TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) dba TELACU PLAZA HUD PROJECT NUMBER 122EH490WHHL8 REPORT ON AUDIT OF FINANCIAL STATEMENTS, ACCOMPANYING INFORMATION AND COMPLIANCE AND INTERNAL CONTROL YEARS ENDED DECEMBER 31, 2016 AND 2015 Program: Section 202 of the National Housing Act accompanied with a Section 8 Housing Assistance Payment Contract
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) TABLE OF CONTENTS Page Independent auditor s report 12 Financial statements Statements of financial position 34 Statements of profit and loss changes in net assets 56 Statements of changes in net assets 7 Statements of cash flows 89 Notes to financial statements 1017 Accompanying information for the year ended December 31, 2016 Accompanying information required by HUD 18 Computation of surplus cash, distributions and residual receipts 19 Supplemental information 2034 Schedule of changes in property and equipment 35 Schedule of expenditures of federal awards 36 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 3738 Independent auditor's report on compliance for each major program and on internal control over compliance required by the Uniform Guidance 3940 Summary of auditor s results 4142 Auditor s comments on audit resolution matters 43 Management company certification 44 Certification of officers 45
INDEPENDENT AUDITOR S REPORT To the Board of Directors of TELACU Senior Manor Los Angeles (A California NotForProfit Corporation) Report on the Financial Statements We have audited the accompanying financial statements of TELACU Senior Manor Los Angeles, which comprise the statements of financial position as of December 31, 2016 and 2015, and the related statements of profit and loss changes in net assets, changes in net assets, 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 TELACU Senior Manor Los Angeles 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 TELACU Senior Manor Los Angeles 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.
TELACU Senior Manor Los Angeles Page Two Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TELACU Senior Manor Los Angeles as of December 31, 2016 and 2015, 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. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 18 to 35 is presented for purposes of additional analysis as required by the Uniform Financial Reporting Standards issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by the Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 31, 2017, on our consideration of TELACU Senior Manor Los Angeles 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 TELACU Senior Manor Los Angeles internal control over financial reporting and compliance. July 31, 2017 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 2
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) ASSETS STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 AND 2015 2016 2015 Current assets Cash operating $ 51,520 $ 12,707 Accounts receivable tenants 3,350 251 Accounts receivable subsidy 9,090 Accounts receivable operations 190 Prepaid expenses 8,530 1,720 Total current assets 72,490 14,868 Deposits held in trustfunded Tenants security deposits 11,455 11,331 Restricted deposits and funded reserves Reserve for replacements (Note 3) 319,676 278,824 Property and equipment (Note 2) Land 900,000 900,000 Buildings and improvements 4,373,261 4,369,162 Office furniture and equipment 121,277 121,277 5,394,538 5,390,439 Less: Accumulated depreciation (3,088,990) (2,934,435) Total property and equipment 2,305,548 2,456,004 $ 2,709,169 $ 2,761,027 See notes to financial statements 3
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) STATEMENTS OF FINANCIAL POSITION (CONTINUED) DECEMBER 31, 2016 AND 2015 LIABILITIES AND NET ASSETS 2016 2015 Current liabilities Accounts payable operations $ 47,759 $ 34,714 Accounts payable HUD 231 Accrued wages payable 6,031 6,277 Accrued management fees (Note 4) 4,604 4,535 Accrued interest mortgage payable (Note 2) 21,304 21,865 Accrued property taxes 3,116 Current portion of mortgage payable (Note 2) 81,709 74,701 Total current liabilities 164,523 142,323 Deposits liabilities Tenant security deposits 9,858 9,735 Long term liabilities Mortgage payable (Note 2) 2,840,658 2,915,359 Less current portion of mortgage payable (81,709) (74,701) Residual receipts note (Note 2) 864,798 864,798 Residual receipts note TELACU Affordable Housing II, Inc. (Note 4) 25,000 25,000 Accrued interest residual receipts note (Note 2) 644,728 618,784 Accrued interest residual receipts note TELACU Affordable Housing II, Inc. (Note 4) 16,657 14,657 Total long term liabilities 4,310,132 4,363,897 Total liabilities 4,484,513 4,515,955 Net assets unrestricted (1,775,344) (1,754,928) $ 2,709,169 $ 2,761,027 See notes to financial statements 4
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) Rental revenue Vacancies Financial revenue Other revenue Admin. expenses Utilities expenses STATEMENTS OF PROFIT AND LOSS CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2016 AND 2015 2016 2015 Rent revenue gross potential 137,976 $ 133,935 Tenant assistance payments 686,928 679,106 Rent revenue stores and commercial 24,878 24,154 Garage and parking spaces Flexible subsidy revenue Miscellaneous rent revenue Excess rent Rent revenue/insurance Special claims revenue Retained excess income Lease revenue (nursing home or section 232B&C or AL) Total rental revenue potential at 100% occupancy $ 849,782 $ 837,195 Apartments ( 1,190 ) ( 1,192 ) Stores and commercial ( ) ( ) Rental concessions ( ) ( ) Garage and parking spaces ( ) ( ) Miscellaneous ( ) ( ) Total vacancies ( 1,190 ) ( 1,192 ) Net rental revenue rent revenue less vacancies $ 848,592 $ 836,003 Nursing homes and other elderly care revenues $ $ Financial revenue property operations Revenue from investments residual receipts Revenue from investments reserve for replacements 256 325 Revenue from investments miscellaneous Total financial revenue $ 256 $ 325 Laundry and vending 2,070 2,375 Tenant charges Interest reduction payments revenue Expiration of Gift Donor Restrictions Gifts Miscellaneous revenue 1,795 Total other revenue $ 3,865 $ 2,375 Total revenue $ 852,713 $ 838,703 Conventions and meetings 1,671 1,149 Management consultants Advertising and marketing 2,236 239 Other renting expenses 241 342 Office salaries 5,119 5,119 Office expenses 19,805 17,397 Office or model apartment rent Management fee 44,247 44,283 Manager or superintendent salaries 45,002 42,494 Administrative rent free unit Legal expenses (property) 42 Audit expenses 6,999 7,215 Bookkeeping fees/accounting services 6,095 6,096 Bad debts Miscellaneous administrative expenses 6,242 10,063 Total administrative expenses $ 137,657 $ 134,439 Fuel oil/coal Electricity 38,270 40,804 Water 8,937 9,006 Gas 3,560 4,451 Sewer 7,514 7,186 Total utilities expense $ 58,281 $ 61,447 See notes to financial statements 5
