Financial Statements December 31, 2017 and 2016 Wisconsin Good Samaritan Housing, Inc. D/B/A HUD Project No. 075-EE058 Fennimore, Wisconsin
Table of Contents December 31, 2017 and 2016 Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6 Supplementary Information HUD Statement of Financial Position... 9 HUD Statement of Activities... 10 HUD Statement of Cash Flows... 12 Additional Supplementary Information Required by HUD... 13 Schedule of Expenditures of Federal Awards... 15 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and on Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards... 16 Independent Auditor s Report on Compliance for the Major Program; Report on Internal Control over Compliance Required by the Uniform Guidance... 18 Schedule of Findings and Questioned Costs... 21 Certification of Project Owner... 25 Managing Agent s Certification... 26 Auditor Information... 27
Independent Auditor s Report To the Board of Directors of Wisconsin Good Samaritan Housing, Inc. Fennimore, Wisconsin Report on the Financial Statements We have audited the accompanying financial statements of Wisconsin Good Samaritan Housing, Inc., d/b/a, HUD Project No. 075-EE058 (the Project), which comprise the statements of financial position as of December 31, 2017 and 2016, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Project s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Project as of December 31, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. What inspires you, inspires us. eidebailly.com 1 200 E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD 57117-5125 T 605.339.1999 F 605.339.1306 EOE
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 9 to 14 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 15, is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is not a required part of the financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. 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 supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated March 29, 2018, on our consideration of the Project s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Project s internal control over financial reporting or on compliance. That report is an integral part of an audit conducted in accordance with Government Auditing Standards in considering the Project s internal control over financial reporting and compliance. Sioux Falls, South Dakota March 29, 2018 2
Statements of Financial Position December 31, 2017 and 2016 Assets 2017 2016 Current Assets Cash $ 1,218 $ 1,345 Accounts receivable 2,591 105 Prepaid expenses 496 502 Total current assets 4,305 1,952 Restricted Deposits Replacement reserve 69,314 64,283 Residual receipts reserve 4,014 27,122 Tenant security deposits 3,720 4,725 Total restricted deposits 77,048 96,130 Fixed Assets Land and land improvements 72,875 72,875 Buildings 1,169,755 1,165,451 Furniture for project/tenant use 53,232 56,767 1,295,862 1,295,093 Accumulated depreciation (660,461) (633,060) Net fixed assets 635,401 662,033 Liabilities and Net Assets $ 716,754 $ 760,115 Current Liabilities Accounts payable $ 4,054 $ 4,754 Accrued salaries 2,327 2,047 Miscellaneous current liabilities 1,294 538 Prepaid revenue 409 386 Total current liabilities 8,084 7,725 Tenant Deposits Held in Trust 3,720 4,694 Total liabilities 11,804 12,419 Net Assets (Deficit) Unrestricted net deficit (355,150) (312,404) Temporarily restricted net assets 1,060,100 1,060,100 Total net assets 704,950 747,696 $ 716,754 $ 760,115 See Notes to Financial Statements 3
Statements of Activities Years Ended December 31, 2017 and 2016 2017 2016 Revenue Rent, net of vacancies of $20,246 and $8,185 in 2017 and 2016 $ 132,740 $ 129,239 Financial 113 127 Other 2,561 2,665 Net assets released from restrictions - 112,000 Total revenue 135,414 244,031 Expenses Administrative 49,289 43,823 Program Utilities 13,563 14,216 Operating and maintenance 26,240 26,317 Taxes and insurance 31,475 27,416 Financial 23,200 - Depreciation 34,393 39,329 Total expenses 178,160 151,101 Change in Unrestricted Net Deficit (42,746) 92,930 Temporarily Restricted Net Assets Released from Restriction - (112,000) Total Change in Net Assets (42,746) (19,070) Net Assets, Beginning of the Year 747,696 766,766 Net Assets, End of the Year $ 704,950 $ 747,696 See Notes to Financial Statements 4
Statements of Cash Flows Years Ended December 31, 2017 and 2016 2017 2016 Operating Activities Change in net assets $ (42,746) $ (19,070) Adjustments to reconcile change in net assets to net cash (used for) from operating activities Depreciation 34,393 39,329 Provision for bad debt 96 - Gain on disposal of fixed assets (408) - Change in assets and liabilities Accounts receivable (2,582) 1,307 Prepaid expenses 6 (24) Tenant security deposits 31 (31) Accounts payable (700) (369) Accrued salaries 280 - Prepaid revenue 23 386 Miscellaneous current liabilities 756 (1,101) Net Cash (used for) from Operating Activities (10,851) 20,427 Investing Activities Net deposits to replacement reserve (5,031) (13,100) Net withdrawals from (deposits to) residual receipts 23,108 (41) Proceeds from sale of fixed assets 500 - Purchase of fixed assets (7,853) (10,816) Net Cash from (used for) Investing Activities 10,724 (23,957) Net Change in Cash (127) (3,530) Beginning of Year Cash 1,345 4,875 End of Year Cash $ 1,218 $ 1,345 See Notes to Financial Statements 5
