PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove (a not-for-profit corporation) HUD Project No.

Transcription

1 (a not-for-profit corporation) Financial Report with Supplemental Information June 30, 2012

2 Certificate of Officers We certify that we have examined the attached financial statements and supplemental information of, PVM Kalamazoo Senior Non-Profit Housing, and to the best of our knowledge and belief, the same is a true statement of the financial condition as of June 30, Margaret E. Sattler Chair September 11, 2012 Date Robert Louis Nichols Treasurer September 11, 2012 Date ID# Employer Identification Number

3 Management Agent's Certification We certify that we have examined the attached financial statements and supplemental information of, PVM Kalamazoo Senior Non-Profit Housing, and to the best of our knowledge and belief, the same is a true statement of the financial condition as of June 30, Cheryl Carney, Agent Representative September 11, 2012 Date (248) Telephone Number ID# Management Company Employer Identification Number Paula Hager Property Manager

4 Contents Report Letter 1 Financial Statements Balance Sheet 2-3 Statement of Activities 4-5 Statement of Changes in Deficiency in Net Assets 6 Statement of Cash Flows 7-8 Notes to Financial Statements 9-13 Supplemental Information 14 Report Letter 15 Balance Sheet Data Statement of Activities Data Statement of Changes in Deficiency in Net Assets Data 21 Statement of Cash Flows Data Supplemental Information Schedule of Changes in Fixed Asset Accounts 26 Schedule of Expenditures of Federal Awards 27 Computation of Surplus Cash 28 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 Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 35-37

5 Independent Auditor's Report To the Board of Trustees PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove We have audited the accompanying balance sheet of, PVM Kalamazoo Senior Non-Profit Housing (the "Organization"), as of June 30, 2012 and the related statements of activities, changes in deficiency in net assets, and cash flows for the period from August 30, 2011 (date after cost certification cut-off) through June 30, These financial statements are the responsibility of the Organization's management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of, PVM Kalamazoo Senior Non-Profit Housing, as of June 30, 2012 and the changes in deficiency in net assets and cash flows for the period from August 30, 2011 (date after cost certification cut-off) through June 30, 2012, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated September 11, 2012 on our consideration of PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. September 11, 2012 By: Robert F. Long, CPA Engagement Partner Northwestern Highway Southfield, MI Federal ID Number: Phone Number: (248)

6 Balance Sheet June 30, 2012 Assets Current Assets Cash - Operations $ 377 Accounts and notes receivable - Operations 123 Prepaid expenses 3,754 Total current assets 4,254 Deposits - Held in Trust Tenant deposits held in trust 12,162 Deposits - Funded Escrow deposits 10,053 Replacement reserve 9,501 Total deposits - Funded 19,554 Fixed Assets Land and land improvements 294,000 Buildings and building improvements 3,226,001 Furniture for project/tenant use 63,936 Miscellaneous fixed assets 9,198 Total fixed assets 3,593,135 Accumulated depreciation (45,392) Net fixed assets 3,547,743 Total assets $ 3,583,713 See Notes to Financial Statements. 2

7 Balance Sheet (Continued) June 30, 2012 Liabilities and Deficiency in Net Assets Current Liabilities Accounts payable - Operations (Note 4) $ 94,616 Accounts payable - Entity (Note 4) 10,000 Accrued wages payable 2,177 Prepaid revenue 89 Total current liabilities 106,882 Tenant deposits held in trust (contra) 11,428 Long-term Liabilities Capital advance (Note 3) 3,475,600 HOME loan (Note 2) 140,000 Total long-term liabilities 3,615,600 Total liabilities 3,733,910 Deficiency in Net Assets Deficiency in net assets (150,197) Total deficiency in net assets (150,197) Total liabilities and deficiency in net assets $ 3,583,713 See Notes to Financial Statements. 3

