Financial Statements December 31, 2017 and 2016 Inver Grove Heights Good Samaritan Housing, Inc. D/B/A Prairie View Heights HUD Project No.

Transcription

1 Financial Statements December 31, 2017 and 2016 Inver Grove Heights Good Samaritan Housing, Inc. D/B/A HUD Project No. 092-EE105 Inver Grove Heights, Minnesota

2 Table of Contents December 31, 2017 and 2016 Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6 Supplementary Information HUD Statement of Financial Position HUD Statement of Activities HUD Statement of Cash Flows HUD Statement of Cash Flows and Additional Supplementary Information Required by HUD Additional Supplementary Information Required by HUD Schedule of Expenditures of Federal Awards Internal 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 the Major Federal Program; Report on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Certification of Project Owner Managing Agent s Certification Auditor Information... 27

3 Independent Auditor s Report To the Board of Directors of Inver Grove Heights Good Samaritan Housing, Inc. Inver Grove Heights, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Inver Grove Heights Good Samaritan Housing, Inc., d/b/a, HUD Project No. 092-EE105 (the Project) which comprise the statements of financial position as of December 31, 2017 and 2016, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 Project 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 Project 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 December 31, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. What inspires you, inspires us. eidebailly.com E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD T F EOE

4 Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 10 to 17 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 on page 18 is presented for purposes of additional analysis 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, and is not a required part of the financial statements. The accompanying supplementary 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. Such 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 supplementary 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 a report dated March 29, 2018, 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, grant agreements, and other matters. The purpose of that report is solely 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 the Project s internal control over financial reporting or on compliance. That report is an integral part of an audit conducted in accordance with Government Auditing Standards in considering the Project s internal control over financial reporting and compliance. Sioux Falls, South Dakota March 29,

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6 Assets Current Assets Cash $ 100 $ 34,842 Accounts receivable Tenant HUD 87, Insurance claims 77,210 - Prepaid expenses 4,030 2,066 Total current assets 168,831 37,755 Restricted Deposits Escrow deposits 15,773 16,342 Replacement reserve 47,676 90,125 Tenant deposits held in trust 12,969 12,357 Total restricted deposits 76, ,824 Fixed Assets Land and land improvements 541, ,347 Buildings 3,791,437 3,863,654 Furniture for project/tenant use 72,456 72,612 4,405,240 4,477,613 Accumulated depreciation (1,401,770) (1,304,495) Net fixed assets 3,003,470 3,173,118 $ 3,248,719 $ 3,329,697 See Notes to Financial Statements

7 Statements of Financial Position December 31, 2017 and 2016 Liabilities and Net Assets Current Liabilities Bank overdraft - operations $ 137 $ - Accounts payable 6,007 21,377 Accrued expenses 8,365 8,393 Special assessments, current portion 3,853 3,674 Miscellaneous current liabilities 1,858 1,300 Prepaid revenue 2,243 1,452 Total current liabilities 22,463 36,196 Tenant Deposits Held in Trust 12,356 11,683 Long-Term Liabilities Advance from The Evangelical Lutheran Good Samaritan Society (the Society) 58,848 58,848 Special assessments, less current portion 26,077 30,532 Total long-term liabilities 84,925 89,380 Total liabilities 119, ,259 Net Assets (Deficit) Unrestricted net deficit (938,221) (874,758) Temporarily restricted net assets 4,067,196 4,067,196 Total net assets 3,128,975 3,192,438 $ 3,248,719 $ 3,329,697 3

8 Statements of Activities Years Ended December 31, 2017 and Revenue Rent, net of vacancies of $10,546 and $7,033 in 2017 and 2016 $ 286,166 $ 284,024 Financial Other 37,699 12,578 Total revenue 323, ,660 Expenses Administrative 93,275 95,854 Program Utilities 34,059 33,569 Operating and maintenance 64,212 68,476 Taxes and insurance 65,205 60,328 Financial 1,829 1,916 Depreciation 128, ,492 Total expenses 387, ,635 Change in Unrestricted Net Deficit (63,463) (95,975) Net Assets, Beginning of Year 3,192,438 3,288,413 Net Assets, End of Year $ 3,128,975 $ 3,192,438 See Notes to Financial Statements 4

