Financial Statements December 31, 2017 eidebailly.com
Table of Contents December 31, 2017 Independent Auditor s Report... 1 Financial Statements Statement of Financial Position... 3 Statement of Activities... 4 Statement of Cash Flows... 5 Notes to Financial Statements... 7 Supplementary Information Required by HUD Statement of Financial Position... 13 Statement of Activities... 15 Statement of Changes in Net Assets... 18 Statement of Cash Flows... 19 Additional Supplementary Information Required by HUD... 21 Schedule of Expenditures of Federal Awards... 24 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... 25 Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance Required by the Uniform Guidance... 27 Schedule of Findings and Questioned Costs... 29 Project Owner s Certification... 32 Managing Agent s Certification... 33 Independent Accountant s Report on Applying Agreed-Upon Procedures... 34 Attachment to Independent Accountant s Report on Applying Agreed-Upon Procedures... 36 Auditor Information... 37
Independent Auditor s Report Board of Directors Denver, Colorado Report on the Financial Statements We have audited the accompanying financial statements of HUD Project No. 101-22088, which comprise the statement of financial position as of December 31, 2017, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. What inspires you, inspires us. Let s talk. eidebailly.com 1 U.S. Bancorp Center 800 Nicollet Mall, Ste. 1300 Minneapolis, MN 55402-7033 T 612.253.6500 F 612.253.6600 EOE
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of, HUD, as of December 31, 2017, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 13 to 23 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards on page 24 is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards is presented for purposes of additional analysis and is not a required part of the financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated March 27, 2018, on our consideration of s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of s internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering s internal control over financial reporting and compliance. Minneapolis, Minnesota March 27, 2018 2
Statement of Financial Position December 31, 2017 Assets Current Assets Cash $ 494,745 Accounts receivable, net of estimated uncollectibles of $12,144 92,428 Prepaid expenses 64,670 Total current assets $ 651,843 Tenant Security Deposits 118,275 Restricted Deposits and Funded Reserves 614,293 Property and Equipment Land and improvements 1,166,628 Building and improvements 6,452,086 Furnishings and equipment 535,414 Vehicles 26,000 8,180,128 Accumulated depreciation (2,726,445) Net property and equipment 5,453,683 Total assets $ 6,838,094 Liabilities and Net Assets Current Liabilities Accounts payable $ 100,619 Accrued expenses 140,454 Capital lease payable, current portion 8,602 Current maturities of long-term debt 51,950 Current liabilities $ 301,625 Tenant Security Deposits Payable 92,865 Long-Term Liabilities Capital lease payable, less current portion 16,188 Long-term debt, less current maturities and net of unamortized debt issuance costs 3,064,042 Total liabilities 3,474,720 Unrestricted Net Assets 3,363,374 Total liabilities and net assets $ 6,838,094 See Notes to Financial Statements 3
Statement of Activities Year Ended December 31, 2017 Rent Revenue Lease revenue $ 4,278,922 Less vacancies (135,499) Net rent revenue $ 4,143,423 Financial Revenue Interest income 317 Other Revenue Contributions and grants 32,513 Insurance settlement 281,958 Miscellaneous revenue 48,803 Total other revenue 363,274 Total revenue 4,507,014 Expenses Administrative 730,114 Utilities 180,771 Operating and maintenance 308,915 Taxes and insurance 469,967 Financial 156,181 Service 2,018,872 Depreciation 358,249 Total expenses 4,223,069 Revenues in Excess of Expenses and Change in Net Assets 283,945 Net Assets, Beginning of Year 3,079,429 Net Assets, End of Year $ 3,363,374 See Notes to Financial Statements 4