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) Operating and maint. expenses Taxes and insurance Financial expenses Entity income and expenses Change in net assets from operations STATEMENTS OF PROFIT AND LOSS CHANGES IN NET ASSETS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 2016 2015 Payroll $ 42,659 $ 43,488 Supplies 25,665 34,034 Contracts 31,046 73,612 Operating and maintenance rent free unit Garbage and trash removal 3,386 3,740 Security payroll/contract 16,653 21,416 Security rent free unit Heating/cooling repairs and maintenance 6,432 3,391 Snow removal Vehicle and maint. equipment operation and repairs 18,051 18,133 Lease expense Miscellaneous operating and maintenance expenses 3,786 3,708 Total operating and maintenance expenses $ 147,678 $ 201,522 Real estate taxes 6,271 6,761 Payroll taxes (property's share) 7,240 7,248 Property and liability insurance (hazard) 15,547 14,924 Fidelity bond insurance Workmen's compensation 8,095 6,238 Health insurance and other employee benefits 10,090 9,220 Miscellaneous taxes, licenses, permits and insurance 3,636 1,780 Total taxes and insurance $ 50,879 $ 46,171 Interest on first mortgage (or bonds) payable 258,790 265,245 Interest on other mortgages Interest on notes payable (longterm) 27,944 28,079 Interest on notes payable (shortterm) Interest on capital recovery payment (M2M) Mortgage insurance premium/service charge Miscellaneous financial expenses Total financial expenses $ 286,734 $ 293,324 Nursing homes and other elderly care expenses $ 37,345 $ 38,318 Total cost of operations before depreciation $ 718,574 $ 775,221 Profit (loss) before depreciation $ 134,139 $ 63,482 Depreciation $ 154,555 $ 152,091 Amortization $ $ Operating profit or (loss) $ (20,416) $ (88,609) Entity revenue Officer's salaries Incentive performance fee (M2M) Legal expenses Federal, state, and other income taxes Interest on notes Payable Interest on mortgage payable Other expenses Net entity expenses $ $ Change in unrestricted net assets from operations $ (20,416) $ (88,609) Change in temporarily restricted net assets from operations $ $ Change in permanently restricted net assets from operations $ $ Change in total net assets from operations $ (20,416) $ (88,609) See notes to financial statements 6
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2016 AND 2015 Balance, January 1, 2015 $ (1,666,319) Change in net assets (88,609) Balance, December 31, 2015 (1,754,928) Change in net assets (20,416) Balance, December 31, 2016 $ (1,775,344) See notes to financial statements 7
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2016 AND 2015 2016 2015 Cash flow from operating activities Revenue: Rental revenue $ 836,172 $ 835,813 Financial 256 325 Other revenue 3,865 2,375 Total revenue 840,293 838,513 Expenditures: Administrative (68,509) (70,948) Management fees (44,178) (39,748) Utilities and deposits (57,087) (60,814) Salaries and wages (93,026) (91,550) Operating and maintenance (106,134) (162,231) Property taxes (3,155) (10,211) Property insurance (15,565) (7,967) Miscellaneous taxes and insurance (26,842) (25,985) Tenant security deposits (1) 257 Interest on mortgage (259,351) (265,757) Total expenditures (673,848) (734,954) Net cash provided by (used in) operating activities 166,445 103,559 Cash flow from investing activities Purchase of property and equipment (12,079) (43,975) Net change in reserve for replacements (40,852) (51,414) Net cash provided by (used in) investing activities (52,931) (95,389) Cash flow from financing activities Principal payments on mortgage payable (74,701) (68,295) Net cash provided by (used in) financing activities (74,701) (68,295) Net change in cash and cash equivalents 38,813 (60,125) Cash and cash equivalents at beginning of year 12,707 72,832 Cash and cash equivalents at end of year $ 51,520 $ 12,707 See notes to financial statements 8
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 Reconciliation of changes in net assets to net cash provided by (used in) operating activities 2016 2015 Changes in net assets $ (20,416) $ (88,609) Adjustments to reconcile changes in net assets to net cash provided by (used in) operating activities: Depreciation 154,555 152,091 Changes in: Accounts receivable tenants (3,099) (5) Accounts receivable HUD (9,090) Accounts receivable operations 190 (68) Prepaid expenses (6,810) 5,862 Tenants security deposits (124) 174 Accounts payable operations 21,025 6,013 Accounts payable HUD (231) 104 Accrued liabilities 2,939 636 Accrued interest 27,383 27,567 Tenants security deposits payable 123 83 Prepaid revenue (289) Total adjustments 186,861 192,168 Net cash provided by (used in) operating activities $ 166,445 $ 103,559 Supplemental information Cash flow from investing activities related to the purchase of property and equipment for the year ended December 31, 2016 includes $7,980, which was included in accounts payable operations at December 31, 2015. See notes to financial statements 9
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION TELACU Senior Manor Los Angeles (the Corporation ) is a NotForProfit Corporation formed in accordance with the notforprofit statutes of the state of California. The Corporation was formed for the purpose of operating a 40 unit property known as TELACU Plaza (the Property ) located in the City of Los Angeles, California, which provides housing for lowincome elderly persons pursuant to Section 202 of the National Housing Act, as amended. The Corporation entered into a regulatory agreement with the U.S. Department of Housing and Urban Development ( HUD ) which contains, among other things, restrictions on transferring any of the Property s assets, assigning the rights to manage or receive the rents and profits of the property or assuming additional indebtedness. Pursuant to the regulatory agreement, the Property must maintain all units as affordable to lowincome elderly persons. The Property is obligated to recertify tenant eligibility on an annual basis. The Property has executed a Housing Assistance Payments ("HAP") Contract with HUD that expires on December 22, 2032. The HAP Contract provides subsidies to eligible tenants to enable such tenants to live in safe, adequate housing facilities they could not otherwise afford. Provisions of the contract establish maximum annual assistance payments by HUD to the Property. The Corporation can request from HUD an amount equal to 80% of contract rent during periods that the unit is vacant if certain conditions are met, but not to exceed 60 days. Claims must be submitted within 180 days of the date the unit was available for occupancy and should be submitted only after the claim period has ended. The HAP Contract, among other items, prohibits the sale, assignment, conveyance or transfer of the HAP Contract on all or any part of the Property without the prior consent of HUD. Such prohibition also includes the transfer or any other significant change in the ownership of the Corporation. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation of the accompanying financial statements The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The primary intent of the financial statements is for the U.S. Office of Management and Budget. The financial statements will also be used by HUD; therefore, the presentation and account descriptions have been established to conform to their reporting guidelines. In addition, the financial statements are in conformity with the provisions required by the NotforProfit Entities Presentation of Financial Statements topic of the FASB Accounting Standards Codification ("ASC") 958205. This statement established standards for external financial reporting for NotforProfit Organizations. 10
