds for the payment of all obligations of the Project, and; (d) segregation of an amount equal to the aggregate of all special funds required to be maintained by the Project and all tenant security deposits held. As of July 31, 2016, there was no surplus cash; therefore, there was no required residual receipts reserve for the year ended July 31, NET FIXED ASSETS Net fixed assets consisted of the following at July 31, 2016: Land $ 490,385 Buildings 3,263,645 Building equipment portable 536,582 Furniture 25,810 Furnishings 404,698 4,721,120 Accumulated depreciation (2,907,367) Net fixed assets $ 1,813, ACCOUNTS PAYABLE DUE WITHIN 30 DAYS Accounts payable due within 30 days consisted of the following at July 31, 2016: Audit fees $ 11,000 Bookkeeping fees 1,650 Office expenses 1,403 Utilities 7,080 Repairs, contract and supplies 5,424 Building equipment 9,101 Accounts payable due within 30 days $ 35,

14 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH NOTES TO FINANCIAL STATEMENTS JULY 31, MORTGAGE PAYABLE In 1991, the Project obtained an 8.375% mortgage loan from the Federal Housing Administration in the original amount of $3,905,500. Principal and interest are payable in monthly installments of $28,260 over 40 years. Collateral consists of all property plus the assignment of the gross revenues derived from the operation of the Project. The principal payments for each of the next five years and thereafter are as follows: Years ending July 31, 2017 $ 102, , , , ,702 Thereafter 2,267,037 2,875,073 Less current portion (102,199) Mortgage payable $ 2,772,874 Under the provisions of the regulatory agreement, the Project is required to maintain certain cash accounts restricted for specific purposes (see NOTES 2, 3 and 4). 8. FUNCTIONAL EXPENSES Expenses, other than depreciation, incurred by the Project, by function, for the year ended July 31, 2016, are as follows: 9. COMMITMENTS Project $ 634,467 Administrative 172,198 Total functional expenses $ 806,665 The Project renewed its management agreement on March 1, 2013 with Sharkey and Associates, Inc., the management agent, for a three year term. The agreement provides for compensation to the manager of a fee computed and payable monthly in an amount based upon 5% of gross collections. Management fees incurred for the year ended July 31, 2016 were $49,525. The Project has since renewed the agreement with the managing agent which extends for an additional three years, commencing March 1, 2016, with no changes in the agreement or compensation from prior agreement. 10. EMPLOYEE BENEFIT CONTRIBUTIONS The Project participates in a health and welfare plan sponsored and administered by The United Jewish Community of Broward County, Inc. Essentially, all full-time employees meeting the eligibility requirements of the plan are eligible to participate. Contributions made by the Project on behalf of eligible employees to the health and welfare plan were $23,222 for the year ended July 31,

15 SUPPLEMENTARY SCHEDULES AND RELATED INDEPENDENT AUDITOR'S REPORTS -12-

16 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JULY 31, 2016 Federal Total Federal Grantor/ CFDA Contract Award Passed through Federal Program Title Number Number to Subrecepients Expenditures U.S. Department of Housing and Urban Development: Lower Income Housing FL-29-T ; Assistance Program EH232-L8-WAH $ - $ 798,432 Section 8 Moderate Rehabilitation Supportive Housing for the FL ; Elderly (Section 202) 066-EH-008-L8-WAH - 2,969,089 Direct Loan Total Expenditures of Federal Awards $ - $ 3,767,521 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS: NOTE 1 BASIS OF PRESENTATION The above schedule of expenditures of federal awards includes the federal grant activity of South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens (the Project ) and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the basic financial statements. The Project elected to use the 10-percent de minimis indirect cost rate. NOTE 2 MORTGAGE LOAN OUTSTANDING The expenditures for the Section 202 Direct Loan represent the outstanding balance of the loan as of August 1, The outstanding balance on the loan was $2,875,073 as of July 31,

17 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 South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens 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 South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens (Project No. FL-29-T ; 066-EH232-L8-WAH) (the Project ), which comprise the statement of financial position as of July 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 October 28, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Project 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 the Project s internal control. Accordingly, we do not express an opinion on the effectiveness of the Project 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Project 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 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. Fort Lauderdale, Florida October 28, An Independent Member of Baker Tilly International MIAMI 1450 Brickell Avenue, 18th Floor, Miami FL T F FORT LAUDERDALE 301 East Las Olas Boulevard, 4 th Floor, Fort Lauderdale, FL T F