Notes to Financial Statements December 31, 2017 and 2016 Note 1 - Principal Business Activity and Significant Accounting Policies Principal Business Activity (the Project) has entered into a regulatory agreement with the United States Department of Housing and Urban Development (HUD) and is operated under Section 202 of the National Housing Act with respect to rental charges and operating methods. The Project s sponsor is The Evangelical Lutheran Good Samaritan Society (the Society), a not-for-profit, non-stock corporation. The Project consists of 16 HUD-assisted affordable housing units located in Fennimore, Wisconsin. Basis of Presentation The Project is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. None of the Project s net assets are permanently restricted. Restricted Deposits Under the regulatory agreement, the Project is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. HUD-restricted deposits are held in separate bank accounts and generally are not available for operating purposes. The Project makes monthly deposits into the replacement reserve as directed by HUD. Monthly deposits typically change in connection with rent adjustments. As of December 31, 2017 and 2016, the required monthly deposits were $2,120 and $1,768, respectively. The Project also sets aside surplus cash in a residual receipts account and funds to repay tenant security deposits after lease termination in accordance with requirement established by the regulatory agreement. Fixed Assets Fixed assets are recorded at cost. Expenditures for renewals and improvement that significantly add to the productive capacity or extend the useful life of an asset or capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired or sold, the cost and related accumulated depreciation is eliminated from the accounts and the resultant gain or loss is reflected in income. Depreciation is computed principally by the straight-line method over the following estimated useful lives: Land improvements Buildings Furniture for project/tenant use 2 40 years 5 40 years 3 20 years The Project reviews the carrying value of 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 and 2016. 6
Notes to Financial Statements December 31, 2017 and 2016 Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes The Project is organized as a South Dakota nonprofit corporation and has been recognized by the Internal Revenue Service (IRS) as exempt from federal income taxes under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3) and has been determined not to be a private foundation. The Project is annually required to file a Return of Organization Exempt from Income Tax (Form 990) with the IRS. In addition, the Project is subject to income tax on net income that is derived from business activities that are unrelated to its exempt purpose. The Project has determined it is not subject to unrelated business income for the years ended December 31, 2017 and 2016 and has not filed an Exempt Organization Business Income Tax Return (Form 990T) with the IRS. The Project believes it has appropriate support for any tax positions taken affecting its annual filing requirements, and as such, does not have any uncertain tax positions that are material to the financial statements. The Project will recognize future accrued interest and penalties related to unrecognized tax benefits and liabilities in income tax expense if incurred. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Project and the tenants of the property are operating leases. HUD has contracted with the Project under Section 202 of the National Affordable Housing Act of 1959, to make rental assistance payment to the Project on behalf of qualified tenants. Under the regulatory agreement, the Project may not increase contract rents without prior HUD approval. A significant portion of the Project s rent income is received from HUD. Functional Allocation of Expenses The costs of program and supporting services activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated between the program and supporting services benefited. Concentrations of Credit Risk The Project s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, including restricted deposits. The Project believes it places its cash with high quality credit institutions. At times, such cash may be in excess of FDIC insurance limits. Subsequent Events The Project has evaluated subsequent events through March 29, 2018, the date which these financial statements were available to be issued. 7