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of preparation of the accompanying financial statements (continued) The NotforProfit Entities Presentation of Financial Statements topic of the FASB ASC primarily affects the display of the financial statements and requires that the amounts for each of three classes of net assetsunrestricted, temporarily restricted and permanently restrictedbe displayed in an aggregate statement of financial position and the amounts of change in each of those classes of net assets be displayed in a statement of changes in net assets. All assets held by the Corporation at December 31, 2016 and 2015 are classified as unrestricted. Cash and cash equivalents For the statements of cash flows, all unrestricted investments with original maturities of three months or less are cash equivalents. At December 31, 2016 and 2015, cash and cash equivalents consist of an unrestricted checking account and a petty cash fund. Tenant receivable and bad debt policy Tenant rent charges for the current month are due on the first of the month. Tenants who are evicted or moveout are charged with damages or cleaning fees, if applicable. Tenant receivables consist of amounts due for rental income or the charges for damages and cleaning fees. The Corporation does not accrue interest on the tenant receivable balances. Tenant receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct writeoff method is not material to the financial statements for the years ended December 31, 2016 and 2015. There was no bad debt expense during the years ended December 31, 2016 and 2015. Property and equipment Property and equipment are recorded at cost and are depreciated using the straightline method over the estimated useful life, which ranges from 5 40 years. Deductions are made for retirements resulting from renewals or betterments. The Corporation is subject to the provisions of the Impairment or Disposal of LongLived Assets topic of the FASB ASC 36010. Impairment or Disposal of LongLived Assets has no retroactive impact on the Corporation s financial statements. The standard requires impairment losses to be recorded on longlived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets (excluding interest) are less than the carrying amount of the assets. In such cases, the carrying value of assets to be held and used are adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair value less selling expenses. No impairment losses were recognized during the years ended December 31, 2016 and 2015. 11
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition The Corporation rents apartment units on a month to month basis and recognizes revenues when earned. Under the regulatory agreement, the Corporation may not increase rents charged to tenants without prior HUD approval. Proceeds from grant agreements are not recorded until applications for payment have been submitted. Income will be recognized after conditions in the agreement stipulating the use of the funds are satisfied. See Note 7. Advertising costs Advertising costs are expensed as incurred and are included in advertising and marketing in the statements of profit and loss changes in net assets. Property taxes Property taxes are expensed in the year of the lien on the property such that twelve months of expense are charged to operations each year. Concentration of credit risk The Corporation maintains several cash accounts at financial institutions and at various intervals may exceed the Federal Deposit Insurance Corporation s insurance limit. If the financial institution failed, the Corporation could be at risk for a portion of the accounts which exceed the insured limit. The Corporation has not experienced any losses in such accounts. The Corporation anticipates that the HAP Contract will be extended past its current expiration date. Management cannot reasonably estimate the ramifications, if any, of this uncertainty. The Property received approximately 81% and 84% of total rental revenue from the HAP Contract for the years ended December 31, 2016 and 2015, respectively. The Corporation s operations are concentrated in the multifamily real estate market. In addition, the Corporation operates in a heavily regulated environment. The operations of the Corporation 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, if any, to comply with a change. 12
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of estimates in the preparation of financial statements 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value The Corporation is subject to the provisions of the Fair Value Measurement topic of the FASB ASC 82010 which provides guidance for assets and liabilities which are required to be measured at fair value and requires expanded disclosure for fair value measurement. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value and does not require any new fair value measurements. The Fair Value Measurement did not have a material impact on the Corporation s financial statements for the years ended December 31, 2016 and 2015. Accounting for uncertainty in income taxes The Corporation is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and state income tax and has been classified as an other than private foundation. Accordingly, no provision for federal and state taxes on revenue and income has been recognized in the accompanying financial statements. Generally, the Federal and State tax returns were subject to examinations from the three years after the later of the original or extended due date or the date filed with the applicable tax authority. Subsequent events Management performed an evaluation of the Corporation s activity through July 31, 2017, the audit report date, and has concluded that there are no significant subsequent events requiring disclosure through the date these financial statements were available to be issued. 13
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 2FINANCING Mortgage loan The Corporation entered into a mortgage loan agreement insured by the Federal Housing Administration ( FHA ) under Section 202 of the National Housing Act, as amended. The original amount of the mortgage is $3,608,900. The loan agreement provides, among other items, for the following: a. A term of 40 years maturing in February 2033; b. An interest rate of 9% per annum; c. Monthly principal and interest payments of $27,838; and d. Monthly deposits to a reserve fund for replacing assets of the Corporation. For the years ended December 31, 2016 and 2015, interest expense totaled $258,790 and $265,245, and interest paid totaled $259,351 and $265,757, all respectively. At December 31, 2016 and 2015, accrued interest was $21,304 and $21,865, respectively. The liability of the Corporation under the mortgage loan is limited to the underlying value of the property and equipment collateral in addition to other amounts on deposit. Annual principal payments for each of the next five years and thereafter are as follows: 2017 $ 81,709 2018 89,374 2019 97,730 2020 106,928 2021 116,958 Thereafter 2,347,959 Residual receipts note $ 2,840,658 The Corporation has recorded a residual receipts note totaling $864,798 payable to The Community Redevelopment Agency of the City of Los Angeles, California and serviced by the Los Angeles Housing Department. Proceeds from the note were used for certain predevelopment and construction costs. The note bears simple interest at 3% per annum. Principal and interest payable under the note are due in February 2033. During the years ended December 31, 2016 and 2015, interest expense totaled $25,944 and $26,079, respectively. At December 31, 2016 and 2015, outstanding principal totaled $864,798, and accrued interest totaled $644,728 and $618,784, respectively. 14