9 Statements of Cash Flows Years Ended December 31, 2017 and Operating Activities Change in total net assets $ (63,463) $ (95,975) Adjustments to reconcile change in total net assets to net cash used for operating activities Depreciation 128, ,492 Provision for bad debt Gain on disposal of fixed asset (19,515) - Forgiveness of debt - (3,804) Change in assets and liabilities Accounts receivable (87,248) (182) Prepaid expense (1,964) 1,928 Accounts payable (15,370) 15,188 Accrued expenses (28) (280) Prepaid revenue Miscellaneous current liabilities Tenant security deposits 61 (674) Net Cash (used for) from Operating Activities (56,715) 50,038 Investing Activities Net withdrawals from (deposits to) replacement reserve 42,449 (29,671) Net withdrawals from escrow deposits Purchase of fixed assets (16,906) (2,258) Net Cash from (used for) Investing Activities 26,112 (31,566) Financing Activities Bank overdraft - operations Payment on special assessment (4,276) (4,276) Payment on Society advance - (6,658) Net Cash used for Financing Activities (4,139) (10,934) Net Change in Cash (34,742) 7,538 Beginning of Year Cash 34,842 27,304 End of Year Cash $ 100 $ 34,842 Supplemental Disclosure of Cash Flow Information Non-cash investing activities Insurance claims $ 77,210 $ - See Notes to Financial Statements 5

10 Notes to Financial Statements December 31, 2017 and 2016 Note 1 - Principal Business Activity and Significant Accounting Policies Principal Business Activity (the Project) has entered into a regulatory agreement with the United States Department of Housing and Urban Development (HUD) and is operated under Section 202 of the National Housing Act with respect to rental charges and operating methods. The Project's sponsor is The Evangelical Lutheran Good Samaritan Society (the Society), a not-for-profit, non-stock corporation. The Project consists of 39 HUD-assisted affordable housing units and one manager s unit located in Inver Grove Heights, Minnesota. Basis of Presentation The Project is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. None of the Project s net assets are permanently restricted as of December 31, 2017 and Restricted Deposits Under the regulatory agreement, the Project is required to set aside amounts for the replacement of property and other project expenditures subject to approval by HUD. HUD-restricted deposits are held in separate bank accounts and generally are not available for operating purposes. The Project makes monthly deposits into the replacement reserve account as directed by HUD. Monthly deposit requirements typically change with rent adjustments. As of December 31, 2017 and 2016, the required monthly deposit was $3,305 and $1,299, respectively. The Project also sets aside escrow funds to pay real estate taxes and funds needed to repay tenant security deposits after lease termination in accordance with the requirements established by the regulatory agreement. Fixed Assets Fixed assets are carried at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired or sold, the cost and related accumulated depreciation is eliminated from the accounts and the resultant gain or loss is reflected in income. Depreciation is computed principally by the straight-line method over the following estimated useful lives: Land improvements Buildings Furniture for project/tenant use 2-40 years 5-40 years 3-20 years The Project reviews the carrying value of fixed assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carry value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there was no impairment at December 31, 2017 and

11 Notes to Financial Statements December 31, 2017 and 2016 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 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. Income Taxes The Project is organized as a South Dakota nonprofit corporation and has been recognized by the Internal Revenue Service (IRS) as exempt from federal income taxes under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3) and has been determined not to be a private foundation. The Project is annually required to file a Return of Organization Exempt from Income Tax (Form 990) with the IRS. In addition, the Project is subject to income tax on net income that is derived from business activities that are unrelated to its exempt purpose. The Project has determined it is not subject to unrelated business income for the years ended December 31, 2017 and 2016 and has not filed an Exempt Organization Business Income Tax Return (Form 990T) with the IRS. The Project believes it has appropriate support for any tax positions taken affecting its annual filing requirements, and as such, does not have any uncertain tax positions that are material to the financial statements. The Project will recognize future accrued interest and penalties related to unrecognized tax benefits and liabilities in income tax expense if incurred. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Project and the tenants of the property are operating leases. HUD has contracted with the Project under Section 202 of the National Affordable Housing Act of 1959 to make rental assistance payments to the Project on behalf of qualified tenants. Under the regulatory agreement, the Project may not increase contract rents without prior HUD approval. A significant portion of the Project s rent income is received from HUD. Functional Allocation of Expenses The costs of program and supporting services activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated between the program and supporting services benefited. Concentrations of Credit Risk The Project s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, including restricted deposits. The Project believes it places its cash with high quality credit institutions. At times, such cash may be in excess of FDIC insurance limits. Subsequent Events The Project has evaluated subsequent events through March 29, 2018, the date which these financial statements were available to be issued. 7