Notes to Financial Statements December 31, 2017 and 2016 Note 2 - Temporarily Restricted Net Assets The total amount drawn on a capital advance note from the HUD is $1,060,100. The note bears no interest and payment is not required as long as the housing remains available for very low-income seniors. The note will be forgiven at its maturity date of March 31, 2041, if the housing has remained available for occupancy by eligible individuals until that date. Otherwise, the entire $1,060,100 plus interest at 6.25% since May 1, 2000, will be declared due and payable by HUD. This long-term indebtedness is secured by all property owned by the Project and all related receipts attributed to its operations. Accrued interest is not recorded as a liability in the financial statements since it is only payable in the event of default under the provision of the capital advance note. Management believes the likelihood of non-compliance with the provisions of the capital advance are remote. Therefore, the capital advance proceeds were recorded as revenue when the advance was received and are being carried in temporarily restricted net assets until satisfaction of the period of compliance. The Project received a grant of $112,000 on May 2, 2000, from the Federal Home Loan Bank for the Project s construction. The grant was not required to be repaid as long as the housing remained available for very lowincome senior persons for a period of 15 years after the Project s completion (May 17, 2001). During the year ended December 31, 2016, the Project satisfied all requirements of the grant and has reclassified temporarily restricted net assets to unrestricted. Note 3 - Related Party Transactions The Project is managed by the Society under an agreement approved by HUD. For the year ended December 31, 2016 and to May 31, 2017, the management fee was 7.10% of revenue other than interest, decreasing to 6.04% effective June 1, 2017. The management fee is subject to a per unit per month cap as directed by HUD. Management fees of $8,438 and $9,366 for the years ended December 31, 2017 and 2016, respectively, have been recorded in administrative expenses on the accompanying statements of activities. The Society funds various operating expenses, including contracted salaries and benefits, and is subsequently reimbursed. Contracted salaries and benefits were $2,582 and $-0- for the years ended December 31, 2017 and 2016, respectively. Amounts owed to the Society for operating and salary expenses as of December 31, 2017 and 2016 totaled $1,294 and $538, respectively. Note 4 - Vulnerability Due to Certain Considerations The Project s operations are concentrated in the affordable housing real estate market and are subject to the administrative directives, rules and regulations of federal, state, and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 8
Supplementary Information December 31, 2017 Wisconsin Good Samaritan Housing, Inc. D/B/A HUD Project No. 075-EE058 Fennimore, Wisconsin
HUD Statement of Financial Position December 31, 2017 Current Assets 1120 Cash $ 1,218 1135 Accounts Receivable - HUD 2,591 1200 Prepaid expenses 496 Total current assets 4,305 Tenant Deposits Held in Trust 1191 Tenant deposits held it trust 3,720 Restricted Deposits 1320 Replacement reserve 69,314 1340 Residual receipts reserve 4,014 Total restricted deposits 73,328 Fixed Assets 1410 Land and land improvements 72,875 1420 Buildings 1,169,755 1450 Furniture for project/tenant use 53,232 1,295,862 1495 Accumulated depreciation (660,461) Net fixed assets 635,401 $ 716,754 Current Liabilities 2110 Accounts payable - operations $ 4,054 2120 Accrued wages payable 2,327 2190 Miscellaneous current liabilities 1,294 2210 Prepaid revenue 409 Total current liabilities 8,084 Tenant Deposits Held in Trust (Contra) 2191 Tenant deposits held in trust 3,720 Total liabilities 11,804 Net Assets (Deficit) 3131 Unrestricted net deficit (355,150) 3132 Temporarily restricted net assets 1,060,100 Total net assets 704,950 $ 716,754 9
HUD Statement of Activities Year Ended December 31, 2017 Revenue Rent Revenue 5120 Rent revenue - gross potential $ 66,923 5121 Tenant assistance payments 80,565 5140 Rent revenue - stores and commercial 3,600 5193 Special claims revenue 1,898 152,986 5220 Vacancies - apartments (20,246) Net rent revenue 132,740 Financial Revenue 5430 Revenue from investments - residual receipts 14 5440 Revenue from investments - replacement reserve 99 Total financial revenue 113 Other Revenue 5910 Laundry and vending revenue 1,851 5920 Tenant charges 198 5970 Gifts 104 5990 Miscellaneous revenue 408 Expenses Total other revenue 2,561 Total revenue 135,414 Administrative Expenses 6203 Conventions and meetings 2,037 6210 Advertising and marketing 1,875 6310 Office salaries 17,271 6311 Office expenses 4,759 6320 Management fee 8,438 6340 Legal expense 404 6350 Audit expense 8,459 6351 Bookkeeping fee/accounting services 1,640 6370 Bad debt 96 6390 Miscellaneous administrative expense 4,310 Total administrative expenses 49,289 Utilities Expenses 6450 Electricity 6,975 6451 Water 854 6452 Gas 3,107 6453 Sewer 2,627 Total utilities expenses 13,563 10
