LEIBA & BOWERS Certified Public Accountants

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1 CENTRAL VALLEY LOW INCOME HOUSING CORPORATION 2431 March Lane, Suite 350 Stockton, CA * * * * * * CONSOLIDATED FINANCIAL STATEMENTS REPORTS REQUIRED BY GOVERNMENT AUDITING STANDARDS ADDITIONAL REPORTS REQUIRED BY UNIFORM GUIDANCE For the Year Ended June 30, 2016 * * * * * * Audit Performed By LEIBA & BOWERS Certified Public Accountants March 31, 2017

2 Table of Contents Consolidated Financial Statements Independent Auditor s Report... 1 Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities and Changes in Unrestricted Net Assets... 4 Consolidated Statement of Functional Expenses for Consolidated Statement of Functional Expenses for Consolidated Statements of Cash Flows... 7 Notes to the Consolidated Financial Statements... 8 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 for Each Major Federal Program and Report on Internal Control Over Compliance Required by Uniform Guidance Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Schedule of Prior Year Audit Findings... 23

3 LEIBA & BOWERS Certified Public Accountants 305 North El Dorado Street, Suite 302 Stockton, California (209) (209) fax Independent Auditor's Report The Board of Directors Central Valley Low Income Housing Corporation We have audited the accompanying consolidated financial statements of Central Valley Low Income Housing Corporation (CVLIHC) (a nonprofit organization), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and changes in unrestricted net assets, functional expenses and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements CVLIHC s administration is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. 1

4 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Central Valley Low Income Housing Corporation as of June 30, 2016 and 2015, and the changes in their net assets and their cash flows for the years 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 consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200 Subpart F, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 31, 2017, on our consideration of CVLIHC 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 ABC Organization s internal control over financial reporting and compliance. LEIBA & BOWERS Certified Public Accountants March 31,

5 Consolidated Statements of Financial Position June 30, 2016 and 2015 ASSETS Current Assets Cash $ 241,199 $ 344,239 Contracts receivable 230, ,556 Other current assets 23,877 19,451 Total Current Assets 495, ,246 Property and Equipment 1,123,458 1,187,426 Total Assets $ 1,619,312 $ 1,778,672 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 4,451 $ 5,754 Notes payable - current 40,000 38,100 Accrued liabilities 156, ,765 Total Current Liabilities 200, ,619 Notes Payable 1,273,077 1,311,177 Total Liabilities 1,473,823 1,491,796 Unrestricted Net Assets 145, ,876 Total Liabilities and Net Assets $ 1,619,312 $ 1,778,672 See independent auditor's report and notes to consolidated financial statements. 3

6 Consolidated Statements of Activities and Changes in Unrestricted Net Assets Years Ended June 30, 2016 and Revenues Contract $ 4,846,938 $ 5,127,476 Program 315, ,656 Rental 45,176 41,015 Rent support - SPICE (152) 1,527 Other income 3,003 1,008 Total Revenues 5,209,996 5,456,682 Expenses Program 5,137,743 5,035,471 Administration 213, ,043 Total Expenses 5,351,383 5,265,514 Net Increase (Decrease) in Unrestricted Net Assets (141,387) 191,168 Unrestricted Net Assets, July 1 286,876 95,708 Unrestricted Net Assets, June 30 $ 145,489 $ 286,876 See independent auditor's report and notes to consolidated financial statements. 4