Statement of Cash Flows Year Ended December 31, 2017 Operating Activities Receipts Rental receipts $ 4,114,554 Interest receipts 317 Other operating receipts 363,274 $ 4,478,145 Disbursements Administrative (186,359) Management fee (229,829) Utilities (180,771) Salaries and wages (368,486) Operating and maintenance (189,837) Lease payments (9,325) Property and liability insurance (54,130) Miscellaneous taxes and insurance (27,169) Tenant security deposits (32,531) Assisted living expenses (2,018,872) Interest (137,160) Mortgage insurance premium (14,848) Miscellaneous financial (381,612) (3,830,929) Net Cash from Operating Activities 647,216 Investing Activities Net deposits to insurance escrow (3,758) Net deposits to reserve for replacements (399,766) Purchase of property and equipment (58,199) (461,723) Net Cash used for Investing Activities (461,723) Financing Activities Principal payments on long-term debt (49,857) Principal payments on capital leases (7,999) Net Cash used for Financing Activities (57,856) Net Change in Cash 127,637 Cash, Beginning of Year 367,108 Cash, End of Year $ 494,745 See Notes to Financial Statements 5
Statement of Cash Flows Year Ended December 31, 2017 Reconciliation of Change in Net Assets to Net Cash from Operating Activities Change in net assets $ 283,945 Adjustments to reconcile change in net assets to net cash from operating activities Depreciation 358,249 Interest expense attributable to amortization of debt issuance costs 4,345 Changes in assets and liabilities Accounts receivable (16,371) Prepaid expenses 7,058 Tenant security deposits (23,345) Accounts payable 35,837 Accrued liabilities 6,684 Tenant security deposit liability (9,186) Net Cash from Operating Activities $ 647,216 See Notes to Financial Statements 6
Notes to Financial Statements December 31, 2017 Note 1 - Organization and Significant Accounting Policies Organization (Marycrest) owns and operates a 90-unit (Serenity) and a 48-unit (Harmony) assisted living complex located in Denver, Colorado. Substantially all of Marycrest s income is derived from the rental of its apartment units. Marycrest is a Colorado limited liability corporation. The sole member of Marycrest is Legacy Senior Services (Legacy). These financial statements include the accounts and activity in accordance with the reporting requirements of the U.S. Department of Housing and Urban Development (HUD). Concentrations of Credit Risk Marycrest maintains its cash accounts in various deposit accounts, the balances of which are periodically in excess of federally insured limits. Receivables and Credit Policy Accounts receivable are rents and charges currently due from residents as well as Medicaid payments and are uncollateralized. Payments on accounts receivable are applied to specific months. Management reviews accounts receivable monthly and charges operations with those considered uncollectible. All remaining accounts receivable are considered collectible. Restricted Deposits and Funded Reserves Restricted deposits and funded reserves consist of assets set aside under an agreement with HUD. Property and Equipment Property and equipment is recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in the statement of activities. Equipment under capital lease obligations is amortized over the shorter period of the lease term or the estimated useful life of the equipment. Depreciation is computed principally by the straight-line method over the following estimated useful lives: Land improvements Buildings and improvements Furnishings and equipment Vehicles 8-15 years 5-30 years 3-15 years 4 years 7
Notes to Financial Statements December 31, 2017 Gifts of long-lived assets such as land, buildings, or equipment are reported as additions to unrestricted net assets, and are excluded from revenues in excess of expenses, unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted net assets. Absent explicit donor stipulations about how long those long-lived assets must be maintained, expirations of donor restrictions are reported when donated or when acquired long-lived assets are placed in service. Impairment of Long-Lived Assets Marycrest reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there was no impairment at December 31, 2017. Debt Issuance Costs Debt issuance costs are amortized over the period the related obligation is outstanding using the straight-line method, which is a reasonable estimate of the effective interest method. Debt issuance costs are included within long-term debt on the statement of financial position. Amortization of debt issuance costs is included in interest expense in the accompanying financial statements. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by Marycrest has been limited by donors and grantors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by Marycrest in perpetuity. At December 31, 2017, Marycrest did not have any temporarily or permanently restricted net assets. Distributions Distributions of assets or income are subject to the restrictions listed in Marycrest s regulatory agreement with HUD. Assisted Living Revenue Assisted living revenue is reported at management established billing rates for private pay residents and rates established by contracts with Medicaid or other payers for qualifying residents. Marycrest participates in the Colorado Medicaid program and, as a condition of participation, Marycrest is subject to restrictions as to rental charges for those residents that participate in the program. Any rent received prior to the month of occupancy is reported as prepaid rent. 8