12 Notes to Financial Statements December 31, 2017 and 2016 Note 2 - Temporarily Restricted Net Assets The total amount withdrawn on a capital advance note from HUD is $3,764,200. The note bears no interest and payment is not required as long as the housing remains available for very low-income senior persons. The note will be forgiven at its maturity date of July 1, 2047, if the housing has remained available for occupancy by eligible individuals until that date. Otherwise, the entire $3,764,200, plus interest at 4.75% since January 9, 2006, will be declared due and payable by HUD. This long-term indebtedness is secured by all property owned by the Project and all related receipts attributed to its operations. Accrued interest is not recorded as a liability in the financial statements since it is only payable in the event of default under the provision of the capital advance note. Management believes the likelihood of non-compliance with the provisions of the capital advance are remote. Therefore, the capital advance proceeds were recorded as revenue when the advance was received and are being carried in temporarily restricted net assets until satisfaction of the period of compliance. The Project received an Affordable Housing Program grant of $302,996 in January 2006 from the Federal Home Loan Bank in Des Moines for the Project's construction. The grant is not required to be repaid as long as the housing remains available for very low-income senior persons until June 2022, 15 years after the Project's completion. Management believes the likelihood of non-compliance with the provisions of the construction grant are remote. Therefore, the construction grant has been accounted for as contribution revenue and is carried in temporarily restricted net assets. Note 3 - Special Assessments Special assessments are payable to the City of Inver Grove Heights for the Project s share of improvements to roadway infrastructure located near the Project. The Project will make semi-annual payments of $2,653 consisting of principal and interest of 4.8%, beginning May 1, 2015 and ending in November The principal requirements for the special assessment are as follows: Years Ending December 31, 2018 $ 3, ,040 4,236 4,442 4,658 Thereafter 8,701 $ 29,930 Subsequent to December 31, 2017, the Project was notified of an additional special assessment of $24,680 to be paid over 10 years at a rate of 4.20%. 8

13 Notes to Financial Statements December 31, 2017 and 2016 Note 4 - Related Party Transactions The Society funds various operating expenses, including contracted salaries and benefits, and is subsequently reimbursed. Contracted salaries and benefits were $2,886 at the year ended December 31, Amounts owed to the Society for operating expenses of $1,858 and $1,300 as of December 31, 2017 and 2016, respectively, are recorded in miscellaneous current liabilities on the accompanying statements of financial position. The Society advance consists of amounts due to the Society for reimbursement of costs related to construction of the Project and for HUD approved operating advances. The advances bear no interest and can be repaid with surplus cash. A portion of the advance, $3,804, was forgiven by the Society during the year ended December 31, 2016 and is recorded in other revenue on the accompanying statements of activities. The Project is managed by the Society under an agreement approved by HUD, which provides for a management fee of 9.3% of revenues other than interest for the years ended December 31, 2017 and The management fee is subject to a per unit per month cap as directed by HUD. Management fees of $27,097 and $27,234 for the years ended December 31, 2017 and 2016, respectively, have been recorded in administrative expenses on the accompanying statements of activities. Note 5 - Vulnerability Due to Certain Concentrations The Project s operations are concentrated in the affordable housing real estate market and are subject to the administrative directives, rules and regulations of federal, state, and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 9

14 Supplementary Information December 31, 2017 Inver Grove Heights Good Samaritan Housing, Inc. D/B/A HUD Project No. 092-EE105 Inver Grove Heights, Minnesota

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16 Current Assets 1120 Cash $ Tenant/member accounts receivable Accounts receivable - HUD 87, Accounts and notes receivable - entity 77, Prepaid expenses 4,030 Total current assets 168,831 Tenant Deposits Held in Trust 1191 Tenant deposits held in trust 12,969 Restricted Deposits 1310 Escrow deposits 15, Replacement reserve 47,676 Total restricted deposits 63,449 Fixed Assets 1410 Land and land improvements 541, Buildings 3,791, Furniture for project/tenant use 72,456 4,405, Accumulated depreciation (1,401,770) Net fixed assets 3,003,470 $ 3,248,719