7 Consolidated Statement of Functional Expenses Year Ended June 30, 2016 Supportive Housing Program Shelter Plus Care Client services $ 324,686 2,087,283 Program Expense SJ County Mental Health Continuum of Care ESG Total Administration Total Expenses $ $ 827,296 $ 79,267 $ 3,502,267 $ 56,912 $ 3,559,179 $ 183,735 Salaries and wages 75, , , ,174 41,835 1,032,415 73,127 1,105,542 Payroll tax expense 6,674 15,515 51,860 17,202 3,550 94,801 6, ,027 Workers compensation ,242 1, ,919 9,161 16,080 Employee benefits 20,416 62,194 99,519 55, ,224 10, ,141 Telephone 1,854 2,780 6,544 3,870-15,048 2,008 17,056 Mileage reimbursement , , ,165 Office rent 4,744 7,477 9,568 11,705 1,750 35,244 5,266 40,510 Conference and training - - 1, ,774-1,774 Consultants/ Outside services , ,250 35,713 64,963 Supplies 2,445 5,055 18,419 5,510 1,747 33, ,410 Professional fees 6,268 15,640 8,156 11,143 3,000 44,207 8,872 53,079 Insurance 4, ,550 2, , ,510 Other 1,444 2,276 54,774 3, ,589 3,798 66,387 Total expenditures 449,082 2,367,894 1,031,508 1,129, ,340 5,110, ,811 5,322,823 Depreciation 860 1,912 6,318 2, , ,540 Total Expenses $ 449,942 $ 2,369,806 $ 1,037,826 $ 1,131,334 $ 132,815 $ 5,121,723 $ 213,640 $ 5,335,363 SPICE Adjustments: Reductions $ (64,006) $ - $ - $ - $ - $ (64,006) $ - $ (64,006) Additions 80, ,026-80,026 Net SPICE Adjustments 16, ,020-16,020 Total Expenses $ 465,962 $ 2,369,806 $ 1,037,826 $ 1,131,334 $ 132,815 $ 5,137,743 $ 213,640 $ 5,351,383 See independent auditor's report and notes to consolidated financial statements. 5

8 Consolidated Statement of Functional Expenses Year Ended June 30, 2015 Supportive Housing Program Shelter Plus Care Client services $ 322,726 2,165,916 Program Expense SJ County Mental Health Continuum of Care ESG Total Administration Total Expenses $ $ 745,461 $ 65,331 $ 3,537,599 $ 64,710 $ 3,602,310 $ 238,166 Salaries and wages 76, , , ,560 35, ,688 77,675 1,056,363 Payroll tax expense 6,631 14,722 48,142 18,650 3,159 91,303 6,651 97,955 Workers compensation ,176 1, ,806 8,716 15,522 Employee benefits 15,376 49,694 80,272 46, ,291 17, ,234 Telephone 1,608 2,650 8,778 3,504-16,540 2,163 18,702 Mileage reimbursement ,521-1,521 Office rent 4,703 8,304 9,813 11,534 1,137 35,492 5,015 40,507 Conference and training Consultants/ Outside services ,198 31,198 Supplies 2,254 13,585 17,679 5, ,210 6,493 45,703 Professional fees 2,169 18,062 12,049 8,613-40,893 4,435 45,328 Insurance 4, ,400 2,286-10, ,486 Other 1,232 2,564 53,547 3, ,660 3,798 64,459 Total expenditures 437,572 2,441, ,884 1,052, ,116 5,012, ,297 5,241,709 Depreciation 732 1,583 4,774 1, , ,143 Total Expenses $ 438,304 $ 2,443,381 $ 979,658 $ 1,054,005 $ 106,460 $ 5,021,809 $ 230,043 $ 5,251,852 SPICE Adjustments: Reductions $ (66,617) $ - $ - $ - $ - $ (66,617) $ - $ (66,617) Additions 80, ,279-80,279 Net SPICE Adjustments 13, ,662-13,662 Total Expenses $ 451,966 $ 2,443,381 $ 979,658 $ 1,054,005 $ 106,460 $ 5,035,471 $ 230,043 $ 5,265,514 See independent auditor's report and notes to consolidated financial statements. 6