Notes to Financial Statements December 31, 2017 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Advertising Costs Advertising costs are expensed as incurred. Note 2 - Restricted Deposits and Funded Reserves As specified in the mortgage financing documents, Marycrest is required to maintain an insurance escrow and a reserve for replacements trust account. Insurance Escrow Pursuant to the terms of the mortgage, Marycrest has established an insurance escrow. The insurance escrow account is to be used to pay next year s insurance premiums. The balance of the insurance escrow at December 31, 2017, is $35,762. Reserve for Replacements The reserve for replacements account and the interest earned thereon can be used for repairs, maintenance, and replacement of equipment not paid as part of the ordinary operations of Marycrest. Disbursements are made only after written consent is obtained from HUD. This reserve requires monthly deposits of $12,075. During 2017, a deposit of $281,958 was made to the replacement reserve for insurance proceeds received relating to storm damage (Note 10). No repairs have been completed relating to the storm damage as of December 31, 2017. The balance of the reserve for replacements fund at December 31, 2017, is $578,531. Tenant Security Deposits HUD regulations require security deposits be maintained in a separate account in the name of Marycrest. Total funds in this account should equal or exceed the aggregate of all Marycrest s security deposit obligations. At December 31, 2017, the balance of the tenant security deposits account is $118,275 and tenant security deposits payable is $92,865. Note 3 - Income Taxes Legacy is organized as a Minnesota nonprofit corporation and is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Marycrest receives the benefits of tax exempt status under Internal Revenue Code Section 501(c)(3) based on Legacy s sole member status. Marycrest is included as a disregarded entity on the Return of Organization Exempt from Income Tax (Form 990) of Legacy. 9
Notes to Financial Statements December 31, 2017 Marycrest believes that it has appropriate support for any tax positions taken affecting its annual filing requirements, and as such, does not have any uncertain tax positions that are material to the financial statements. Marycrest would recognize future accrued interest and penalties related to unrecognized tax benefits and liabilities in income tax expense if such interest and penalties are incurred. Note 4 - Long-Term Debt Long-term debt at December 31, 2017, consists of: 4.12%, HUD-insured mortgage note payable, due in monthly installments, including interest, of $15,413, to April 1, 2049; based upon an effective interest rate of 4.44% (a). $ 3,251,795 Debt issuance costs, net of accumulated amortization of $135,803 (135,803) 3,115,992 Less current maturities (51,950) Total long-term debt, less current maturities and net of unamortized debt issuance costs $ 3,064,042 (a) The mortgage note payable is secured by a mortgage on substantially all property and equipment and revenues of Marycrest. The mortgage is further secured under the HUD section 232 mortgage insurance program. The mortgage requires Marycrest to make monthly deposits into escrow accounts to be used by Marycrest for capital improvements and for payments of property taxes and insurance. These assets are held by the lender and are shown as restricted deposits (Note 2). Accumulated amortization on debt issuance costs totaled $16,298. Future maturities of long-term debt are as follows: Years Ended December 31, Amount 2018 2019 2020 2021 $ 51,950 54,132 56,404 58,773 61,240 2022 Thereafter 2,969,296 Unamortized debt issuance costs (135,803) $ 3,115,992 10