17 HUD Statement of Financial Position December 31, 2017 Current Liabilities 2105 Bank overdraft - operations $ Accounts payable 6, Accrued wages payable 8, Miscellaneous current liabilities 5, Prepaid revenue 2,243 Total current liabilities 22,463 Tenant Deposits Held in Trust 2191 Tenant deposits held in trust 12,356 Long-Term Liabilities 2390 Miscellaneous long-term liabilities 84,925 Total liabilities 119,744 Net Assets (Deficit) 3131 Unrestricted net deficit (938,221) 3132 Temporarily restricted net assets 4,067,196 Total net assets 3,128,975 $ 3,248,719 10

18 HUD Statement of Activities Year Ended December 31, 2017 Revenue Rent Revenue 5120 Rent revenue - gross potential $ 149, Tenant assistance payments 146, , Vacancies - apartments (10,546) Net rent revenue 286,166 Financial Revenue 5410 Financial revenue - project operations Revenue from investments - replacement reserve 79 Total financial revenue 111 Other Revenue 5910 Laundry and vending revenue 6, Tenant charges Gifts Miscellaneous other revenue 31,453 Expenses Total other revenue 37,699 Total revenue 323,976 Administrative Expenses 6203 Conventions and meetings 3, Advertising and marketing Other renting expense Office salaries 38, Office expenses 10, Management fee 27, Legal expense Audit expense 8, Bookkeeping fee/accounting services 1, Bad debt Miscellaneous administrative expenses 2,216 Total administrative expenses 93,275 Utilities Expenses 6450 Electricity 20, Water 4, Gas 3, Sewer 5,268 Total utilities expenses 34,059 11

19 HUD Statement of Activities Year Ended December 31, 2017 Operating and Maintenance Expenses 6510 Payroll $ 34, Supplies 4, Contracts 13, Garbage and trash removal 3, Security payroll/contract 4, Heating/cooling repairs and maintenance 1, Snow removal 1,484 Total operating and maintenance expenses 64,212 Taxes and Insurance Expenses 6710 Real estate taxes 39, Payroll taxes - project's share 5, Property and liability insurance 13, Workmen's compensation Health insurance and other employment benefits 4, Miscellaneous taxes, licenses, permits, and insurance 1,770 Total taxes and insurance expenses 65,205 Financial Expenses 6890 Miscellaneous financial expenses 1,829 Total cost of operations before depreciation 258,580 Change in net assets before depreciation 65, Depreciation expense 128,859 Change in Unrestricted Net Deficit (63,463) S Previous year unrestricted net deficit (874,758) 3131 Total unrestricted net deficit (938,221) 3132 Temporarily restricted net assets 4,067, Total net assets $ 3,128,975 S The total of all monthly reserve for replacement deposits (usually 12) required during the audit period even if deposits have been temporarily waived or suspended $ 39,660 S Replacement reserve or residual receipts releases which are included as expense items on the profit and loss statement $

20 HUD Statement of Cash Flows Year Ended December 31, 2017 Operating Activities S Rental receipts $ 199,709 S Interest receipts 111 S Gifts 111 S Other operating receipts 18,073 Total receipts 218,004 S Administrative (28,890) S Management fee (27,097) S Utilities (35,822) S Salaries and wages (73,406) S Operating and maintenance (43,274) S Real estate taxes (39,078) S Property insurance (13,677) S Miscellaneous taxes and insurance (11,716) S Tenant security deposits 61 S Miscellaneous financial (1,820) Total disbursements (274,719) Net Cash used for Operating Activities (56,715) Investing Activities S Net withdrawals from the replacement reserve 42,449 S Net withdrawals from other reserves 569 S Net purchase of fixed assets (16,906) Net Cash from Investing Activities 26,112 Financing Activities S Other financing activities (4,139) Net Change in Cash (34,742) Beginning of Year Cash 34,842 End of Year Cash $

21 HUD Statement of Cash Flows and Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Reconciliation of Change in Net Assets to Net Cash used for Operating Activities 3250 Change in total net assets used for operations $ (63,463) Adjustments to reconcile change in net assets to net cash used for operating activities 6600 Depreciation expense 128,859 S Tenant/member accounts receivable 14 S Accounts receivable - other (87,262) S Prepaid expense (1,964) S Cash restricted for tenant security deposits (612) S Accounts payable (15,370) S Accrued liabilities 530 S Tenant security deposits held in trust 673 S Prepaid revenue 791 S Other adjustments to reconcile net assets to net cash used for operating activities (18,911) S Net cash from operating activities $ (56,715) Computation of Surplus Cash - Annual Cash Cash $ 13,069 Accounts receivable - HUD 87,487 Total cash 100,556 Current Obligations Bank overdraft - operations 137 Accounts payable - 30 days 6,007 Accrued expenses 8,365 Prepaid revenue 2,243 Tenant deposits held in trust 12,356 Miscellaneous current liabilities, less special assessment 1,858 Repayment of reserve for replacement subsidy loan 74,178 Total current obligations 105,144 Cash Deficiency $ (4,588) 14