9 Consolidated Statements of Cash Flows Years Ended June 30, 2016 and CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Increase (decrease) in unrestricted net assets $ (141,387) $ 191,167 Adjustment to reconcile increase in net assets to cash provided by operating activities: Depreciation 63,968 59,434 (Increase) decrease in assets: Contracts receivable (3,222) 6,769 Other current assets (4,426) 1,146 Increase (decrease) in liabilities: Accounts payable (1,303) 56 Accrued liabilities 19,530 14,363 Net Cash Provided by (Used in) Operating Activities (66,840) 272,935 CASH FLOWS USED IN INVESTING ACTIVITY Purchases of property and equipment - (100,809) Net Cash Used in Investing Activity - (100,809) CASH FLOWS USED IN FINANCING ACTIVITY Payments of notes payable (36,200) (36,302) Net Cash Used in Financing Activity (36,200) (36,302) NET INCREASE (DECREASE) IN CASH (103,040) 135,824 CASH, July 1 344, ,415 CASH, June 30 $ 241,199 $ 344,239 Supplementary Information: Interest paid $ 24,939 $ 29,658 Income taxes paid $ 800 $ 800 See independent auditor's report and notes to consolidated financial statements. 7

10 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 NOTE 1. ORGANIZATION Central Valley Low Income Housing Corporation (CVLIHC) is a nonprofit public benefit corporation formed in 1992 to provide affordable housing and related support services to low income households and individuals in San Joaquin County (SJC). Central Valley Housing, LLC (LLC) was formed in 2003 to facilitate the purchase of real property used in the San Joaquin County CVLIHC Supporting People in a Community Environment (SPICE) program. The SPICE properties are held in the name of the LLC, but the properties are treated as beneficially owned by CVLIHC. The members of the LLC consist of CVLIHC, Hull Family Properties, LLC and C&J Ventures, LLC. See Note 9. In October 2012, the LLC amended its operating agreement and converted the entity form from a limited liability company to a limited partnership (LP) in order to qualify for the welfare exemption pursuant to California Revenue and Taxation Code Section 214 and, therefore, be exempt from most ad valorem property taxes. The certificate of limited partnership (converted) was obtained from the Secretary of State of California in March NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include CVLIHC and LP. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have, in all material respects, been prepared on the accrual basis in conformity with U.S. generally accepted accounting principles. CVLIHC and LP have not received any restricted donations. Accordingly, net assets, revenues and expenses are classified exclusively as unrestricted net assets. Use of Estimates - Functional Allocation of Expenses The preparation of financial statements requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Estimates were used in allocating indirect and joint costs reported on the Consolidated Statement of Functional Expenses. For most costs, allocations were based on estimated employee time devoted to the particular function or programs. Costs for the executive director were allocated to the two main functional categories namely program services and administration based on actual and estimated time spent on programs. For all other employees, time allocation is based on employee time card entries. Credit Risk Management believes CVLIHC is not exposed to any significant credit risk on its bank deposits. 8

11 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 Contracts Receivable Contracts receivable consists of contract revenue billed in the current year and where payment is received after year end. No allowance for uncollectible amounts were established since these amounts were subsequently collected in full. Depreciation Depreciable assets consisting of office furniture and equipment are recorded at cost. Depreciation on these assets is computed using the straight line method over 5-7 years. Depreciation expense for these assets totaled $12,540 in 2016 and $10,134 in Real properties purchased under the SPICE program are recorded at cost. Costs of repairs and maintenance are charged to expense. Depreciation on these properties is computed using the straight line method over 27.5 years. Depreciation expense relating to these properties was $51,427 in 2016 and $49,291 in Income Taxes CVLIHC is a nonprofit corporation exempt from Federal income taxes under Internal Revenue Code Section 501(c)(3), and California Revenue and Taxation Code Section 23701(d). CVLIHC has been classified as a public charity by the Internal Revenue Service. The LP (formerly LLC) is a for profit company that files tax returns as a pass-through entity. As such, any income tax is borne by its partners (previously members). The consolidated group incurs only the California minimum income tax of $800 per year. During 2016 and 2015, the LP paid the California minimum tax. NOTE 3. PROPERTY AND EQUIPMENT The major categories of property and equipment as of June 30, 2016 and 2015 are summarized as follows: Office furniture and equipment $ 78,621 $ 78,621 Transportation vehicle 16,636 16,636 Land 391, ,500 Building 1,185,800 1,185,800 Building Improvements 84,174 84,174 Total 1,756,731 1,756,731 Accumulated depreciation (633,273) (569,305) Property and Equipment, net $ 1,123,458 $ 1,187,426 NOTE 4. NOTES PAYABLE The organization is effectively obligated to make payments to Wells Fargo Bank (previously Wachovia 9