8 Statement of Activities Period from August 30, 2011 through June 30, 2012 Rent Revenue Gross potential $ 107,166 Tenant assistance payments 38,514 Total rent revenue (potential at 100% occupancy) 145,680 Vacancies Apartments (28,622) Net rental revenue (rent revenue less vacancies) 117,058 Financial Revenue Project operations 57 Investments - Replacement reserve 1 Total financial revenue 58 Other Revenue Laundry and vending revenue 1,106 Gifts (Note 4) 8,278 Miscellaneous revenue 4,334 Total other revenue 13,718 Total revenue 130,834 Administrative Expenses Conventions and meetings 1,116 Advertising and marketing 15,352 Other renting expenses 2,307 Office expenses 1,030 Management fee (Note 4) 11,854 Manager or superintendent salaries 29,631 Legal expenses 718 Bookkeeping fees/accounting services (Note 4) 5,016 Bad debts 145 Miscellaneous administrative expenses 1,383 Total administrative expenses 68,552 Utilities Expense Electricity 9,396 Water 10,223 Gas 6,225 Total utilities expense 25,844 See Notes to Financial Statements. 4

9 Statement of Activities (Continued) Period from August 30, 2011 through June 30, 2012 Operating and Maintenance Expenses Payroll $ 13,458 Supplies 2,710 Contracts 21,616 Garbage and trash removal 985 Snow removal 3,726 Miscellaneous operating and maintenance expenses 22,207 Total operating and maintenance expenses 64,702 Taxes and Insurance Payroll taxes (FICA) 3,050 Property and liability insurance (hazard) 8,416 Workers' compensation 449 Health insurance and other employee benefits (Note 6) 3,937 Total taxes and insurance 15,852 Total Costs of Operations Before Depreciation 174,950 Change in Net Assets Before Depreciation (44,116) Depreciation Expense 45,392 Change in Total Net Assets from Operations $ (89,508) See Notes to Financial Statements. 5

10 Statement of Changes in Deficiency in Net Assets Period from August 30, 2011 through June 30, 2012 Deficiency in Net Assets - August 30, 2011 $ (60,689) Increase in deficiency in net assets (89,508) Deficiency in Net Assets - June 30, 2012 $ (150,197) See Notes to Financial Statements. 6

11 Statement of Cash Flows Period from August 30, 2011 through June 30, 2012 Cash Flows from Operating Activities Receipts: Rental $ 118,954 Interest 58 Other cash receipts 13,718 Total receipts 132,730 Disbursements: Administrative (26,822) Management fee (13,336) Utilities (25,844) Salaries and wages (46,836) Operating and maintenance (51,244) Property insurance (8,416) Miscellaneous taxes and insurance (10,052) Tenant security deposits (734) Total disbursements (183,284) Net cash used in operating activities (50,554) Cash Flows from Investing Activities Net deposit to the reserve for replacement account (7,918) Net deposit to the mortgage escrow account (53) Net purchase of fixed assets (26,688) Payment of construction payables (230,979) Net cash used in investing activities (265,638) Cash Flows from Financing Activities Receipt of capital advance funds 316,255 Net cash provided by financing activities 316,255 Net Increase in Cash 63 Cash - Beginning of period 314 Cash - End of period $ 377 See Notes to Financial Statements. 7

12 Statement of Cash Flows (Continued) Period from August 30, 2011 through June 30, 2012 A reconciliation of change in net assets to net cash from operating activities is as follows: Change in net assets $ (89,508) Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation 45,392 Decrease (increase) in assets: Tenant accounts receivable 1,807 Prepaid expenses (2,616) Cash restricted for tenant security deposits (10,156) (Decrease) increase in liabilities: Accounts payable - Operations (5,229) Accrued liabilities 245 Tenant security deposits held in trust 9,422 Prepaid revenue 89 Net cash used in operating activities $ (50,554) See Notes to Financial Statements. 8