HUD Statement of Activities Year Ended December 31, 2017 Operating and Maintenance Expenses 6510 Payroll $ 10,427 6515 Supplies 1,597 6520 Contracts 5,661 6525 Garbage and trash removal 1,634 6530 Security payroll/contract 5,039 6546 Heating/cooling repairs and maintenance 1,882 Total operating and maintenance expenses 26,240 Taxes and Insurance Expenses 6711 Payroll taxes - project's share 1,611 6720 Property and liability insurance 9,862 6722 Workmen's compensation 61 6723 Health insurance and other insurance benefits 19,621 6790 Miscellaneous taxes and insurance 320 Total taxes and insurance expenses 31,475 Financial Expenses 6890 Miscellaneous financial expense 23,200 Total cost of operations before depreciation 143,767 Change in net assets before depreciation (8,353) 6600 Depreciation expense 34,393 3247 Change in unrestricted net assets from operations (42,746) S1100-060 Previous year unrestricted net deficit (312,404) 3131 Total unrestricted net deficit (355,150) 3132 Temporarily restricted net assets 1,060,100 3130 Total net assets $ 704,950 S1000-020 The total of all monthly reserve for replacement deposits (usually 12) required during the audit period even if deposits have been temporarily waived or suspended $ 23,680 S1000-030 Replacement reserve or residual receipts releases which are included as expense items on the profit and loss statement $ 23,246 11
HUD Statement of Cash Flows Year Ended December 31, 2017 Operating Activities S1200-010 Rental receipts $ 130,181 S1200-020 Interest receipts 113 S1200-030 Other operating receipts 2,153 Total receipts 132,447 S1200-050 Administrative (23,832) S1200-070 Management fee (8,438) S1200-090 Utilities (13,854) S1200-100 Salaries and wages (27,911) S1200-110 Operating and maintenance (15,685) S1200-140 Property insurance (9,862) S1200-150 Miscellaneous taxes and insurance (20,547) S1200-160 Tenant security deposits 31 S1200-220 Miscellaneous financial (23,200) Total disbursements (143,298) Net Cash used for Operating Activities (10,851) Investing Activities S1200-250 Net deposits to the replacement reserve (5,031) S1200-260 Net withdrawals from the residual receipts 23,108 S1200-330 Net purchase of fixed assets (7,353) Net Cash from Investing Activities 10,724 Net Change in Cash (127) Beginning of Year Cash 1,345 End of Year Cash $ 1,218 Reconciliation of Change in Net Assets to Net Cash used for Operating Activities 3250 Change in net assets from operations $ (42,746) Adjustments to reconcile change in net assets to net cash used for operating activities 6600 Depreciation expense 34,393 S1200-490 Tenant/member accounts receivable 105 S1200-500 Accounts receivable - other (2,591) S1200-520 Prepaid expenses 6 S1200-540 Accounts payable (700) S1200-560 Accrued liabilities 1,036 S1200-580 Tenant security deposits held in trust 31 S1200-590 Prepaid revenue 23 S1200-600 Other adjustments to reconcile change in net assets to net cash used for operating activities (408) S1200-610 Net cash used for operating activities $ (10,851) 12
Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Computation of Surplus Cash - Annual Cash Cash $ 4,938 Accounts receivable - HUD 2,591 Current Obligations Accounts payable - 30 days 4,054 Accrued expenses 2,327 Tenant security deposit liability 3,720 Miscellaneous current liabilities 1,294 Prepaid revenue 409 Delinquent replacement reserve deposits 8,480 7,529 Total current obligations 20,284 Cash Deficiency $ (12,755) Replacement Reserve In accordance with the provisions of the regulatory agreement, restricted cash is held by the Project to be used for replacement of property with the approval of HUD as follows: Balance at December 31, 2016 $ 64,283 Monthly deposits 15,200 Interest earned 99 Other deposits - repayment of subsidy loan 6,432 Withdrawals approved by HUD (16,700) Balance at December 31, 2017 $ 69,314 Deposits waived or suspended? No Residual Receipts In accordance with the provisions of the regulatory agreement, restricted surplus cash is held by the Project to be used with the approval of HUD as follows: Balance at December 31, 2016 $ 27,122 Interest earned 14 Withdrawals approved by HUD (23,122) Balance at December 31, 2017 $ 4,014 13
Additional Supplementary Information Required by HUD Year Ended December 31, 2017 Statement of Financial Position Supporting Schedule Miscellaneous Current Liabilities - A/C 2190 Society billings payable $ 1,294 Statement of Activities Supporting Schedule Miscellaneous Revenue - A/C 5990 Gain on assets sold $ 408 Miscellaneous Financial Expenses - A/C 6890 Surplus cash repayment $ 23,122 Other financial expenses 78 Total miscellaneous financial expenses $ 23,200 Changes in Fixed Asset Accounts Balance Balance 12/31/16 Additions Retirements 12/31/17 Land and land improvements $ 72,875 $ - $ - $ 72,875 Buildings 1,165,451 4,304-1,169,755 Furniture for project/tenant use 56,767 3,549 (7,084) 53,232 $ 1,295,093 $ 7,853 $ (7,084) 1,295,862 Accumulated depreciation $ 633,060 $ 34,393 $ (6,992) 660,461 Net book value $ 635,401 Additions Buildings Flooring $ 3,472 Plumbing 832 Total buildings $ 4,304 Furniture for project/tenant use Water cooler $ 2,145 Office equipment 1,404 Total furniture for project/tenant use $ 3,549 Disposals Furniture for project/tenant use Appliances $ 6,665 Furniture 419 Total furniture for project/tenant use $ 7,084 14