12 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 Bank) on eight real estate loans used to acquire the SPICE properties in The loan agreements, in the name of the LLC, are secured by a first deed of trust on the properties. The loans require bi-weekly payments over 30 years, with an initial variable interest rate of 5.5% and a rate of 3.79% at June 30, The interest rate may be adjusted every two weeks and required minimum bi-weekly payments are adjusted each September. For the year ended June 30, 2016, the minimum bi-weekly payment was $2,447. Beginning in mid-september 2016 the bi-weekly payment will decrease to $2,378 In addition, the properties are subject to an obligation of $672,550 to SJC that is secured by a deed of trust. The organization is not currently required to make payments under this agreement with SJC. See Note 10. Aggregate maturities of notes payable over the next five years are as follows: Year Ending June 30,: 10 HUD San Joaquin County Wells Fargo Total 2017 $ $ 40,000 $ 40, ,000 42, ,100 44, ,300 46, ,600 48,600 Thereafter 672, ,527 1,092,077 Total 672, ,527 1,313,077 Current portion (40,000) (40,000) Total Non-current $ 672,550 $ 600,527 $ 1,273,077 NOTE 5. CONTRACTS, GRANTS, PROGRAM ACTIVITIES CVLIHC received revenue from more than twenty grants or contracts, including renewals with SJC and City of Stockton. Twenty-three of these contracts (twenty-nine in 2015), the organization was a subrecipient of funds from three federal programs (SHP, SPC, CoC and ESG) administered by the U.S. Department of Housing and Urban Development (HUD). See Note 12. NOTE 6. CONCENTRATIONS, CLAIMS and CONTINGENCIES CVLIHC receives federal financial assistance as a sub-recipient under three HUD programs. The current level of the Organization s operations and program services may be impacted if the funding is discontinued. Program rules provide for periodic audits and reviews that could result in claims for refunds or other sanctions if the compliance rules were violated. There are no current claims pending, and the administration believes any such claims or assessments would not be material. NOTE 7. LEASES CVLIHC is committed to two long-term leases. In November 2014, CVLIHC renewed and signed a 49- month lease agreement beginning on December 1, Base monthly rent is $3,375 for the duration of

13 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 the lease. In January 2012, CVLIHC entered into a lease agreement with GE Capital Corporation for the lease of a copier. The agreement calls for base monthly payments of $436 for sixty months. In September 2013, CVLIHC entered into a lease agreement with WKLST Partners LP for the lease of a 2-storey office building for its Wellness Center program. Base monthly rent is $2,875 for 34 months. Approximate future minimum lease commitments are as follows: Year Ending June 30, Equipment Office Total 2017 $ 5,669 $ 40,500 $ 46, ,500 40, ,000 17,000 $ 5,669 $ 98,000 $ 103,669 NOTE 8. PROGRAM REVENUE Program revenue consists of the repayment of rent and rent deposits, loans and other funds advanced for the clients served by CVLIHC. These funds are initially dispersed from the general checking account to pay rent deposits and are expensed by CVLIHC during the year. If the client or client s landlord repays the rent deposit or other funding, it is recorded by CVLIHC as program revenue. For the year ended June 30, 2016, CVLIHC reported $315,031 of program revenue. Prior year program revenue was $285,656. NOTE 9. SPICE PROGRAM & LP As part of SHP, CVLIHC and SJC developed the SPICE (Supporting People In a Community Environment) program. Through the SPICE program, CVLIHC acquired eight residential properties and provides support services, including case management and education assistance, to approximately twentyseven disabled, homeless individuals to assist them in making a successful transition from homelessness to permanent housing. The SPICE properties are held in the name of Central Valley Housing, LP (LP). The LP was formed to facilitate the purchase of the properties by CVLIHC. The properties are treated as beneficially owned by the organization, and accordingly, adjustments for rent, loan interest, principal, and other costs, must be made to properly consolidate these properties in the financial statements. See Note 12. In August, 2003 CVLIHC signed a three-year contract with SJC under SHP for the SPICE program. Under this contract, SJC is committed to provide approximately $137,000 to CVLIHC for direct support services and program operating costs. The contract was renewed for a period of three years in September In September 2003, the LP (LLC previously) purchased eight houses previously selected by CVLIHC. Under the SPICE contract, SJC provided $672,550 and obtained a deed of trust to secure the agreement. Under that agreement, the properties must be used in the SPICE program for twenty years. Beginning after year ten, the obligation to SJC will be forgiven at a rate of 10 percent or $67,255 per year. After year twenty, the obligation to SJC will lapse. However, the LP is currently not recognizing the forgiven 11