13 Notes to Financial Statements June 30, 2012 Note 1 - Nature of Business and Significant Accounting Policies Nature of Business - PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove (the Organization ) is a not-for-profit corporation that owns and operates a 38-unit affordable housing rental project for elderly persons (the "Project"). The Project is located in Kalamazoo, Michigan, is operating under HUD Section 202 of the National Housing Act, and is regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Organization is sponsored by Presbyterian Villages of Michigan (PVM). PVM is a comprehensive, diverse, and faith-based organization serving seniors in multiple settings since Its mission, guided by its Christian heritage, is to serve seniors of all faiths and to create new possibilities for quality living. PVM's tradition of social accountability and servant leadership is further reflected in its statement of beliefs and values and its various operational philosophies and practices. Significant accounting policies are as follows: Basis of Accounting - The Organization maintains its accounting records and prepares its financial statements on an accrual basis, which is in accordance with accounting principles generally accepted in the United States of America. The accompanying schedule of expenditures of federal awards includes the federal grant activity of PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove and is presented on the same basis of accounting as the basic financial statements. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Deposits - Funded - The funds controlled by the Organization represent escrow deposits and restricted funds for a replacement reserve. The replacement reserve consists of deposits by the Organization to offset specific expenses and to replace structural elements and mechanical equipment upon consent of HUD. Future monthly commitments for the funding of the replacement reserve account total $792. The escrow deposits consist of deposits by the Organization to offset insurance expenses. Deposits Held in Trust - In accordance with the Regulatory Agreement with HUD, the Organization is required to maintain a tenant security deposit trust account. The amount must at all times be equal to or exceed the aggregate of all outstanding obligations to tenants for refundable security deposits. The tenant security deposits fund consists of cash. 9

14 Notes to Financial Statements June 30, 2012 Note 1 - Nature of Business and Significant Accounting Policies (Continued) Tenant Accounts Receivable and Allowance for Bad Debts - Accounts receivable represents amounts due from tenants. Tenant accounts generally are collectible as long as the tenant is occupying the unit. When the tenant vacates the unit, any unpaid balance remaining after application of the security deposit is charged to bad debt expense. There was no allowance for bad debts at June 30, Fixed Assets - Land, buildings, equipment, and furniture are recorded at cost when purchased or appraised value if donated. Depreciation is computed principally on a straight-line basis over the estimated useful lives of the assets, which range from 5 to 40 years. Maintenance, repairs, and renewals that do not involve any substantial betterments are charged to expense when incurred. Expenditures that increase the useful life of the property are capitalized. Impairment of Assets - The Organization recognizes impairment of long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. No impairment of the Organization's rental property has occurred. Regulatory Agreement - A Regulatory Agreement with HUD was signed in connection with the mortgage note. No violations of this agreement were noted for the period from August 30, 2011 through June 30, Classification of Net Assets - Deficiencies in net assets of the Organization are classified as permanently restricted, temporarily restricted, or unrestricted depending on the presence and characteristics of donor-imposed restrictions limiting the Organization's ability to use or dispose of contributed assets or the economic benefits embodied in those assets. All deficiencies in net assets of the Organization at June 30, 2012 are considered unrestricted. Federal Income Taxes - No provision for income taxes has been included in the financial statements since the Organization is exempt from such taxes under Section 501(c)(3) of the Internal Revenue Code. 10

15 Notes to Financial Statements June 30, 2012 Note 1 - Nature of Business and Significant Accounting Policies (Continued) Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Organization and recognize a tax liability if the Organization has taken an uncertain tax position that more likely than not would not be sustained upon examination by the IRS or other applicable taxing authorities. Management has analyzed the tax positions taken by the Organization and has concluded that as of June 30, 2012, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Organization is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes it is no longer subject to income tax examinations for fiscal years prior to Rental Income - Units that are designated for occupancy by eligible low-income tenants under a HUD Section 202 project rental assistance contract require tenants to contribute a portion of the contract rent based on formulas prescribed by the U.S Department of Housing and Urban Development. Housing assistance payments are received for the balance of contract rent from HUD. The current contract will expire on June 30, Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Subsequent Events - The financial statements and related disclosures include evaluation of events up through and including September 11, 2012, which is the date the financial statements were available to be issued. Note 2 - HOME Loans Funds The Organization has entered into a loan from the City of Kalamazoo under the HOME Investment Partnership Act. The proceeds of the loan were used to partially fund development costs incurred with the Project. The loan bears no interest and will be deemed satisfied over 20 years if the Organization complies with the affordable housing restrictions in accordance with the HOME program. It is the Organization's intent to comply with the time requirement and the HOME program, expiring July 1, At June 30, 2012, the balance of the loan is $140,000. The HOME loan is reported as a long-term liability. 11