Schedule of Expenditures of Federal Awards Year Ended December 31, 2017 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Federal Expenditures U.S. Department of Housing and Urban Development Supportive Housing for the Elderly - Section 202 Capital Advance 14.157 $ 1,060,100 Project Rental Assistance Contract 14.157 82,463 Total federal financial assistance $ 1,142,563 Note A Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of, HUD Project No. 075-EE058 (the Project), and is prepared on the accrual basis of accounting. The information in this schedule is presented in accordance with the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). No federal financial assistance was passed through to sub-recipients. Note B Significant Accounting Policies 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. The Project s summary of significant accounting policies is presented in Note 1 in the basic financial statements. The Project does not draw for administrative costs and has not elected to use the 10% de minimus cost rate. 15
Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and on Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Directors Wisconsin Good Samaritan Housing, Inc. Fennimore, Wisconsin 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 Wisconsin Good Samaritan Housing, Inc. d/b/a, HUD Project No. 075-EE058 (the Project), which comprise the statement of financial position as of December 31, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March 29, 2018. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Project s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Project s internal control. Accordingly, we do not express an opinion on the effectiveness of the Project s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Project s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. What inspires you, inspires us. eidebailly.com 16 200 E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD 57117-5125 T 605.339.1999 F 605.339.1306 EOE
Compliance and Other Matters As part of obtaining reasonable assurance about whether the Project s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Project s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Project s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Sioux Falls, South Dakota March 29, 2018 17
Independent Auditor s Report on Compliance for the Major Program; Report on Internal Control over Compliance Required by the Uniform Guidance The Board of Directors Wisconsin Good Samaritan Housing, Inc. Fennimore, Wisconsin Report on Compliance for the Major Program We have audited Wisconsin Good Samaritan Housing, Inc. s d/b/a, HUD Project No. 075- EE058 (the Project) compliance with the types of compliance requirements described in OMB Compliance Supplement that could have a direct and material effect on the Project s major federal program for the year ended December 31, 2017. The Project s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for the Project s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Project s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the Project s compliance. Opinion on the Major Federal Program In our opinion, the Project complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, 2017. What inspires you, inspires us. eidebailly.com 18 200 E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD 57117-5125 T 605.339.1999 F 605.339.1306 EOE
Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as finding 2017-001. Our opinion on each federal program is not modified with respect to this matter. The Project s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The Project s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of the Project is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Project s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Project s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses and significant deficiencies may exist that have not been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a compliance requirement will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as finding 2017-002 to be a material weakness. 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. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as finding 2017-003 to be a significant deficiency. The Project s responses to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Project s responses were not subjected to the auditing procedures applied in the audit of the compliance and, accordingly, we express no opinion on them. 19
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Sioux Falls, South Dakota March 29, 2018 20
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 Section I Summary of Auditor s Results FINANCIAL STATEMENTS Type of auditor s report issued Internal control over financial reporting: Material weakness identified Significant deficiencies identified not considered to be material weaknesses Noncompliance material to financial statements noted Unmodified No None reported No FEDERAL AWARDS Internal control over major program: Material weakness identified Significant deficiencies identified not considered to be material weaknesses Type of auditor s report issued on compliance for major program: Any audit findings disclosed that are required to be reported in accordance with 2 CFR Section 200.516 Yes Yes Unmodified Yes Identification of major program: Name of Federal Program CFDA number U.S. Department of Housing and Urban Development Supportive Housing for the Elderly Section 202 Capital Advance and Project Rental Assistance Contract 14.157 Dollar threshold used to distinguish between type A and type B programs $750,000 Auditee qualified as low-risk auditee? Yes 21