14 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 obligation totalling $185,000 at June 30, 2016 as the deed of trust remains with SJC. Additionally, the property is subject to a conventional real estate loan with Wells Fargo Bank. The loan requires bi-weekly payments of $2,447 at June 30, 2016 (see Note 4.) Because the rates of payment for occupancy are set by the SPICE program, the owners cannot increase rents. Given the nature of the SPICE agreements and the agreement between CVLIHC and the LLC, for the next ten years, the risks and benefits of ownership of the properties remain largely with CVLIHC. NOTE 10. RELATED PARTY TRANSACTIONS The daughter, the son and former daughter-in-law of the executive director are employed as support service personnel of CVLIHC. The daughter, son and former daughter-in-law received pay of $35,920, $62,307 and $36,720, respectively in 2016 (daughter, son, and daughter-in-law received pay of $24,880, $59,592 and $35,260, respectively in 2015). The Hull Family Trust (HFT) and C&J Ventures LLC each own a 25% interest in Central Valley Housing, LP (LP). Terry Hull is the settlor and trustee of the HFT. He is also an owner in Property Management Experts (PME). PME manages rental property that is leased by CVLIHC for use in the various programs it administers for the county and federal government. Payments to PME and the Hull Family trust for rent support and other client services totaled $115,792 in 2016 and $76,785 in NOTE 11. RETIREMENT PLANS In January, 2007, CVLIHC implemented a Simple IRA, a defined contribution retirement plan for its employees. CVLIHC contributes 3% of gross salary to each participating employee. Total employer contribution to the plan amounted to $1,592 in 2016 and $9,291 in NOTE 12. STATEMENTS OF FUNCTIONAL EXPENSES Contract and other activities are grouped into six broad programs: Supportive Housing Program (SHP), Shelter Plus Care (SPC), Continuum of Care (CoC), Emergency Services Grant Program (ESG) and San Joaquin County Mental Health. Client Services is a broad category which includes Case Management Services, Counseling Services, SPICE Program Services, Rent Support, and a number of other support services. Supportive Housing Program (SHP) CVLIHC was a sub-recipient of HUD funds under the Supportive Housing Program (24 CFR 583, CFDA ). The SHP provides transitional housing to facilitate the movement of homeless families to permanent housing and provides opportunities for permanent housing for persons with disabilities. The organization provided services, rent and other support payments under thirteen SHP contracts with San Joaquin County (SJC). SHP grants are renewable and applications may be submitted annually. The contracts can be terminated with a 30-day notice. The CARE Supportive Housing Program involves a collaborative effort with McHenry House, and Haven of Peace. CVLIHC manages the program while staff at other organizations provides some of the 12