22 Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Replacement Reserve In accordance with the provisions of the regulatory agreement, restricted cash is held by the Project to be used for replacement of property with the approval of HUD as follows: Balance at December 31, 2016 $ 90,125 Monthly deposits 39,660 Interest earned 79 Other withdrawals approved by HUD - subsidy loan (74,178) Withdrawals - approved by HUD (8,010) Balance at December 31, 2017 $ 47,676 Deposits waived or suspended? No Residual Receipts In accordance with the provisions of the regulatory agreement, restricted surplus cash is held by the Project to be used with the approval of HUD as follows: Balance at December 31, 2016 $ - Estimated surplus cash deposit 10,608 Withdrawal of estimated surplus cash calculated in error (10,608) Balance at December 31, 2017 $ - Statement of Financial Position Supporting Schedule Accounts and Notes Receivable- Entity- A/C 1145 Insurance claims $ 77,210 Miscellaneous Current Liabilities - A/C 2190 Society billings payable $ 1,178 Current portion of special assessments 3,853 Miscellaneous current liabilities 680 Total miscellaneous current liabilities $ 5,711 Miscellaneous Long-Term Liabilities - A/C 2390 Society advance $ 58,848 Special assessments, less current portion 26,077 Total miscellaneous long-term liabilities $ 84,925 15

23 Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Statement of Activities Supporting Schedule Miscellaneous other revenue - A/C 5990 Non-cash payments $ 11,938 Gain/loss on assets sold 19,515 Total miscellaneous other revenue $ 31,453 Miscellaneous Financial Expense - A/C 6890 Interest and penalties $ 1,829 Statement of Cash Flows Supporting Schedule Other Financing Activities - A/C S Payment on special assessment $ (4,276) Bank overdraft 137 Total other operating receipts $ (4,139) Other Adjustments to Reconcile Net Assets to Net Cash from Operating Activities - A/C S Gain on disposal of fixed asset $ (19,515) Bad debt 604 Total other adjustments to reconcile net assets to net cash from operating activities $ (18,911) 16

24 Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Changes in Fixed Asset Accounts Balance Balance 12/31/16 Additions Retirements 12/31/17 Land and land improvements $ 541,347 $ - $ - $ 541,347 Buildings 3,863,654 14,849 (87,066) 3,791,437 Furniture for project/tenant use 72,612 2,057 (2,213) 72,456 $ 4,477,613 $ 16,906 $ (89,279) 4,405,240 Accumulated depreciation $ 1,304,495 $ 128,859 $ (31,584) 1,401,770 Net book value $ 3,003,470 Additions Buildings Flooring $ 8,013 HVAC 5,024 Building 1,812 Total buildings $ 14,849 Furniture for project/tenant use Office equipment $ 1,568 Appliances 489 Total furniture for project/tenant use $ 2,057 Disposals Buildings Roof $ 75,958 Carpet 11,108 Total buildings $ 87,066 Furniture for project/tenant use Computers $ 2,213 17

25 Schedule of Expenditures of Federal Awards Year Ended December 31, 2017 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Federal Expenditures U.S. Department of Housing and Urban Development Supportive Housing for the Elderly - Section 202 Capital Advance $ 3,764,200 Project Rental Assistance Contract ,929 Total federal financial assistance $ 3,911,129 Note A Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of Prairie View Heights, HUD Project No. 092-EE105 (the Project), and is prepared on the accrual basis of accounting. The information in this schedule is presented in accordance with the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). No federal financial assistance has been passed through to sub-recipients. Note B Significant Accounting Policies Expenditures are recognized following the cost principles contained in Subpart E Cost Principle of the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. The Project s summary of significant accounting policies is presented in Note 1 in the basic financial statements. The Project does not draw for administrative costs and has not elected to use the 10% de minimus cost rate. 18