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 3RESERVE FOR REPLACEMENTS, RESIDUAL RECEIPTS RESERVE, AND DISTRIBUTIONS Pursuant to the terms of the regulatory agreement, no cash distributions may be made to notforprofit owners, nor can they incur obligations on behalf of the Corporation, to themselves or any officers, directors, stockholders, trustees, partners, beneficiaries under a trust, or any of their nominees without prior written approval of HUD. Surplus Cash as defined by HUD, existing at the end of the fiscal year must be deposited in a residual receipts fund in the name of the Corporation. The residual receipts fund is an asset of the Corporation held under HUD control. Withdrawals from the residual receipts fund may only be made with the approval of HUD for Property purposes, including reduction of housing assistance payments. If HUD determines at any time that Property funds are more than the amount needed for Property operations, reserve requirements and permitted distributions, HUD may require excess funds to be placed in an account to be used to reduce HUD payments or for other Property purposes. Upon termination of the HAP Contract, any excess funds in residual receipts must be remitted to HUD. At December 31, 2016 and 2015, there were no funds in the residual receipts reserve. Pursuant to the terms of the regulatory agreement, the Corporation is required to make monthly deposits to the reserve for replacements fund. This fund is under the control of HUD. Disbursements from such fund may only be made after receiving the written consent of the Secretary of HUD. At December 31, 2016 and 2015, these funds totaled $319,676 and $278,824, respectively. NOTE 4RELATED PARTIES AND MANAGEMENT AGREEMENT The Corporation is managed by TELACU Residential Management, Inc. (the Agent ), an affiliate to the Sponsor (The East Los Angeles Community Union ( TELACU )). The management agreement has been approved by HUD and its terms are openended until canceled by HUD, the Sponsor or Agent. The management fee is based on a rate of 5.44% of income collected. Property management fees totaled $44,247 and $44,283 for the years ended December 31, 2016 and 2015, respectively. In accordance with HUD regulations, the Agent is also entitled to be reimbursed for the actual costs incurred for frontline management activities performed at the central office (as these activities are defined by HUD), including the occupancy and budget preparation functions. During the years ended December 31, 2016 and 2015, frontline related activities totaled $14,192 and $16,230, respectively. These reimbursements are included in the following accounts: Office salaries Bookkeeping fees/accounting services Miscellaneous administrative expenses Payroll 15
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 4RELATED PARTIES AND MANAGEMENT AGREEMENT (CONTINUED) Accrued frontline and management fees were $4,604 and $4,535 as of December 31, 2016 and 2015, respectively. The Corporation s insurance coverage is provided for under consolidated policies issued through conventional insurance providers and maintained by TELACU. The Corporation entered into a residual receipts note totaling $25,000 payable to TELACU Affordable Housing II, Inc., a related party. Proceeds from the note were used to pay an insurance deductible related to a 2006 claim. The note bears simple interest at 8% per annum. Principal and interest payable under the note are due in February 2033. For the years ended December 31, 2016 and 2015, interest expense totaled $2,000. At December 31, 2016 and 2015, principal totaled $25,000, and accrued interest totaled $16,657 and $14,657, respectively. Payments may be made from residual receipts with HUD s approval. NOTE 5SOCIAL SERVICES EXPENSE The Corporation utilizes a multifamily housing service coordinator to provide assistance to tenants. The multifamily housing service coordinator position and related expenses are funded through the HUD approved operating budget effective February 1, 2014. During the years ended December 31, 2016 and 2015, total service coordinator expense totaled $37,345 and $38,318, respectively. NOTE 6ROOFTOP LEASE The Corporation entered into a five year rooftop lease with OmniPoint Communications ( OmniPoint ). In exchange for allowing OmniPoint to place a communications antenna on the roof of the Property, the Corporation will receive a monthly payment. OmniPoint has the option to extend the lease for five additional and successive five year terms. During the years ended December 31, 2016 and 2015, the Corporation recognized $24,878 and $24,154 of revenue related to the lease, respectively. This lease revenue is recorded in the rent revenue stores and commercial account in the accompanying statements of profit and loss changes in net assets. 16
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2016 AND 2015 NOTE 7GREEN RETROFIT PROGRAM GRANT The Corporation entered into a Green Retrofit Commitment Plan and Retrofit Funding Agreement ("Retrofit Agreement") with HUD under the Green Retrofit Program for Multifamily Housing ("GRP"). The GRP is authorized by the American Recovery and Reinvestment Act of 2009. Under the Retrofit Agreement, the Corporation was awarded up to $324,813 in GRP funds to be utilized for certain retrofits, repairs and improvements to be made to the Property. The term of the Retrofit Agreement and related documents require the Corporation to operate the Property in accordance with the stated use requirements throughout the term (June 1, 2048). Noncompliance of the stated use requirements could subject the Corporation to liquidated damages or other remedies to the benefit of the GRP, or be considered an event of default under the regulatory agreement or HAP Contract. The Corporation received grant proceeds of $324,813. The Corporation represents it was in compliance with the terms of this grant; as such, revenue totaling $324,813 was recognized in prior years. Incentive performance fee During the use restriction period which expires June 1, 2048, the Sponsor is entitled to receive an annual incentive performance fee in the amount of 3% of the Property's annual effective gross income as defined by the commitment plan. Per the commitment plan, this fee does not accrue each year and is paid only from surplus cash as long as the Property is in compliance with all the terms and conditions in the commitment plan. During the years ended December 31, 2016 and 2015, the incentive performance fee was earned. There was insufficient surplus cash at December 31, 2016 and 2015 to accrue such a fee. NOTE 8CONTINGENCY Residual receipts reserve In accordance with the regulatory agreement, if HUD determines at any time that Property funds are more than the amount needed for Property operations, reserve requirements and permitted distributions, HUD may require excess funds to be placed in an account to be used to reduce HAP payments or for other Property purposes. Upon termination of the HAP Contract, any excess funds must be remitted to HUD. Residual receipt fund balances in excess of $250 per unit must be applied on a monthly basis to reduce the monthly housing assistance payments, and continue until the residual receipts fund reaches the retained balance of $250 per unit. As of December 31, 2016 and 2015, the balance was not in excess of the $250 per unit threshold. 17