15 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 counseling and case management. CVLIHC paid case management costs of about $2,805 in 2016 ($7,134 in 2015) to the collaborating agencies. Under the SHP permanent housing provisions, CVLIHC developed the SPICE program: Supporting People in a Community Environment. Through the SPICE program, CVLIHC acquired eight residential properties and provides supportive services, including case management and education assistance, to twenty-seven disabled, homeless individuals providing them safe, affordable permanent housing. CVLIHC provided services and other support payments under this program. See Note 10. The contract and grant revenue related to these SHP expenditures are as follows: SHP 01R11 $ 9,836 SHP 01R12 211,933 SHP 01R13 209,960 SPICE 156, ,589 $ 366,580 $ 369,358 Shelter Plus Care (SPC) CVLIHC was a sub-recipient of HUD funds under the Shelter Plus Care Program (24 CFR 582,CFDA ). The SPC program provides rental and other assistance to hard to serve, homeless individuals with serious disabilities. The organization provided services, rent and other support payments under five SPC contracts with San Joaquin County. SPC grants are renewable and applications may be submitted annually. The contracts can be terminated with a 30-day notice. The contract and grant revenue related to these SPC expenditures are as follows: SPC C-R6 $ 260,565 SPC C-R7 105,673 1,982,330 SPC C-R8 1,951,352 SPC 05 33, ,000 SPC 05-R 41,321 SPC 06 76,882 68,449 Continuum of Care (CoC) 13 $ 2,208,651 $ 2,427,344 CVLIHC was a sub-recipient of HUD funds under the Continuum of Care Program (24 CFR 578, CFDA ). The CoC program is designed to (1) promote community-wide commitment to the goal of ending homelessness; (2) provide funding for efforts by non-profit providers, States, and local governments to quickly re-house homeless individuals and families while minimizing the trauma and dislocation caused to homeless individuals, families, and communities by homelessness; (3) promote access to and effective utilization of mainstream programs by homeless individuals and families; and (4) optimize self-sufficiency among individuals and families experiencing homelessness.

16 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 Continuum of Care Program funds are used to pay for the eligible costs used to establish and operate projects under five program components: (1) permanent housing, which includes permanent supportive housing for persons with disabilities, and rapid rehousing; (2) transitional housing; (3) supportive services only; (4) Homeless Management Information Systems (HMIS); and (5) in some cases, homelessness prevention. CVLIHC continued providing services through Hermanas program contracts. The Hermanas programs provide transitional housing assistance to homeless households with substance abuse problems under HUD s Supportive Housing Program SHP 98sm R8 $ $ 121,299 SHP 98sm R9 161,927 33,463 SHP 98sm R10 7,853 SHP 98ssh R8 219,297 SHP 98ssh R9 82,497 SHP 98ssh R10 263,961 SHP 98ssh R11 11,672 HERMANAS 247, ,039 CARE 395, ,187 1,088,619 $ 1,010,782 San Joaquin County Mental Health. CVLIHC received funds under eleven contracts with San Joaquin County Behavioral Health Services Mental Health (SJC MH). The first contract requires CVLIHC to provide case management services to homeless individuals and families. The initial contract (SJC MH 2000) has been renewed annually. Through an amendment to the first contract, SJC MH engaged CVLIHC to provide case management and continuing support services for homeless and at-risk individuals throughout San Joaquin County who are in need of mental health and related services. SJC MH renewed the Allies Dual Diagnosis program to its first contract with CVLIHC. The program provides intensive, integrated mental health and substance abuse services to approximately 25 dually diagnosed individuals who have been victims of physical and/or sexual abuse as adults and/or as children. The third contract is a service agreement whereby CVLIHC provides certain consulting services, such as grant writing, program development, evaluation and analysis, housing development, and related projects. Funding for these services is from general funds. Continuation is contingent upon the availability of county funds. The contract is renewable annually. Three additional contacts utilize funds from the State of California s Mental Health Services Act MHSA. One contract is to cover costs related to planning meetings to develop a County plan for MHSA funds. This contract expires with the end of the local planning process. A second contract is for the development and implementation of a Wellness Center, a source of peer level counseling and recovery activities. This 14