16 Notes to Financial Statements June 30, 2012 Note 3 - Capital Advance The Organization obtained a capital advance from HUD which was used to assist in financing the construction of the Project in accordance with the provisions of Section 202 of the Housing Act of The capital advance at June 30, 2012 is $3,475,600, bears no interest, and is not required to be repaid as long as the housing remains available to very low-income households and the aged and/or handicapped for a period of 40 years, ending in June In addition, the Organization is subject to the additional requirements of the HUD Section 202 program. If default occurs, then HUD, at its option, may accelerate the entire principal balance and charge interest. It is the Organization's intent to comply with the program requirements. Based on the time and provision requirements, the advance is recorded as a long-term liability. The capital advance is collateralized by the land and building of the Organization. Note 4 - Related Party Transactions Trustee appointments are approved by Presbyterian Villages of Michigan (PVM), a related not-for-profit organization that is also the HUD-approved management agent. As of June 30, 2012, $94,616 is due to PVM for payment of expenditures and is included in accounts payable. In addition, during the period from August 30, 2011 through June 30, 2012, the PVM Foundation provided the Organization with $8,278 in contribution support through the allocation of funds raised by the Organization and matching grants from the PVM Foundation. The property management agreement provides that a management fee in the amount of percent of gross rents collected be paid to PVM, limited to $39 per unit per month. In addition, the Organization pays accounting service fees to PVM, which are included in the annual budget. The Organization incurred management fees of $11,854 to PVM for the period from August 30, 2011 through June 30, Accounting service fees of $5,016 were paid to PVM for the period from August 30, 2011 through June 30, The Organization has an amount due to PVM as the Organization's sponsor for its capital investment of $10,000 as required by the Regulatory Agreement and pursuant to HUD regulations. This amount may be repaid with HUD's approval from funds in the escrow deposits if certain conditions are met. 12

17 Notes to Financial Statements June 30, 2012 Note 5 - Current Vulnerability Due to Certain Concentrations The Organization's sole asset is PVM Kalamazoo Senior Non-Profit Housing. The Project's operations are concentrated in the senior housing 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 additional administrative burden, to comply with a change. Note 6 - Retirement Plans PVM and its affiliates maintain a tax-sheltered retirement plan qualified under Internal Revenue Code Section 403(b). Under this plan, qualified nonunion participants who contribute may receive an employer discretionary match subject to sponsor board approval. The Organization did not make contributions to the plan for the period from August 30, 2011 through June 30,

18 Supplemental Information 14

19 Independent Auditor's Report on Supplemental Information To the Board of Trustees PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove We have audited the financial statements of, PVM Kalamazoo Senior Non-Profit Housing, as of and for the period from August 30, 2011 (date after cost certification cut-off) through June 30, 2012, which contained an unqualified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statements of PVM Kalamazoo Senior Non-Profit Housing taken as a whole. The accompanying supplemental information, including the schedule of expenditures of federal awards, is presented for the purpose of additional analysis as required by HUD and the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. For the purpose of electronic submission to the U.S. Department of Housing and Urban Development, Real Estate Assessment Center (REAC), the supplemental information is also deemed to include the financial data template information as presented in the balance sheet and the statements of activities, changes in deficiency in net assets, and cash flows. 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. September 11,