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) ACCOMPANYING INFORMATION REQUIRED BY HUD YEAR ENDED DECEMBER 31, 2016 Reserve for replacements In accordance with the provisions of the regulatory agreement, cash is held to be used with the approval of HUD for replacing assets of the Corporation. Balance, January 1, 2016 $ 278,824 Monthly deposits ($6,282 x 12) 75,384 Other deposits repayment of subsidy loans 112,979 Interest 256 Approved withdrawals (34,770) Approved withdrawals subsidy loans (112,979) Other withdrawals bank fees (18) Balance, December 31, 2016 $ 319,676 In March 2017, the Corporation received HUD approval to increase the required reserve for replacement deposits from $6,282 to $6,376 effective January 1, 2016. The Corporation will make additional deposits totaling $1,128 in 2017. Nursing homes and other elderly care expenses Social services coordinator $ 37,345 18
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS YEAR ENDED DECEMBER 31, 2016 Part A Compute Surplus Cash 1. Cash $ 51,520 1. Cash Short Term Investments 1. Cash Tenant Security Deposits $ 11,455 1. Cash Total $ 62,975 2. Accounts receivable HUD $ 9,090 3. Other $ (a) Total Cash (Add Lines 1, 2, and 3) $ 72,065 Current Obligations 4. Accrued mortgage (or bond) interest payable $ 21,304 5. Delinquent mortgage (or bond) principal payments $ 6. Delinquent deposits to reserve for replacements $ 7. Accounts payable (due within 30 days) $ 47,759 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 8,700 10. Accrued expenses (not escrowed) $ 13,751 11. Prepaid Revenue $ 12. Tenant/Patient deposits held in trust (contra) $ 9,858 Reserve for replacement catch up deposit 13. Other current obligations from retroactive increase effective January 1, 2016 approved by HUD in 2017. $ 1,128 (b) Less Total Current Obligations (Add Lines 4 through 13) $ 102,500 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ (30,435) PART B Compute Distributions to Owners and Required Deposit to Residual Receipts 1. Surplus Cash $ 0 Mark to Market Projects 2. Incentive Performance Fee Payable $ 3. Percentage Surplus Cash Split 4. Surplus Cash Available for Second Mortgage Payments $ 5. Surplus Cash Available for Distribution $ 0 6. Deposit Due Residual Receipts $ 0 19
BALANCE SHEET DATA SUPPLEMENTAL INFORMATION Organization Name TELACU Senior Manor Los Angeles For Year Ending December 31, 2016 ASSETS FHA/Contract Number See cover page Acct No. Description of Account 1120 Cash Operations 51,520 1121 Construction Cash Account 1125 Cash Entity 1130 Tenant/Member Accounts Receivable (Coops) 3,350 1131 Allowance for Doubtful Accounts 1130N Net Tenant Accounts Receivable 3,350 1135 Accounts Receivable HUD 9,090 1137 Medicare/Medicaid/Other Insurance Receivable 1138 Allowance for Doubtful Accounts (Medicare/Medicaid/Other Insurance Receivable) 1137N Net Medicare/Medicaid/Other Insurance Receivable 1140 Accounts and Notes Receivable Operations 1145 Accounts and Notes Receivable Entity 1160 Accounts Receivable Interest 1165 Interest Reduction Payment Receivable 1170 Short Term Investments Operations 1175 Short Term Investments Entity 1180 Inventory 1190 Miscellaneous Current Assets 1200 Prepaid Expenses 8,530 1100T Total Current Assets 72,490 1191 Tenant/Patient Deposits Held in Trust 11,455 1310 Escrow Deposits 1320 Replacement Reserve 319,676 1330 Other Reserves 1340 Residual Receipts Reserve 1355 Bond Reserves 1367 Sinking Fund 1381 Management Improvement and Operating Plan 1300T Total Deposits 319,676 1410 Land 900,000 1420 Buildings 4,373,261 1440 Building Equipment (Portable) 1450 Furniture for Project/Tenant Use 1460 Furnishings 1465 Office Furniture and Equipment 121,277 1470 Maintenance Equipment 1480 Motor Vehicles 1490 Miscellaneous Fixed Assets 1400T Total Fixed Assets 5,394,538 1495 Accumulated Depreciation 3,088,990 1400N Net Fixed Assets 2,305,548 1510 Investments Operations 1515 Investments Entity 1525 Cash Restricted for Longterm Investment 1590 Miscellaneous Other Assets 1500T Total Other Assets 1000T Total Assets $ 2,709,169 20
LIABILITIES 2105 Bank Overdraft Operations 2110 Accounts Payable Operations 47,759 2111 Accounts Payable Construction/Development 2112 Accounts Payable Project Improvement Items 2113 Accounts Payable Entity 2114 Incentive Performance Fee Payable 2115 Accounts Payable 236 Excess Income due HUD 2116 Accounts Payable Section 8 & Other 2120 Accrued Wages Payable 6,031 2121 Accrued Payroll Taxes Payable 2123 Accrued Management Fee Payable 4,604 2125 Accrued Lease Payments Payable 2130 Accrued Interest Payable Section 236 2131 Accrued Interest Payable First Mortgage (or Bonds) 21,304 2132 Accrued Interest Payable Other Mortgages 2133 Accrued Interest Payable Other Loans and Notes (Surplus Cash) 2134 Accrued Interest Payable Other Loans and Notes 2135 Accrued Interest Payable Flexible Subsidy Loan 2136 Accrued Interest Payable Capital Improvements Loan 2137 Accrued Interest Payable Operating Loss Loan 2139 Accrued Interest Payable Capital Recovery Payment (M2M) 2150 Accrued Property Taxes 3,116 2160 Notes Payable (Shortterm) 2170 Mortgage (or Bonds) Payable First Mortgage (Bonds) (Short Term) 81,709 2172 Other Mortgages Payable (Short Term) 2173 Other Loans and Notes Payable Surplus Cash (Short Term) 2174 Other Loans and Notes (Short Term) 2175 Flexible Subsidy Loan Payable (Short Term) 2176 Capital Improvement Loan Payable (Short Term) 2177 Operating Loss Loan Payable (Short Term) 2179 Capital Recovery Payment Payable (Short Term M2M) 2180 Utility Allowances 2190 Miscellaneous Current Liabilities 2210 Prepaid Revenue 2122T Total Current Liabilities 164,523 2191 Tenant/Patient Deposits Held In Trust (Contra) 9,858 2305 Accounts Payable Entity (Long Term) 2306 Accrued Lease Payments Payable Long Term 2310 Notes Payable (LongTerm) 864,798 2311 Notes Payable Surplus Cash 2320 Mortgage (or Bonds) Payable First Mortgage (or Bonds) 2,758,949 2322 Other Mortgages Payable (Long Term) 2323 Other Loans and Notes Payable Surplus Cash 25,000 2324 Other Loans and Notes Payable 2325 Flexible Subsidy Loan Payable 2326 Capital Improvement Loan Payable 2327 Operating Loss Loan Payable 2329 Capital Recovery Payment (M2M) 2330 Interest on Loans or Notes Payable (Long Term) 661,385 2331 Accrued Interest Other Mortgages Payable (Long Term) 2332 Accrued Interest Notes Payable (Surplus Cash) (Long Term) 2340 Debt Issuance Costs 2390 Miscellaneous Long Term Liabilities 2300T Total Long Term Liabilities 4,310,132 2000T Total Liabilities $ 4,484,513 NET ASSETS 3131 Unrestricted Net Assets (1,775,344) 3132 Temporarily Restricted Net Assets 3133 Permanently Restricted Net Assets 3130 Total Net Assets (1,775,344) 2033T Total Liabilities and Equity/Net Assets $ 2,709,169 21