17 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 contract is renewable on an annual basis. The third contract is for the CHOICE (Creating Housing Opportunities In a Community Environment), which works in collaboration with Full Service Partnerships created by SJC MH, to provide housing for persons enrolled by the Full Service Partnerships; the third contract was extended to June 30, 2011, and is renewable thereafter. CVLIHC also has a service agreement with SJC MH to provide consulting and planning services, primarily related to housing for mental health consumers. This agreement is renewable annually. Two contracts with San Joaquin County Behavioral Health Services Office of Substance Abuse, through funding provided under Proposition 36 from the State of California and the drug court program, were to cover the costs of sober living environment (SLE) providers to persons referred from the funding source. CVLIHC s responsibilities are to identify SLE providers and process reimbursements for housing in a timely manner. Continuation is contingent upon the availability of funds to the County. The contracts are renewable annually. The contract and grant revenue related to SJC MH expenditures are as follows: Community Service Agreement (SJC MH 2015/2014) $ 106,860 $ 96,681 Allies 2 90,995 79,009 National Alliance on Mental Illness (NAMI) 68,930 63,518 MHSA - CHOICE 239, ,697 MHSA - Wellness Planning & Consulting Agreement 416, ,169 Drug Court, Parole Re-Entry & Others 43,563 80,668 $ 966,051 $ 995,742 CVLIHC also earns interest income and receives other revenue including contract and grant revenue to offset administrative costs. During the current fiscal year, CVLIHC received $0 for administrative costs. Emergency Solutions Grants Program (ESG) In July 2012, CVLIHC became a sub-recipient of HUD funds under the Homeless Emergency Assistance and Rapid Transition to Housing (HEART) Act of The Emergency Solutions Grants Program (ESG) (24 CFR 576, CFDA ) replaces the Emergency Shelter Grants Program, and expands the eligible activities to include homelessness prevention and rapid re-housing components. The purpose of the ESG program is to assist individuals and families quickly regain stability in permanent housing after experiencing a housing crisis of homelessness. 15

18 Notes to the Consolidated Financial Statements June 30, 2016 and 2015 The contract and grant revenue related to these ESG expenditures are as follows: ESG SJC $ 28,453 $ 32,722 ESG City of Stockton 110,799 76,238 SPICE Adjustments $ 139,252 $ 108,960 The SPICE properties are held in the name of Central Valley Housing, LP (LP). The LP was formed to facilitate the purchase of the properties by CVLIHC. The properties are treated as beneficially owned by the organization, and accordingly, adjustments for rent, loan interest, principal, and other costs, must be made to properly consolidate these properties in the financial statements. Also see Note Reduction in expenses: Mortgage payments made by CVLIHC $ 64,006 $ 66,617 Additions to expenses: Mortgage interest expense 24,939 29,658 Depreciation on SPICE properties 51,427 49,291 Other LLC expenses related to SPICE 3,660 1,330 Total 80,026 80,279 Net SPICE adjustments $ 16,020 $ 13,662 NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by CVLIHC in estimating the fair value of its financial instruments: Contracts receivable The carrying amount reported in the consolidated statement of financial position approximates fair value because the amount was subsequently collected. Notes payable The carrying amount reported in the consolidated statement of financial position approximates fair value because the Organization can obtain similar note at the same terms. NOTE 14. SUBSEQUENT EVENTS The SJC-BHS administration s plan to have the Wellness Center become a separate entity by July 1, The management has evaluated subsequent events after the balance sheet date of June 30, 2016, through March 31, 2017, which was the date the financial statements were made available to be issued. 16

19 LEIBA & BOWERS Certified Public Accountants 305 North El Dorado Street, Suite 302 Stockton, California (209) (209) fax 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 The Board of Directors Central Valley Low Income Housing Corporation 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 consolidated financial statements of Central Valley Low Income Housing Corporation (CVLIHC), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and changes in unrestricted net assets, functional expenses and cash flows for the years then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated March 31, Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered CVLIHC 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 CVLIHC s internal control. Accordingly, we do not express an opinion on the effectiveness of CVLIHC 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. 17

20 Compliance and Other Matters As part of obtaining reasonable assurance about whether CVLIHC s consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization 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 organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. LEIBA & BOWERS Certified Public Accountants March 31,