20 Balance Sheet Data June 30, 2012 Assets Current Assets 1120 Cash - Operations $ Accounts and notes receivable - Operations Prepaid expenses 3, T Total current assets 4,254 Deposits - Held in Trust 1191 Tenant deposits held in trust 12,162 Deposits - Funded 1310 Escrow deposits 10, Replacement reserve 9, T Total deposits - Funded 19,554 Fixed Assets 1410 Land and land improvements 294, Buildings and building improvements 3,226, Furniture for project/tenant use 63, Miscellaneous fixed assets 9, T Total fixed assets 3,593, Accumulated depreciation (45,392) 1400N Net fixed assets 3,547, T Total assets $ 3,583,713 16

21 Balance Sheet Data (Continued) June 30, 2012 Liabilities and Deficiency in Net Assets Current Liabilities 2110 Accounts payable - Operations $ 94, Accounts payable - Entity 10, Accrued wages payable 2, Prepaid revenue T Total current liabilities 106, Tenant deposits held in trust (contra) 11,428 Long-term Liabilities 2310 Capital Advance 3,475, HOME loan 140, T Total long-term liabilities 3,615, T Total liabilities 3,733,910 Deficiency in Net Assets 3131 Deficiency in net assets (150,197) 3130 Total deficiency in net assets (150,197) 2033T Total liabilities and deficiency in net assets $ 3,583,713 17

22 Statement of Activities Data Period from August 30, 2011 through June 30, 2012 Rent Revenue 5120 Gross potential $ 107, Tenant assistance payments 38, T Total rent revenue (potential at 100% occupancy) 145,680 Vacancies 5220 Apartments (28,622) 5200T Total vacancies (28,622) 5152N Net rent revenue (rent revenue less vacancies) 117,058 Financial Revenue 5410 Project operations Investments - Replacement reserve T Total financial revenue 58 Other Revenue 5910 Laundry and vending revenue 1, Gifts 8, Miscellaneous revenue 4, T Total other revenue 13, T Total revenue 130,834 Administrative Expenses 6203 Conventions and meetings 1, Advertising and marketing 15, Other renting expenses 2, Office expenses 1, Management fee 11, Manager or superintendent salaries 29, Legal expenses Bookkeeping fees/accounting services 5, Bad debts Miscellaneous administrative expenses 1, T Total administrative expenses 68,552 Utilities Expense 6450 Electricity 9, Water 10, Gas 6, T Total utilities expense 25,844 18

23 Statement of Activities Data (Continued) Period from August 30, 2011 through June 30, 2012 Operating and Maintenance Expenses 6510 Payroll $ 13, Supplies 2, Contracts 21, Garbage and trash removal Snow removal 3, Miscellaneous operating and maintenance expenses 22, T Total operating and maintenance expenses 64,702 Taxes and Insurance 6711 Payroll taxes (FICA) 3, Property and liability insurance (hazard) 8, Workers' compensation Health insurance and other employee benefits 3, T Total taxes and insurance 15, T Total Costs of Operations Before Depreciation 174, T Change in Net Assets Before Depreciation (44,116) 6600 Depreciation Expense 45, Change in Total Net Assets from Operations $ (89,508) 19

24 Statement of Activities Data (Continued) Supplemental Information Period from August 30, 2011 through June 30, 2012 S Total principal required under the mortgage, even if payments under a workout agreement are less or more than those required under the mortgage $ 0 S Replacement reserve deposits required by the Regulatory Agreement or amendments thereto, even if payments may be temporarily suspended or waived 7,920 S Replacement reserve or residual receipt releases that are included as expense items on this profit and loss statement 0 S Project improvement reserve releases under the flexible subsidy program that are included as expense items on this profit and loss statement 0 20

25 Statement of Changes in Deficiency in Net Assets Data Period from August 30, 2011 through June 30, 2012 S Deficiency in Net Assets- August 30, 2011 $ (60,689) 3250 Increase in deficiency in net assets (89,508) 3130 Deficiency in Net Assets - June 30, 2012 $ (150,197) 21