Notes to Financial Statements December 31, 2017 Note 5 - Leases Marycrest leases certain equipment under noncancelable long-term lease agreements. Certain leases have been recorded as capitalized leases. Total lease expense for the year ended December 31, 2017, was $9,325. The capitalized lease assets consist of: Major moveable equipment $ 42,350 Less accumulated amortization (21,175) $ 21,175 Minimum future lease payments for the capital leases are as follows: Years Ended December 31, 2018 2019 2020 $ Capital Leases 10,063 10,063 7,141 Total minimum lease payments 27,267 Less interest (2,477) Present value of minimum lease payments 24,790 Less current maturities (8,602) $ 16,188 Note 6 - Management Agreement Health Dimensions Group (HDG) provided management services for Marycrest for the year ended December 31, 2017. Marycrest pays HDG 5.5% of the annual facility gross revenues for these services. During 2017, Marycrest paid HDG $229,829 for management services. Note 7 - Functional Expenses Marycrest provides housing and assisted living services to residents within its geographic area. Expenses related to providing these services are as follows: Program services $ 3,492,955 General and administrative 730,114 $ 4,223,069 11
Notes to Financial Statements December 31, 2017 Note 8 - Economic Dependency Marycrest s sole asset is its assisted living complex. Marycrest s operations are concentrated in housing and assisted living services to individuals within its geographic area. In addition, Marycrest operates in a heavily regulated environment. The operations of Marycrest 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 costs, including the additional administrative burden, to comply with a change. Note 9 - Contingencies and Commitments Malpractice Insurance Marycrest has malpractice insurance coverage to provide protection for professional liability losses on a claimsmade basis subject to a limit of $2,000,000 per claim and an annual aggregate limit of $4,000,000. Marycrest also has a $5,000,000 umbrella occurrence basis policy. Should the claims-made policy not be renewed or replaced with equivalent insurance, claims based on occurrences during its term, but reported subsequently, would be uninsured. Litigation, Claims, and Disputes Marycrest is subject to the usual contingencies in the normal course of operations relating to the performance of its tasks under its various programs. In the opinion of management, the ultimate settlement of any litigation, claims, and disputes in process will not be material to the financial position, operations, or cash flows of Marycrest. The health care industry is subject to numerous laws and regulations of federal, state, and local governments. Compliance with these laws and regulations, specifically those relating to the Medicare and Medicaid programs, can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. Federal government activity has increased with respect to investigations and allegations concerning possible violations by health care providers of regulations, which could result in the imposition of significant fines and penalties, as well as significant repayments of previously billed and collected revenues from resident services. Note 10 - Insurance Proceeds During 2017, Marycrest received an initial insurance settlement of $281,958 relating to storm damage. No repairs relating to the damage were completed during 2017. Total damage incurred and total insurance proceeds to be received are still being negotiated with the insurance company and cannot be reasonably estimated as of December 31, 2017. Any additional insurance settlements will be recorded when received. Note 11 - Subsequent Events Marycrest has evaluated subsequent events through March 27, 2018, the date which the financial statements were available to be issued. 12
Supplementary Information December 31, 2017 eidebailly.com
Supplementary Information Required by HUD Statement of Financial Position December 31, 2017 Assets Current Assets 1120 Cash in bank $ 494,745 1130 Accounts receivable - tenants 28,948 1131 Allowance for doubtful accounts (12,144) 1137 Medicaid/other insurance receivable 75,624 1200 Prepaid expenses 64,670 1100T Total current assets $ 651,843 Deposits Held in Trust 1191 Tenant security deposits 118,275 Restricted Deposits and Funded Reserves 1310 Mortgage escrow 35,762 1320 Reserve for replacements 578,531 1300T Total restricted deposits and funded reserves 614,293 Property and Equipment, at Cost 1410 Land and improvements 1,166,628 1420 Building and improvements 6,452,086 1460 Furnishings and equipment 535,414 1480 Vehicles 26,000 1400T Total property and equipment 8,180,128 1495 Accumulated depreciation (2,726,445) 1400N Net property and equipment 5,453,683 1000T Total assets $ 6,838,094 13