PROFIT AND LOSS DATA SUPPLEMENTAL INFORMATION Organization Name TELACU Senior Manor Los Angeles For Year Ending December 31, 2016 FHA/Contract Number See cover page Acct No. Description of Account Rent Revenue 5120 Rent Revenue Gross Potential 137,976 5121 Tenant Assistance Payments 686,928 5140 Rent Revenue Stores and Commercial 24,878 5170 Garage and Parking Spaces 5180 Flexible Subsidy Revenue 5190 Miscellaneous Rent Revenue 5191 Excess Rent 5192 Rent Revenue/Insurance 5193 Special Claims Revenue 5194 Retained Excess Income 5195 Lease Revenue (Nursing Home or Section 232 B&C or AL) 5100T Total Rent Revenue 849,782 Vacancies 5220 Apartments 1,190 5240 Stores and Commercial 5250 Rental Concessions 5270 Garage and Parking Space 5290 Miscellaneous 5200T Total Vacancies 1,190 5152N Net Rental Revenue (Rent Revenue Less Vacancies) 848,592 5300 Revenue 5300 Nursing Homes/ Assisted Living/Board & Care/Other Elderly Care/Coop/ and Other Revenues Financial Revenue 5410 Financial Revenue Project Operation 5430 Revenue from Investments Residual Receipts 5440 Revenue from Investments Replacement Reserve 256 5490 Revenue from Investments Miscellaneous 5400T Total Financial Revenue 256 Other Revenue 5910 Laundry and Vending Revenue 2,070 5920 Tenant Charges 5945 Interest Reduction Payments Revenue 5560 Expiration of Gift Donor Restrictions 5970 Gifts 5990 Miscellaneous Revenue 1,795 5900T Total Other Revenue 3,865 5000T Total Revenue 852,713 Administrative Expenses 6203 Conventions and Meetings 1,671 6204 Management Consultants 6210 Advertising and Marketing 2,236 6250 Other Renting Expenses 241 6310 Office Salaries 5,119 6311 Office Expenses 19,805 6312 Office or Model Apartment Rent 6320 Management Fee 44,247 6330 Manager or Superintendent Salaries 45,002 6331 Administrative Rent Free Unit 6340 Legal Expense Project 6350 Audit Expense 6,999 6351 Bookkeeping Fees/Accounting Services 6,095 6370 Bad Debts 6390 Miscellaneous Administrative Expenses 6,242 6263T Total Administrative Expenses 137,657 Utilities Expenses 6420 Fuel Oil/Coal 6450 Electricity 38,270 6451 Water 8,937 6452 Gas 3,560 6453 Sewer 7,514 6400T Total Utilities Expense 58,281 22
Operating & Maintenance Expenses 6510 Payroll 42,659 6515 Supplies 25,665 6520 Contracts 31,046 6521 Operating and Maintenance Rent Free Unit 6525 Garbage and Trash Removal 3,386 6530 Security Payroll/Contract 16,653 6531 Security Rent Free Unit 6546 Heating/Cooling Repairs and Maintenance 6,432 6548 Snow Removal 6570 Vehicle and Maintenance Equipment Operation and Repairs 18,051 6580 Lease Expense 6590 Miscellaneous Operating and Maintenance Expenses 3,786 6500T Total Operating and Maintenance Expense 147,678 Taxes & Insurance 6710 Real Estate Taxes 6,271 6711 Payroll Taxes (Project's Share) 7,240 6720 Property & Liability Insurance (Hazard) 15,547 6721 Fidelity Bond Insurance 6722 Workmen's Compensation 8,095 6723 Health Insurance and Other Employee Benefits 10,090 6790 Miscellaneous Taxes, Licenses, Permits and Insurance 3,636 6700T Total Taxes and Insurance 50,879 Financial Expenses 6820 Interest on First Mortgage (or Bonds) Payable 258,790 6825 Interest on Other Mortgages 6830 Interest on Notes Payable (Long Term) 27,944 6840 Interest on Notes Payable (Short Term) 6845 Interest on Capital Recovery Payment (M2M) 6850 Mortgage Insurance Premium/ Service Charge 6890 Miscellaneous Financial Expenses 6800T Total Financial Expenses 286,734 6900 Expenses 6900 Nursing Homes/Assisted Living/ Board & Care/Other Elderly Care Expenses 37,345 Operating Results 6000T Total Cost of Operations before Depreciation 718,574 5060T Profit (Loss) before Depreciation 134,139 6600 Depreciation Expenses 154,555 6610 Amortization Expense 5060N Operating Profit or (Loss) (20,416) Corporate or Mortgagor Revenue/Expenses 7105 Entity Revenue 7110 Officer's Salaries 7115 Incentive Performance Fee 7120 Legal Expenses 7130 Federal, State, and Other Income Taxes 7141 Interest on Notes Payable 7142 Interest on Mortgage Payable 7190 Other Expenses 7100T Net Entity Expenses Change in Net Assets from Operations 3247 Change in Unrestricted Net Assets from Operations (20,416) 3248 Change in Temporarily Restricted Net Assets from Operations 3249 Change in Permanently Restricted Net Assets from Operations 3250 Change in Total Net Assets from Operations $ (20,416) Part II Total first mortgage (or bond) principal payments required during the audit period (usually 12 months). This applies to all S1000010 direct loans, HUDheld and HUDinsured first mortgages. $ 74,701 The total of all monthly reserve for replacement deposits (usually 12 months) required during the audit period even if S1000020 deposits have been temporarily waived or suspended. $ 75,384 Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss S1000030 statement. $ 11,464 Project Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on this S1000040 Profit and Loss statement. $ 23
EQUITY DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 Acct No. Description of Account S1100060 Previous Year Unrestricted Net Assets (1,754,928) 3247 Change in Unrestricted Net Assets from Operations (20,416) S1100065 Other Changes in Unrestricted Net Assets 3131 Unrestricted Net Assets (1,775,344) S1100070 Previous Year Temporarily Restricted Net Assets 3248 Change in Temporarily Restricted Net Assets from Operations S1100075 Other Changes in Temporarily Restricted Net Assets 3132 Temporarily Restricted Net Assets S1100080 Previous Year Permanently Restricted Net Assets 3249 Change in Permanently Restricted Net Assets from Operations S1100085 Other Changes in Permanently Restricted Net Assets 3133 Permanently Restricted Net Assets S1100050 Previous Year Total Net Assets (1,754,928) 3250 Change in Total Net Assets from Operations (20,416) S1100055 Other Changes in Total Net Assets 3130 Total Net Assets $ (1,775,344) 24
CASH FLOW DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 Acct No. Description of Account Cash Flow from Operating Activities S1200010 Rental Receipts 836,172 S1200020 Interest Receipts 256 S1200025 Gifts S1200030 Other Operating Receipts 3,865 S1200035 Entity/Construction Receipts S1200040 Total Receipts 840,293 S1200050 Administrative (68,509) S1200070 Management Fee (44,178) S1200090 Utilities (57,087) S1200100 Salaries and Wages (93,026) S1200110 Operating and Maintenance (106,134) S1200115 Lease Payments S1200120 Real Estate Taxes (3,155) S1200140 Property Insurance (15,565) S1200150 Miscellaneous Taxes and Insurance (26,842) S1200160 Tenant Security Deposits (1) S1200170 Other Operating Expenses S1200180 Interest on Mortgages (259,351) S1200181 Interest Payments Second Mortgage S1200182 Interest Payments Third Mortgage S1200190 Interest on Notes Payable S1200200 Interest on Capital Recovery Payment S1200210 Mortgage Insurance Premium (MIP) S1200220 Miscellaneous Financial S1200223 Entity Incentive Performance Fee S1200225 Entity/Construction Disbursements S1200230 Total Disbursements (673,848) S1200240 Net Cash provided by (used in) Operating Activities 166,445 Cash Flow from Investing Activities S1200245 Net Deposits to the Mortgage Escrow account S1200250 Net Deposits to the Reserve for Replacement account (40,852) S1200255 Net Deposits to Other Reserves S1200260 Net Deposits to the Residual Receipts account S1200300 Net Deposits to the Management Improvement and Operating Plan account S1200310 Net Deposits to the Long Term Investment account S1200330 Net Purchase of Fixed Assets (12,079) S1200340 Other Investing Activities S1200345 Entity/Construction Investing Activities S1200350 Net Cash provided by (used in) Investing Activities (52,931) 25