26 Statement of Cash Flows Data Period from August 30, 2011 through June 30, 2012 Cash Flows from Operating Activities Receipts: S Rental $ 118,954 S Interest 58 S Other cash receipts 13,718 S Total receipts 132,730 Disbursements: S Administrative (26,822) S Management fee (13,336) S Utilities (25,844) S Salaries and wages (46,836) S Operating and maintenance (51,244) S Property insurance (8,416) S Miscellaneous taxes and insurance (10,052) S Tenant security deposits (734) S Total disbursements (183,284) S Net cash used in operating activities (50,554) Cash Flows from Investing Activities S Net deposit to the reserve for replacement account (7,918) S Net deposits - Other (53) S Net purchase of fixed assets (26,688) S Payment of construction payables (230,979) S Net cash used in investing activities (265,638) Cash Flows from Financing Activities S Receipt of capital advance funds 316,255 S Net cash provided by financing activities 316,255 S Net Increase in Cash 63 S Cash - Beginning of period 314 S1200T Cash - End of period $

27 Statement of Cash Flows Data (Continued) Period from August 30, 2011 through June 30, 2012 A reconciliation of change in net assets to net cash from operating activities is as follows: 3250 Change in net assets $ (89,508) Adjustments to reconcile change in net assets to net cash from operating activities: 6600 Depreciation 45,392 Decrease (increase) in assets: S Tenant accounts receivable 1,807 S Prepaid expenses (2,616) S Cash restricted for tenant security deposits (10,156) (Decrease) increase in liabilities: S Accounts payable - Operations (5,229) S Accrued liabilities 245 S Tenant security deposits held in trust 9,422 S Prepaid revenue 89 S Net cash used in operating activities $ (50,554) 23

28 Supplemental Information Period from August 30, 2011 through June 30, Schedule of Reserve for Replacements - In accordance with the provisions of the Regulatory Agreement, restricted cash is held by Huntington Bank to be used for replacement of property with the approval of HUD as follows: 1320P Balance - August 30, 2011 $ 1, DT Monthly deposits ($792 x 10) 7, INT Interest OWT Other withdrawals - Bank service charges (3) 1320 Balance - June 30, 2012 $ 9, Schedule of Residual Receipts - N/A 3. Computation of Surplus Cash - Form HUD See attached 4. Schedule of Changes in Fixed Asset Accounts - See attached 5. Schedule of 5300 Accounts - N/A 6. Schedule of 6900 Accounts - N/A 7. Nursing Home Data - N/A 24

29 Supplemental Information (Continued) Period from August 30, 2011 through June 30, Detail of Accounts: 2322 HOME loan funds $ 140, Satellite TV $ 4,284 Miscellaneous Total $ 4, Bank fees $ 599 Mileage reimbursement 630 Miscellaneous Total $ 1, Foundation reimbursable expenses $ 2,362 Repairs and maintenance 146 Municipal fees 1,138 System maintenance, repair, and support 5,463 Connectivity 11,542 Software purchase and license 1, Total $ 22,207 S Payment of construction payables $ (230,979) 25

30 Corporation d/b/a The Village of Sage Grove Schedule of Changes in Fixed Asset Accounts Period from August 30, 2011 through June 30, 2012 Assets Balance August 30, 2011 Additions Deductions Balance June 30, 2012 Balance August 30, 2011 Accumulated Depreciation Current Provision Deductions Balance June 30, 2012 Net Book Value June 30, Land and land improvements $ 294,000 $ - $ - $ 294,000 $ - $ - $ - $ - $ 294, Buildings and building improvements 3,208,511 17,490-3,226,001-40,325-40,325 3,185, Furniture for project/tenant use 63, ,936-4,147-4,147 59, Miscellaneous fixed assets - 9,198-9, ,278 Fixed Asset Addition Detail: Total $ 3,566,447 $ 26,688 $ - $ 3,593,135 $ - $ 45,392 $ - $ 45,392 $ 3,547,743 Buildings and building improvements - Building closing costs $ 17,490 Miscellaneous fixed assets - Gym equipment 9,198 Total $ 26,688 26