Supplementary Information Required by HUD Statement of Financial Position December 31, 2017 Liabilities and Net Assets Current Liabilities 2110 Accounts payable $ 100,619 2120 Accrued wages 129,290 2125 Capital lease payable, current portion 8,602 2131 Accrued interest 11,164 2170 Mortgage payable - first mortgage (short-term) 51,950 2122T Total current liabilities $ 301,625 Deposits Held in Trust 2191 Tenant security deposits payable 92,865 Long-Term Liabilities 2306 Accrued lease payments payable - long-term 16,188 2320 Mortgage payable - first mortgage 3,064,042 2300T Total long-term liabilities 3,080,230 2000T Total liabilities 3,474,720 Net Assets 3131 Unrestricted 3,363,374 3130 Total net assets 3,363,374 2033T Total liabilities and net assets $ 6,838,094 14
Supplementary Information Required by HUD Statement of Activities Year Ended December 31, 2017 Rent Revenue 5195 Lease revenues $ 4,278,922 5220 Vacancies (135,499) 5152N Net rent revenue $ 4,143,423 Financial Revenue 5410 Interest income - project operations 61 5440 Interest income- reserve for replacements 256 5400T Total financial revenue 317 Other Revenue 5970 Contributions and grants 32,513 5990 Miscellaneous revenue 330,761 5900T Total other revenue 363,274 5000T Total revenue 4,507,014 Administrative Expenses 6203 Conventions, trainings, and meetings 11,640 6204 Purchased services 17,659 6210 Advertising 40,277 6310 Office salaries 265,589 6311 Office expenses 46,821 6320 Management fees 229,829 6340 Legal 6,320 6350 Auditing expenses 8,695 6351 Bookkeeping services 9,226 6370 Bad debt 12,500 6390 Miscellaneous administrative expenses 81,558 6263T Total administrative expenses 730,114 Utilities Expenses 6450 Electricity 88,951 6451 Water 68,966 6452 Gas 22,854 6400T Total utilities expenses 180,771 15
Supplementary Information Required by HUD Statement of Activities Year Ended December 31, 2017 Operating and Maintenance Expenses 6510 Payroll $ 109,753 6515 Supplies 20,166 6520 Contracts 125,179 6525 Garbage and trash removal 8,461 6570 Vehicle and maintenance 33,681 6580 Lease expense 9,325 6590 Miscellaneous operating and maintenance expenses 2,350 6500T Total operating and maintenance expenses $ 308,915 Taxes and Insurance Expenses 6711 Payroll taxes 165,844 6720 Property and liability insurance (hazard) 61,188 6722 Workman's compensation 83,721 6723 Health insurance and other benefits 132,045 6790 Miscellaneous taxes, licenses, and permits 27,169 6700T Total taxes and insurance expenses 469,967 Financial Expenses 6820 Interest 141,333 6850 Mortgage insurance premium 14,848 6800T Total financial expenses 156,181 Service Expenses 6900 Assisted living expenses 2,018,872 6000T Total cost of operations before depreciation 3,864,820 5060T Gain before depreciation and amortization 642,194 6600 Depreciation 358,249 5060N Net income $ 283,945 S1000-010 Total mortgage principal payments required during the audit year. $ 49,857 S1000-020 Replacement reserve deposits required by the regulatory agreement or amendments thereto, even if payments may be temporarily suspended or waived. $ 144,900 16
Additional Supplementary Information Required by HUD Attachment to Statement of Activities Year Ended December 31, 2017 Account No. 5990 Miscellaneous Revenue Maintenance $ 5,690 Meals 14,939 Cable television fees 21,269 Space rental 2,200 Insurance proceeds 281,958 Transportation 200 Miscellaneous 4,505 Total miscellaneous revenue $ 330,761 Account No. 6390 Miscellaneous Administrative Expenses Licenses $ 2,802 Postage and freight 3,009 Dues 4,305 Employee hiring expenses 20,162 Cable television 13,338 Professional fees - other 7,138 Bank service charge 2,025 Fundraising 360 Telephone service 17,465 Miscellaneous 10,954 Total miscellaneous administrative expenses $ 81,558 Account No. 6590 Miscellaneous Operating and Maintenance Expenses Licenses and permits $ 2,350 Account No. 6790 Miscellaneous Taxes, Licenses, and Permits Other taxes and licenses $ 21,770 Special assessments 251 Benefit administration fees 5,148 Total miscellaneous taxes, licenses, and permits $ 27,169 17
Supplementary Information Required by HUD Statement of Changes in Net Assets Year Ended December 31, 2017 S1100-060 Net Assets, Beginning of Year $ 3,079,429 3247 Net Income 283,945 3130 Net Assets, End of Year $ 3,363,374 18