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 Our audit disclosed no findings required to be reported. Section II Financial Statement Findings Section III Federal Award Findings and Questioned Costs 2017-001 U.S Department of Housing and Urban Development CFDA #14.157 Supportive Housing for the Elderly Section 202 Capital Advance and Project Rental Assistance Contract Special Tests and Provisions: Replacement Reserve Non-Compliance Criteria: The Project s regulatory agreement requires monthly deposits into the replacement reserve account. Condition: The Project was required to make twelve monthly deposits into the replacement reserve, but it made only eight. Cause: The Project experienced cash flow issues during the year and was unable to make its twelve required deposits. HUD did not waive or suspend required deposits. Effect: The Project underfunded its replacement reserve by $8,480. Questioned Costs: None reported Context/Sampling: Sampling was not used. Repeat Finding from Prior Year: No Recommendation: We recommend the Project transfer $8,480 to its replacement reserve as soon as possible. Additionally, if the Project experiences cash flow issues in the future, we recommend they apply for a HUD waiver of required deposits as soon as the cash flow issues are known. Views of Responsible Officials: Management agrees with the finding and the recommendation. 22
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 2017-002 U.S. Department of Housing and Urban Development CFDA #14.157 Supportive Housing for the Elderly Section 202 Capital Advance and Project Rental Assistance Contract Eligibility Material Weakness in Internal Control over Compliance Criteria: The Project is required to have documentation to adequately support amount reported on HUD Form 50059. Condition: Our testing of tenant files detected errors in four of the five tenant files selected for testing. We noted two instances where tenant income from tenant assets reported on Form 50059 was not correctly calculated and supported, two instances where income reported on the Form 50059 was not correctly calculated, and one instance where medical expenses were not correctly calculated. Cause: There was oversight in the internal control process with maintaining tenant files within compliance requirements. The Project manager misapplied HUD regulations for calculating tenant rent. Effect: Lack of compliance with designed internal controls over tenant files could adversely affect the Project s compliance with HUD regulations. Questioned Costs: None. Monthly rental payments should be increased by a combined $2 per month for two tenants, decreased by $2 per month for one tenant, and not changed for one tenant. Context: A nonstatistical sample of five tenant files out of the Project s 18 total tenants residing in the Project during the year, including move-in and move-out residents, were selected for testing. Repeat Finding from Prior Year: A similar matter was reported in 2016 as finding 2016-001. Recommendation: We recommend the Project review policies and procedures with applicable employees and remind them of the importance of following regulations regarding maintenance of tenant files and the calculation of tenant rent. Adjustments should be made to Form 50059 as needed. Views of Responsible Officials: Management agrees with the finding and recommendation. 23
Schedule of Findings and Questioned Costs Year Ended December 31, 2017 2017-003 U.S Department of Housing and Urban Development CFDA #14.157 Supportive Housing for the Elderly Section 202 Capital Advance and Project Rental Assistance Contract Special Tests and Provisions: Security Deposit Significant Deficiency in Internal Control over Compliance Criteria: The Project s regulatory agreement requires the security deposit asset account to at least equal the amount collected from residents for security deposits. Condition: The Project did not fund December move-in activity until February 2018 and an adjustment was needed to fund the account. Cause: An oversight by the management agent caused a delay in the timely processing of security deposit account activity. Effect: The Project underfunded its security deposit account by $362. Questioned Costs: None reported Context/Sampling: Sampling was not used. Repeat Finding from Prior Year: No Recommendation: We recommend management review their processes to ensure the account is funded in accordance with the requirements of the regulatory agreement. Views of Responsible Officials: Management agrees with the finding and the recommendation. 24
Auditor Information Year Ended December 31, 2017 Eide Bailly LLP Certified Public Accountants 200 East 10 th Street, Suite 500 PO Box 5125 Sioux Falls, South Dakota 57117-5125 605-339-1999 Partner: Angie Hillestad Federal Employer ID Number: 45-0250958 27