31 Schedule of Expenditures of Federal Awards Period from August 30, 2011 through June 30, 2012 Federal Agency/Pass-through Agency/Program Title CFDA Number Federal Expenditures U.S. Department of Housing and Urban Development - Supportive Housing for the Elderly: Project Rental Assistance Contract $ 38,514 Capital Advance ,475,600 Total federal awards $ 3,514,114 27

32 Computation of Surplus Cash Period from August 30, 2011 through June 30, 2012 S Cash $ 12,539 S Total Cash 12,539 Current Obligations S Accounts Payable - 30 Days 94,616 S Accrued Expenses (Not Escrowed) 2, Prepaid Revenue Tenant/Patient Deposits Held in Trust (Contra) 11,428 S Total Current Obligations 108,310 S Surplus Cash (Deficiency) $ (95,771) S Deposit Due Residual Receipts $ - 28

33 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 29

34 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 To the Board of Trustees PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove We have audited the financial statements of PVM Kalamazoo Senior Non-Profit Housing (the "Organization") as of and for the period from August 30, 2011 (date after cost certification cut-off) through June 30, 2012 and have issued our report thereon dated September 11, We have 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. Internal Control Over Financial Reporting Management of PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove is responsible for establishing and maintaining an effective internal control over financial reporting. In planning and performing our audit, we considered PVM Kalamazoo Senior Non-Profit Housing 's internal control over financial reporting as a basis for designing our auditing procedures 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 Organization's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control over financial reporting. 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 Organization's financial statements will not be prevented or detected and corrected on a timely basis. Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 30

35 To the Board of Trustees PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove Compliance and Other Matters As part of obtaining reasonable assurance about whether PVM Kalamazoo Senior Non-Profit Housing 's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the board of directors, the audit committee, management, others within the Organization, and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. September 11,

36 Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A

37 Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Independent Auditor's Report To the Board of Trustees PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove Compliance We have audited PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove's (the "Organization") compliance with the types of compliance requirements described in the U.S. Office of Management and Budget Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the period from August 30, 2011 (date after cost certification cut-off) through June 30, PVM Kalamazoo Senior Non-Profit Housing 's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove's management. Our responsibility is to express an opinion on PVM Kalamazoo Senior Non-Profit Housing 's compliance based on our audit. 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 OMB Circular A-133. Those standards and OMB Circular A-133 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 PVM Kalamazoo Senior Non-Profit Housing '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. Our audit does not provide a legal determination on PVM Kalamazoo Senior Non- Profit Housing 's compliance with those requirements. In our opinion, PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the period from August 30, 2011 (date after cost certification cut-off) through June 30,

38 To the Board of Trustees PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove Internal Control Over Compliance Management of PVM Kalamazoo Senior Non-Profit Housing Corporation d/b/a The Village of Sage Grove is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered PVM Kalamazoo Senior Non- Profit Housing 's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 Organization's internal control over compliance. A deficiency in internal control over compliance 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 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 a 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. 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 deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the board of directors, the audit committee, management, others within the Organization, and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. September 11,

39 Schedule of Findings and Questioned Costs 35

40 Schedule of Findings and Questioned Costs Period from August 30, 2011 through June 30, 2012 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X No Noncompliance material to financial statements noted? Yes X None reported Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Yes X No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster Opinion Supportive Housing for the Elderly - Project Rental Assistance Payments Unqualified Supportive Housing for the Elderly - Capital Advance Unqualified Dollar threshold used to distinguish between type A and type B programs: $300,000 Auditee qualified as low-risk auditee? Yes X No 36

41 Schedule of Findings and Questioned Costs (Continued) Period from August 30, 2011 through June 30, 2012 Section II - Financial Statement Audit Findings Reference Number Current Year: Reference Number Prior Year: None N/A Finding Finding Questioned Costs Questioned Costs Section III - Federal Program Audit Findings Reference Number Current Year: Reference Number Prior Year: None N/A Finding Finding Questioned Costs Questioned Costs 37