Supplementary Information Required by HUD Statement of Cash Flows Year Ended December 31, 2017 Operating Activities Receipts S1200-010 Rental receipts $ 4,114,554 S1200-020 Interest receipts 317 S1200-030 Other operating receipts 363,274 S1200-040 Total receipts $ 4,478,145 Disbursements S1200-050 Administrative (186,359) S1200-070 Management fee (229,829) S1200-090 Utilities (180,771) S1200-100 Salaries and wages (368,486) S1200-110 Operating and maintenance (189,837) S1200-115 Lease payments (9,325) S1200-140 Property and liability insurance (54,130) S1200-150 Miscellaneous taxes and insurance (27,169) S1200-160 Tenant security deposits (32,531) S1200-170 Assisted living expenses (2,018,872) S1200-180 Interest (137,160) S1200-210 Mortgage insurance premium (14,848) S1200-220 Miscellaneous financial (381,612) S1200-230 Total disbursements (3,830,929) S1200-240 Net Cash from Operating Activities 647,216 Investing Activities S1200-245 Net deposits to insurance escrow (3,758) S1200-250 Net deposits to reserve for replacements (399,766) S1200-330 Purchase of property and equipment (58,199) S1200-350 Net Cash used for Investing Activities (461,723) Financing Activities S1200-360 Principal payments on long-term debt (49,857) S1200-370 Principal payments on capital leases (7,999) S1200-460 Net Cash used for Financing Activities (57,856) S1200-470 Net Increase in Cash 127,637 S1200-480 Cash, Beginning of Year 367,108 S1200T Cash, End of Year $ 494,745 19
Supplementary Information Required by HUD Statement of Cash Flows Year Ended December 31, 2017 Reconciliation of Net Income to Net Cash from Operating Activities 3250 Net Income $ 283,945 6600 Adjustments to reconcile net income to net cash from operating activities Depreciation 358,249 S1200-486 Interest expense attributable to amortization of debt issuance costs 4,345 Changes in assets and liabilities S1200-490 Tenant accounts receivable (10,501) S1200-500 Accounts receivable - other (5,870) S1200-520 Prepaid property and liability insurance 7,058 S1200-530 Tenant security deposits (23,345) S1200-540 Accounts payable 35,837 S1200-560 Accrued liabilities 6,684 S1200-580 Tenant security deposit liability (9,186) S1200-610 Net Cash from Operating Activities $ 647,216 20
Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Restricted Deposits and Funded Reserves Reserve for Replacements 1320P Balance, January 1, 2017 $ 178,765 1320DT Deposits 144,900 1320ODT Other deposits 281,958 1320INT Interest 256 1320WT Withdrawals (27,348) 1320 Balance, December 31, 2017 $ 578,531 1320R Deposits suspended or waived indicator No Changes in Property and Equipment Balance Transfers/ Balance 1/1/2017 Additions Deductions 12/31/2017 1410 Land and improvements $ 1,143,446 $ 23,182 $ - $ 1,166,628 1420 Building and improvements 6,421,093 30,993-6,452,086 1460 Furnishings and equipment 531,390 4,024-535,414 1480 Vehicles 26,000 - - 26,000 1400PT Total 8,121,929 58,199-8,180,128 1495 Accumulated depreciation (2,368,196) (358,249) - (2,726,445) 1400N Net property and equipment $ 5,753,733 $ (300,050) $ - $ 5,453,683 Property and Equipment Additions Date Description Amount 9/4/2017 11/1/2017 12/4/2017 6/14/2017 8/15/2017 7/25/2017 11/13/2017 3/22/2017 11/9/2017 1410 - Sidewalk replacement $ 3,300 1410 - Timbers 4,811 1410 - French drain 15,071 1420 - Fire panel 6,864 1420 - Boiler re-tube 8,859 1420 - Hot water coil 13,200 1420 - Thermostat 2,070 1460 - Computers 1,556 1460 - Refridgerator 2,468 $ 58,199 21
Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Statement of Activities Supporting Schedule Assisted Living Expenses - A/C 6900 6930 Dietary salaries $ 369,156 6931 Dietary purchased services 5,090 6932 Food 318,469 6933 Dietary supplies 27,821 6941 Licensed practical nurse payroll 50,485 6942 Other nursing salaries 802,058 6943 Director of nurses salaries 272,200 6950 Housekeeping salaries 51,760 6951 Housekeeping supplies 12,100 6953 Housekeeping purchased services 16,928 6980 Activities salaries 73,993 6981 Activities supplies 4,723 6982 Activities purchased services 6,052 6990 Other service expenses 8,037 $ 2,018,872 22
Additional Supplementary Information Required by HUD Computation of Surplus Cash, Distributions, and Residual Receipts Year Ended December 31, 2017 Part A - Compute Surplus Cash Cash S1300-010 Cash (accounts 1110, 1120, 1191, 1192) $ 613,020 S1300-030 Accounts receivable - Medicaid (expected within 60 days) 58,184 S1300-040 Total Cash $ 671,204 Current Obligations S1300-050 Accrued mortgage interest payable 11,164 S1300-075 Accounts payable (due within 30 days) 100,619 S1300-100 Accrued expenses (not escrowed) 129,290 2191 Tenant security deposits liability (account 2191) 92,865 S1300-140 Less Total Current Obligations 333,938 S1300-150 Surplus Cash $ 337,266 Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts S1300-200 Amount available for distribution during next fiscal period $ 337,266 23