18 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 South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens Report on Compliance for Each Major Federal Program We have audited South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens (Project No. FL-29- T ; 066-EH232-L8-WAH) (the Project ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Project s major federal programs for the year ended July 31, The Project s major federal programs are identified in the summary of auditor s results section of the accompanying Schedule of Findings and Questioned Costs. Management s Responsibility Management is responsible for compliance with the federal statutes, regulations, and 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 the Project 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 the Project 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 the Project s compliance. Opinion on Each Major Federal Program In our opinion, the Project 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 July 31, Report on Internal Control Over Compliance Management of the Project 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 the Project 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 the Project s internal control over compliance An Independent Member of Baker Tilly International MIAMI 1450 Brickell Avenue, 18th Floor, Miami FL T F FORT LAUDERDALE 301 East Las Olas Boulevard, 4 th Floor, Fort Lauderdale, FL T F

19 To the Board of Directors South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens Page 2 Report on Internal Control Over Compliance (Continued) 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. Fort Lauderdale, Florida October 28,

20 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JULY 31, 2016 SECTION I - SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiencies identified? Yes X None Reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiencies identified? Yes X None Reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? Yes X No Identification of major federal programs: CFDA Number Name of Federal Program or Cluster Lower Income Housing Assistance Program - Section 8 Moderate Rehabilitation Supportive Housing for the Elderly (Section 202) - Direct Loan Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? X Yes No SECTION II - FINANCIAL STATEMENT FINDINGS CURRENT YEAR FINDINGS None PRIOR YEAR FINDINGS None SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CURRENT YEAR FINDINGS None PRIOR YEAR FINDINGS None PRIOR YEAR FINDINGS None -17-

21 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH CORRECTIVE ACTION PLAN FOR THE YEAR ENDED JULY 31, 2016 U.S. Department of Housing and Urban Development Our audit disclosed no findings that are required to be reported herein under the HUD Consolidated Audit Guide. South Broward Jewish Federation Housing II, Inc. d/b/a Federation Gardens respectfully submits the following corrective action plan for the year ended July 31, Morrison, Brown, Argiz & Farra, LLC 301 E Las Olas Blvd., 4th Floor Fort Lauderdale, Florida Findings Financial Statement Audit Recommendation: None Action taken: None Findings Federal Award Programs Audits Recommendation: None Action taken: None -18-

22 SUPPLEMENTARY INFORMATION REQUIRED BY HUD -19-

23 PROJECT NO. FL-29-T ; 066-EH232-L8-WAH SUPPLEMENTARY INFORMATION REQUIRED BY HUD FOR THE YEAR ENDED JULY 31, 2016 SCHEDULE OF RESERVE FOR REPLACEMENTS BALANCE, JULY 31, 2015 $ 237,751 Total monthly deposits ($3,070 x 12) 36,840 Interest earned 122 Withdrawals approved by HUD (15,501) BALANCE - JULY 31, 2016 $ 259,212 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS, AND RESIDUAL RECEIPTS ANNUAL Cash - Operating $ 29,926 Cash - Tenants' deposits held in trust 22,256 Accounts receivable - HUD 30,396 TOTAL CASH 82,578 Current obligations: Accounts payable due within 30 days 35,658 Accrued management fee payable 5,382 Accrued mortgage interest payable 20,066 Tenants security deposits held in trust 21,918 TOTAL CURRENT OBLIGATIONS 83,024 CASH DEFICIENCY $ (446) SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS July 31, 2015 Ending Balance Additions Deductions July 31, 2016 Ending Balance Land $ 490,385 $ - $ - $ 490,385 Buildings 3,263, ,263,645 Building equipment - portable 497,233 39, ,582 Furniture 25, ,810 Furnishings 399,478 5, ,698 Total fixed assets $ 4,676,551 $ 44,569 $ - $ 4,721,120 Accumulated depreciation $ 2,795,599 $ 111,768 $ - $ 2,907,

24 CERTIFICATIONS -21-

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