Cash Flow from Financing Activities S1200360 Principal Payments First Mortgage (or Bonds) (74,701) S1200361 Principal Payments Second Mortgage S1200362 Principal Payments Third Mortgage S1200365 Proceeds from Mortgages, Loans or Notes Payable S1200370 Principal Payments on Loans or Notes Payable S1200385 Proceeds from Flexible Subsidy Loans S1200390 Flexible Subsidy Loan principal payments S1200395 Proceeds from Capital Improvement Loans S1200400 Principal payments on Capital Improvement Loan Payable S1200405 Proceeds from Operating Loss Loans S1200410 Principal payments on Operating Loss Loan Payable S1200413 Proceeds from Capital Recovery Payment S1200417 Principal Payments on Capital Recovery Payment S1200420 Distributions S1200430 Contributions S1200450 Other Financing Activities S1200455 Entity/Construction Financing Activities S1200460 Net Cash provided by (used in) Financing Activities (74,701) S1200470 Net increase (decrease) in Cash and Cash Equivalents 38,813 Cash and Cash Equivalents S1200480 Beginning of Period Cash 12,707 S1200485 Gifts of Investment S1200T End of Period Cash $ 51,520 Reconciliation of Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 3250 Change in Total Net Assets from Operations (20,416) Adjustments to Reconcile Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 6600 Depreciation Expenses 154,555 6610 Amortization Expense S1200486 Amortization of Debt Issuance Costs S1200490 Decrease (increase) in Tenant/Member Accounts Receivable (3,099) S1200500 Decrease (increase) in Accounts Receivable Other (8,900) S1200505 Increase in Gifts Receivable S1200510 Decrease (increase) in Accrued Receivable S1200520 Decrease (increase) in Prepaid Expenses (6,810) S1200530 Decrease (increase) in Cash Restricted for Tenant Security Deposits (124) S1200535 Decrease (increase) in Entity/Construction Asset Accounts S1200540 Increase (decrease) in Accounts Payable 20,794 S1200550 Increase (decrease) in Accounts Payable HUD Excess Rents S1200560 Increase (decrease) in Accrued Liabilities 2,939 S1200570 Increase (decrease) in Accrued Interest Payable 27,383 S1200580 Increase (decrease) in Tenant Security Deposits held in trust 123 S1200590 Increase (decrease) in Prepaid Revenue S1200600 Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S1200605 Increase (decrease) in Entity/Construction Liability accounts Net Cash provided by (used in) Operating Activities S1200610 Net Cash provided by (used in) Operating Activities $ 166,445 S1200620 Comments Cash flow from investing activities related to the purchase of property and equipment for the year ended December 31, 2016 includes $7,980, which was included in accounts payable operations at December 31, 2015. 26
DETAIL OF ACCOUNTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 Acct No. Detail Description Balance Sheet Data 1140 Accounts and Notes Receivable Operations Capital advance receivable Commercial rents receivable Grant receivable Insurance refund Insurance settlement Intercompany receivable Laundry revenue receivable Lessee receivable Management fee overpayment receivable Mortgage insurance premium refund Mortgage proceeds receivable Other tenant receivables Overpaid/prepaid distributions Partner/officer/sponsor receivable Property tax refund Receivable from other project or business Related party receivable Sales tax refund Reserve withdrawals receivable Service coordinator receivable Syndication proceeds receivable Vendor rebate Vendor refund Other (must detail) 1140 Total Accounts and Notes Receivable Operations 1145 Accounts and Notes Receivable Entity Asset management fee receivable Capital contributions receivable Income taxes receivable Entity interest receivable Leasee receivable Partner/officer/sponsor receivable Related party receivable Syndication proceeds receivable Other (must detail) 1145 Total Accounts and Notes Receivable Entity 1190 Miscellaneous Current Assets Payroll deposits Utility deposits Other (must detail) 1190 Total Miscellaneous Current Assets 1330 Other Reserves 1330 Total Other Reserves 27
1590 Miscellaneous Other Assets Construction in progress Notes receivable related parties Offering costs Utility deposits Other (must detail) Other (must detail) 1590 Total Miscellaneous Other Assets 2132 Accrued Interest Payable Other Mortgages Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2132 Total Accrued Interest Payable Other Mortgages 2172 Other Mortgages Payable (Short Term) Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2172 Total Other Mortgages Payable (Short Term) 2190 Miscellaneous Current Liabilities 2190 Total Miscellaneous Current Liabilities 2322 Other Mortgages Payable (Long Term) Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2322 Total Other Mortgages Payable (Long Term) 2331 Accrued interest Other Mortgages Payable (Long Term) First Mortgage Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2331 Total Accrued interest Other Mortgages Payable (Long Term) 2390 Miscellaneous Longterm Liabilities 2390 Total Miscellaneous Longterm Liabilities Profit and Loss Data 5190 Miscellaneous Rent Revenue 5190 Total Miscellaneous Rent Revenue 5290 Miscellaneous 5290 Total Miscellaneous 28
5490 Revenue from Investments Miscellaneous 5490 Total Revenue from Investments Miscellaneous 5990 Miscellaneous Revenue Write off of prior year budget fee accrued 1,795 5990 Total Miscellaneous Revenue 1,795 6390 Miscellaneous Administrative Expenses Membership dues 1,587 Bank charges 1,336 Lodging, meals and entertainment 1,125 Mileage and parking reimbursements 1,288 ADP payroll expenses 197 Other professional services 121 Other 588 6390 Total Miscellaneous Administrative Expenses 6,242 6590 Miscellaneous Operating and Maintenance Expenses Water treatment 2,676 Cable TV 1,110 6590 Total Miscellaneous Operating and Maintenance Expenses 3,786 6790 Miscellaneous Taxes, Licenses, Permits and Insurance Permit fees 3,481 Backflow inspection 50 State filings 105 6790 Total Miscellaneous Taxes, Licenses, Permits and Insurance 3,636 6890 Miscellaneous Financial Expenses 6890 Total Miscellaneous Financial Expenses 7190 Other Expenses 7190 Total Other Expenses Equity Data S1100055 Other Changes in Total Net Assets S1100055 Total Other Changes in Total Net Assets Cash Flow Data S1200035 Entity/Construction Receipts S1200035 Total Entity/Construction Receipts 29
S1200225 Entity/Construction Disbursements S1200225 Total Entity/Construction Disbursements S1200255 Net Deposits to Other Reserves S1200255 Total Net Deposits to Other Reserves S1200340 Other Investing Activities S1200340 Total Other Investing Activities S1200345 Entity/Construction Investing Activities S1200345 Total Entity/Construction Investing Activities S1200450 Other Financing Activities S1200450 Total Other Financing Activities S1200455 Entity/Construction Financing Activities S1200455 Total Entity/Construction Financing Activities S1200535 Decrease (increase) in Entity/ Construction Asset accounts S1200535 Total Decrease (increase) in Entity/ Construction Asset accounts S1200600 Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S1200600 Total Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S1200605 Increase (decrease) in Entity/Construction Liability accounts S1200605 Total Increase (decrease) in Entity/Construction Liability accounts 30
SCHEDULE OF REQUIRED RESERVES SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 SCHEDULE OF RESERVE FOR REPLACEMENT Acct No. Description of Account 1320P Balance at Beginning of Year 278,824 1320DT Total Monthly Deposits 75,384 1320ODT Other Deposits 112,979 1320INT Interest on Replacement Reserve Accounts 256 1320RGL Realized Gain or (Loss) 1320UGL Unrealized Gain or (Loss) 1320WT Approved Withdrawals 147,749 1320OWT Other Withdrawals 18 1320 Balance at End of Year 319,676 1320R Deposits suspended or waived indicator No Reserve for Replacements Details 1320ODT Other Deposits Repayment of subsidy loans 112,979 1320ODT Total Other Deposits 112,979 1320OWT Other Withdrawals Bank fees 18 1320OWT Total Other Withdrawals 18 SCHEDULE OF RESIDUAL RECEIPTS 1340P Balance at Beginning of Year 1340DT Total Deposits 1340ODT Other Deposits 1340INT Interest on Residual Receipts Accounts 1340RGL Realized Gain or (Loss) 1340UGL Unrealized Gain or (Loss) 1340WT Approved Withdrawals 1340OWT Other Withdrawals 1340 Balance at End of Year Residual Receipts Details 1340ODT Other Deposits 1340ODT Total Other Deposits 1340OWT Other Withdrawals 1340OWT Total Other Withdrawals 31