Schedule of Expenditures of Federal Awards Year Ended December 31, 2017 Federal Grantor/Pass-Through Grantor/Program Title S3300-050 S3300-080 Federal CFDA Federal Number Expenditures S3300-030 US Department of Housing and Urban Development Healthcare Facility Note under Section 232 pursuant to Section 223(f) 14.129 $ 3,301,652 S3300-500 Total Federal Awards $ 3,301,652 Note A Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (Schedule) includes the federal grant activity of Marycrest and is prepared on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the Uniform Guidance. Marycrest received federal awards directly from federal agencies. No funds were passed through to subrecipients. Note B Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Subpart E Cost Principles of the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Marycrest s summary of significant accounting policies is presented in Note 1 of Marycrest s basic financial statements. Marycrest does not draw for administrative costs and has not elected to use the 10% de minimis cost rate. Note C Loan Balances Loan balances at the beginning of the year are included in the federal expenditures presented in the Schedule. The balance of the loan was $3,251,795 at December 31, 2017. 24
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 Board of Directors Denver, Colorado We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of LSS of Marycrest, LLC, (Marycrest) as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise Marycrest s basic financial statements and have issued our report thereon dated March 27, 2018. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Marycrest 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 Marycrest s internal control. Accordingly, we do not express an opinion on the effectiveness of Marycrest 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 over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not yet been identified. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs, that we consider to be significant deficiencies (findings 2017 A and 2017-B). What inspires you, inspires us. Let s talk. eidebailly.com 25 U.S. Bancorp Center 800 Nicollet Mall, Ste. 1300 Minneapolis, MN 55402-7033 T 612.253.6500 F 612.253.6600 EOE
Compliance and Other Matters As part of obtaining reasonable assurance about whether Marycrest s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Organization Response to Findings Marycrest s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Marycrest s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. 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 Marycrest s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Marycrest s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Minneapolis, Minnesota March 27, 2018 26
Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance Required by the Uniform Guidance Board of Directors Denver, Colorado Report on Compliance for Each Major Federal Program We have audited s (Marycrest s) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on Marycrest s major federal program for the year ended December 31, 2017. Marycrest s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on the compliance for Marycrest 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 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 Marycrest s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of Marycrest s compliance. Opinion on Its Federal Program In our opinion, Marycrest complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, 2017. What inspires you, inspires us. Let s talk. eidebailly.com 27 U.S. Bancorp Center 800 Nicollet Mall, Ste. 1300 Minneapolis, MN 55402-7033 T 612.253.6500 F 612.253.6600 EOE
Report on Internal Control over Compliance Management of Marycrest is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit of compliance, we considered Marycrest s internal control over compliance with the types of requirements that could have a direct and material effect on its major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its 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 Marycrest 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 compliance requirement will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider 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. Minneapolis, Minnesota March 27, 2018 28