21 LEIBA & BOWERS Certified Public Accountants 305 North El Dorado Street, Suite 302 Stockton, California (209) (209) fax Independent Auditor's Report on Compliance for Each Major Programs and Report on Internal Control Over Compliance Required by the Uniform Guidance The Board of Directors Central Valley Low Income Housing Corporation Report on Compliance for Each Major Federal Program We have audited the compliance of Central Valley Low Income Housing Corporation (CVLIHC) with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect to organization s Continuum of Care Program (COC) and Shelter Plus Care (SPC) for the year ended June 30, These are the major federal programs of the organization that were supported by funds received from the County of San Joaquin as a pass-through from the U.S. Department of Housing and Urban Development. Management s Responsibility CVLIHC s administration is responsible for compliance with the requirements of laws, regulations, contracts, and grant agreements applicable to each of its major federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of CVLIHC 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, Subpart F 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 ABC Organization 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. However, our audit does not provide a legal determination of CVLIHC s compliance. 19

22 Opinion on Each Major Federal Program In our opinion, Central Valley Low Income Housing Corporation 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 June 30, Report on Internal Control Over Compliance CVLIHC s administration 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 CVLIHC 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 CVLIHC s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. LEIBA & BOWERS Certified Public Accountants Stockton, California March 31,

23 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 FEDERAL GRANTOR/PROGRAM OR CLUSTER TITLE CVLIHC REFERENCE NUMBER HUD GRANT NUMBER SJC GRANT NUMBER FEDERAL EXPENDITURES U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: SUB-RECIPIENT OF FEDERAL FUNDS FROM - SAN JOAQUIN COUNTY (SJC), CALIFORNIA Supportive Housing Program (SHP) CFDA SHP 01R12 $ 3,141 SHP 01R13 217,254 SPICE R6 207,871 SPICE R5 CA0763L9T , ,942 Shelter Plus Care (SPC) CFDA Emergency Solutions Grants Program (ESG) CFDA Continuum of Care (CoC) CFDA SPC C-R7 378,880 SPC C-R8 1,828,980 SPC 05 CA0835C9T A ,842 SPC 05-R 34,363 SPC 06 79,741 2,369,806 ESG - SJC 26,502 HERMANAS IR7 1,600 HERMANAS IR8 115,108 HERMANAS IIR7 184 HERMANAS IIR8 75,453 HERMANAS IIR9 57,228 SHP 98 sshr10 282,268 SHP 98 sshr11 9,130 SHP 98 smr9 174,225 SHP 98 smr10 12,938 CARE R7 838 CARE R8 67,714 CARE R9 334,648 1,131,334 CITY OF STOCKTON (CoS), CALIFORNIA Emergency Solutions Grants Program (ESG) CFDA ESG - CoS 106,313 TOTAL NON-ARRA EXPENDITURES OF FEDERAL AWARDS $ 4,083,897 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 4,083,897 The following notes are an integral part of this schedule: NOTE 1: BASIS OF PRESENTATION The schedule of expenditures of federal awards includes the federal grant activity of Central Valley Low Income Housing Corporation (CVLIHC) under programs of the federal government for the year ended June 30, The federal award expenditures are reported in the statement of activities and statement of functional expenses. In addition, the information in this schedule is presented in accordance with the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Subpart F Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).. Because the schedule presents only a selected portion of the operations of CVLIHC, it is not intended to and does not present the financial position, changes in net assets or cash flows of CVLIHC. 21

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 SECTION I SUMMARY OF AUDITOR'S RESULTS FINANCIAL STATEMENTS: Type of auditor's report issued: unqualified Internal control over financial reporting: Significant deficiencies identified? yes X none reported Material weaknesses identified? yes X no Noncompliance material to financial statements noted? yes X no FEDERAL AWARDS: Internal control over major programs: Significant deficiencies identified? yes X none reported Material weaknesses identified? yes X no Type of auditor's report issued on compliance for major programs: unqualified Any audit findings disclosed that are required to report under Audit findings paragraph (a)? yes X no Identification of major programs: Continuum of Care Program CFDA No Shelter Plus Care CFDA No 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 None reported. SECTION III FEDERAL AWARD FINDINGS & QUESTIONED COSTS None reported. 22

25 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS YEAR ENDED JUNE 30, 2016 FINDINGS FROM YEAR ENDED JUNE 30, 2015 None to report 23