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS, AND RESIDUAL RECEIPTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS, AND RESIDUAL RECEIPTS Acct No. Description of Account S1300010 Cash 62,975 1135 Tenant subsidy due for period covered by financial statement 9,090 S1300030 Other S1300040 Total Cash 72,065 S1300050 Accrued Mortgage Interest Payable 21,304 S1300060 Delinquent Mortgage Principal Payments S1300070 Delinquent Deposits to Reserve for Replacements S1300075 Accounts Payable (due within 30 days) 47,759 S1300080 Loans and Notes Payable (due within 30 days) S1300090 Deficient Tax Insurance or MIP Escrow Deposits 8,700 S1300100 Accrued Expenses [not escrowed] 13,751 2210 Prepaid Revenue 2191 Tenant Security Deposits Liability 9,858 S1300110 Other Current Obligations 1,128 S1300140 Total Current Obligations 102,500 S1300150 Surplus Cash (Deficiency) (30,435) S1300160 Annual Distribution Earned During Fiscal Period Covered by the Statement S1300170 Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period S1300180 Distributions and Entity Expenses Paid During Fiscal Period Covered by Statement S1300190 Distribution Earned but Unpaid S1300200 Amount Available for Distribution During Next Fiscal Period S1300203 Incentive Performance Fee Payable (M2M) S1300204 Percentage Surplus Cash Split (M2M) 0% S1300205 Surplus Cash Available for Second Mortgage Payments (M2M) S1300206 Surplus Cash Available for Distribution (M2M) S1300210 Deposit Due Residual Receipts Surplus Cash Details (Annual) S1300030 Other Cash S1300030 Total Other Cash S1300110 Other Current Obligations Reserve for replacement catch up deposit from retroactive increase effective January 1, 2016 approved by HUD in 2017. 1,128 S1300110 Total Other Current Obligations 1,128 32
SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS Acct No. Description of Account 1410P Beginning Balance for 1410 900,000 1410AT Additions for 1410 1410DT Deductions for 1410 1410 Land 900,000 1420P Beginning Balance for 1420 4,369,162 1420AT Additions for 1420 4,099 1420DT Deductions for 1420 1420 Buildings 4,373,261 1440P Beginning Balance for 1440 1440AT Additions for 1440 1440DT Deductions for 1440 1440 Building Equipment (Portable) 1450P Beginning Balance for 1450 1450AT Additions for 1450 1450DT Deductions for 1450 1450 Furniture for Project/Tenant Use 1460P Beginning Balance for 1460 1460AT Additions for 1460 1460DT Deductions for 1460 1460 Furnishings 1465P Beginning Balance for 1465 121,277 1465AT Additions for 1465 1465DT Deductions for 1465 1465 Office Furniture and Equipment 121,277 1470P Beginning Balance for 1470 1470AT Additions for 1470 1470DT Deductions for 1470 1470 Maintenance Equipment 1480P Beginning Balance for 1480 1480AT Additions for 1480 1480DT Deductions for 1480 1480 Motor Vehicles 1490P Beginning Balance for 1490 1490AT Additions for 1490 1490DT Deductions for 1490 1490 Miscellaneous Fixed Assets 1400PT Total Beginning Balance for Fixed Assets 5,390,439 1400AT Total Asset Additions 4,099 1400DT Total Asset Deductions 1400T Total Fixed Assets 5,394,538 1495P Beginning Balance for Accumulated Depreciation 2,934,435 6600 Total Provisions 154,555 1400ADT Total Accumulated Depreciation from Disposed Assets. 1495 Ending Balance for Accumulated Depreciation 3,088,990 1400N Total Net Book Value 2,305,548 33
SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS (CONTINUED) SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number TELACU Senior Manor Los Angeles See cover page For Year Ending December 31, 2016 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS (CONTINUED) Acct No. Description of Account Fixed Asset Details 1410AT 1410DT 1420AT Digital video recorder, telephone entry system 4,099 1420DT 1440AT 1440DT 1450AT 1450DT 1460AT 1460DT 1465AT 1465DT 1470AT 1470DT 1480AT 1480DT 1490AT 1490DT 34
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) SCHEDULE OF CHANGES IN PROPERTY AND EQUIPMENT YEAR ENDED DECEMBER 31, 2016 ASSETS Balance Balance 1/1/2016 Additions Deletions 12/31/2016 Land $ 900,000 $ $ $ 900,000 Buildings and improvements 4,369,162 4,099 (1) 4,373,261 Office furniture and equipment 121,277 121,277 $ 5,390,439 $ 4,099 $ $ 5,394,538 Accumulated depreciation $ 2,934,435 $ 154,555 $ $ 3,088,990 Net book value $ 2,305,548 (1) Digital video recorder, telephone entry system 35
TELACU SENIOR MANOR LOS ANGELES (A CALIFORNIA NOTFORPROFIT CORPORATION) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED DECEMBER 31, 2016 U.S. Department of Housing and Urban Development Supportive Housing for the Elderly, Balance of mortgage loan as of January 1, 2016, under Section 202 of the National Housing Act (CFDA No. 14.157) $ 2,915,359 Section 8 Housing Assistance Payments Program (CFDA No. 14.195) 686,928 $ 3,602,287 Notes to the Schedule of Expenditures of Federal Awards Note 1: The schedule of expenditures of federal awards is prepared on the accrual basis of accounting. Note 2 : The Corporation has elected to not use the 10% de minimis cost rate. Note 3 : The balance of the mortgage loan as of December 31, 2016 is $2,840,658. 36
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of TELACU Senior Manor Los Angeles (A California NotForProfit 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 financial statements of TELACU Senior Manor Los Angeles, which comprise the statement of financial position as of December 31, 2016, and the related statements of profit and loss changes in net assets, changes in net assets, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated July 31, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered TELACU Senior Manor Los Angeles 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 TELACU Senior Manor Los Angeles s internal control. Accordingly, we do not express an opinion on the effectiveness of TELACU Senior Manor Los Angeles 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 TELACU Senior Manor Los Angeles 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. 37
TELACU Senior Manor Los Angeles Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether TELACU Senior Manor Los Angeles 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 TELACU Senior Manor Los Angeles internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering TELACU Senior Manor Los Angeles internal control and compliance. Accordingly, this communication is not suitable for any other purpose. July 31, 2017 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 38
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors of TELACU Senior Manor Los Angeles (A California NotForProfit Corporation) Report on Compliance for Each Major Federal Program We have audited TELACU Senior Manor Los Angeles compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of TELACU Senior Manor Los Angeles major federal programs for the year ended December 31, 2016. TELACU Senior Manor Los Angeles major federal programs are identified in the summary of auditor s results section of the accompanying summary of auditor s results. Management s Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of TELACU Senior Manor Los Angeles s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about TELACU Senior Manor Los Angeles compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of TELACU Senior Manor Los Angeles compliance. Opinion on Each Major Federal Program In our opinion, TELACU Senior Manor Los Angeles 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 December 31, 2016. 39