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 Section I Summary of Auditor's Results Financial Statements Type of auditor's report Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be a material weakness(es)? Noncompliance material to financial statements noted? Unmodified No Yes No Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be a material weakness(es)? Type of auditor's report issued on compliance for major programs Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance: No None Noted Unmodified No Identification of Major Program: Name of Major Federal Program CFDA Number U.S. Department of Housing and Urban Development - Healthcare Facility Note under Section 232 pursuant to Section 223(f) 14.129 Dollar threshold used to distinguish between Type A and Type B programs $750,000 Auditee qualified as low-risk auditee Yes 29
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 S3800 Section II Financial Statement Findings 2017-A Financial Statement Preparation Significant Deficiency in Internal Control Over Financial Reporting Criteria: Proper controls over financial reporting include the ability to prepare financial statements and accompanying notes to the financial statements that are materially correct and include all required disclosures. Condition: Marycrest does not have an internal control system designed to provide for the preparation of the full financial statements being audited. As auditors, we were requested to draft the financial statements and accompanying notes to the financial statements. Cause: Marycrest has limited staff to prepare full disclosure financial statements. Effect: There is a reasonable possibility that Marycrest would not be able to draft the financial statements and accompanying notes to the financial statements that are correct without the assistance of the auditors. Auditor s Recommendation: While we recognize that this condition is not unusual for an organization with limited staffing, it is important that Marycrest is aware of this condition for financial reporting purposes. Management and the board of directors should continually be aware of the financial accounting and reporting of Marycrest and changes in the accounting and reporting requirements. Views of Responsible Official: Management agrees with the finding. 2017-B Adjusting Journal Entries Significant Deficiency in Internal Control Over Financial Reporting Criteria: As a part of our audit we proposed significant audit adjustments to the financial statements that were not detected by management. Condition: A complete system of internal control contemplates an adequate system for recording and processing adjusting journal entries significant to the financial statements. Cause: Due to unique transactions occurring relating to storm damage during the year, not all adjustments or transactions were recorded correctly within the financial statements. Effect: The significant deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Auditor s Recommendation: We recommend that all necessary adjustments and transactions are recorded by management. Views of Responsible Official: Management agrees with the finding. 30
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 No findings or questioned costs in fiscal year 2017. Section III Federal Award Finding and Questioned Costs 31
Project Owner s Certification Year Ended December 31, 2017 Project Owner's Certification We hereby certify that we have examined the accompanying financial statements and supplemental information of and, to the best of our knowledge and belief, the same is complete and accurate as of December 31, 2017, and for the year then ended. By: Roger Green, Board Member Date: By: Eric Lunde, Chairman of the Board Date: Employer Identification Number: 26-2181659 32
Managing Agent s Certification Year Ended December 31, 2017 Managing Agent's Certification I hereby certify that I have examined the accompanying financial statements and supplemental information of and, to the best of my knowledge and belief the same is complete and accurate as of December 31, 2017, and for the year then ended. Health Dimensions Group By: Steve Nelson, VP of Financial Services Date: Employer Identification Number: 41-1974531 Executive Director: Pam Wright 33