26 Internal 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 Inver Grove Heights Good Samaritan Housing, Inc. Inver Grove Heights, Minnesota We have audited, 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, the financial statements of Inver Grove Heights Good Samaritan Housing, Inc. d/b/a, HUD Project No. 092-EE105 (the Project), which comprise the statement of financial position as of December 31, 2017, 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 29, 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 Project 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 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 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. What inspires you, inspires us. eidebailly.com E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD T F EOE

27 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Project 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 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 Project 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 Project s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Sioux Falls, South Dakota March 29,

28 Independent Auditor s Report on Compliance for the Major Federal Program; Report on Internal Control Over Compliance Required by the Uniform Guidance The Board of Directors Inver Grove Heights Good Samaritan Housing, Inc. Inver Grove Heights, Minnesota Report on Compliance for the Major Federal Program We have audited Inver Grove Heights Good Samaritan Housing, Inc. s d/b/a, HUD Project No. 092-EE105 (the Project) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the Project s major federal program for the year ended December 31, The Project s major federal program is 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 program. Auditor s Responsibility Our responsibility is to express an opinion on the compliance for the Project s major federal program 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 (the 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 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 the major federal program. However, our audit does not provide a legal determination of the Project s compliance. Opinion on the 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 its major federal program for the year ended December 31, What inspires you, inspires us. eidebailly.com E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD T F EOE

29 Report on Internal Control over Compliance Management of the Project is responsible for establishing and maintaining effective internal control over compliance with the 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 the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the 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. 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 a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a compliance requirement 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 that might be material weaknesses or significant deficiencies and therefore, material weaknesses and significant deficiencies may exist that have not been identified. We identified a certain deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as finding that we consider to be a material weakness. The Project s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Project s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. 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 requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Sioux Falls, South Dakota March 29,

30 Schedule of Findings and Questioned Costs Year Ended December 31, 2017 Section I Summary of Auditor s Results FINANCIAL STATEMENTS Type of auditor s report issued Internal control over financial reporting: Material weakness identified Significant deficiencies identified not considered to be material weaknesses Noncompliance material to financial statements noted Unmodified No None reported No FEDERAL AWARDS Internal control over the major program: Material weakness identified Significant deficiencies identified not considered to be material weaknesses Type of auditor s report issued on compliance for the major program: Any audit findings disclosed that are required to be reported in accordance with 2 CFR Section Yes None reported Unmodified Yes Identification of the major program: Name of Federal Program CFDA number U.S. Department of Housing and Urban Development Supportive Housing for the Elderly Section 202 Capital Advance and Project Rental Assistance Contract Dollar threshold used to distinguish between type A and type B programs $750,000 Auditee qualified as low-risk auditee? Yes 23

31 Schedule of Findings and Questioned Costs Year Ended December 31, 2017 Our audit disclosed no findings required to be reported. Section II Financial Statement Findings Section III Federal Award Findings and Questioned Costs U.S. Department of Housing and Urban Development CFDA # Supportive Housing for the Elderly Section 202 Capital Advance and Project Rental Assistance Contract Eligibility Material Weakness in Internal Control over Compliance Criteria: The Project is required to have documentation to adequately support the amount reported on HUD Form Condition: Our testing of tenant files detected errors in four tenant files selected for testing. We noted one instance where tenant income from tenant assets reported on Form was not correctly calculated and supported and three instances where medical expenses were not correctly calculated. Cause: There was an oversight in the internal control process with maintaining tenant files within compliance requirements. The Project manager misapplied HUD regulations for calculating tenant rent. Effect: Lack of compliance with designed internal controls over tenant files could adversely affect the Project s compliance with HUD regulations. Questioned Costs: Monthly rental payments should be increased by a total of $22 per month for three tenants and decreased by $2 per month for one tenant. Net questioned costs were $20 per month. Context: A nonstatistical sample of eight tenant files out of the Project s 43 total tenants residing in the Project during the year, including move-in and move-out residents, were selected for testing. Repeat Finding from Prior Year: A similar matter was reported in 2016 as finding Recommendation: We recommend the Project review policies and procedures with applicable employees and remind them of the importance of following regulations regarding maintenance of tenant files and the calculation of tenant rent. Adjustments should be made to Form as needed. Views of Responsible Officials: Management agrees with the finding and recommendation. 24

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34 Auditor Information Year Ended December 31, 2017 Eide Bailly LLP Certified Public Accountants 200 East 10 th Street, Suite 500 PO Box 5125 Sioux Falls, South Dakota Partner: Angie Hillestad Federal Employer ID Number:

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