FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT WITH SUPPLEMENTARY INFORMATION AND REPORTS REQUIRED BY OMB UNIFORM GUIDANCE DECEMBER 31, 2016 AND 2015
TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT 1 2 STATEMENTS OF FINANCIAL POSITION 3 4 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS 5 6 STATEMENTS OF CASH FLOWS 7 NOTES TO FINANCIAL STATEMENTS 8 15 SUPPLEMENTARY INFORMATION SCHEDULES OF FUNCTIONAL EXPENSE 16 REPORTS REQUIRED BY OMB UNIFORM GUIDANCE SUPPORTING DATA REQUIRED BY HUD 17 18 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS 19 SCHEDULE OF CHANGES IN FIXED ASSETS 20 INDEPENDENT AUDITOR S REPORT: INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT STANDARDS 21 22 COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB UNIFORM GUIDANCE 23 25 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 26 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 27 28 CERTIFICATION OF PROJECT OWNER 29 MANAGEMENT AGENT S CERTIFICATION 30
INDEPENDENT AUDITOR S REPORT Board of Directors 1600 Broadway Street NE Minneapolis, MN 55413-2617 Members of the Board: Report on the Financial Statements We have audited the accompanying financial statements of Home Share (a not-for-profit organization) HUD Project No. 092-HD017, which comprise the Statements of Financial Position as of December 31, 2016 and 2015, and the related Statements of Activities and Changes in Net Assets, and Cash Flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of 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 audits 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 Organization'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 Organization'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 Home Share as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The Schedules of Functional Expenses for the years ended December 31, 2016 and 2015 are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements, and, accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards Accounting principles generally accepted in the United States of America require that the accompanying supplementary information shown on pages 17 to 30 be presented to supplement the basic financial statements. The supplementary information is presented for purposes of additional analysis as required by the Uniform Financial Reporting Standards issued by the U.S. Department of Housing and Urban Development, and is not a required part of the financial statements. The accompanying Schedules of Expenditures of Federal Awards and Findings and Questioned Costs on pages 27 to 28 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 also not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. In accordance with Government Auditing Standards, we have also issued a report dated March 30, 2017 on our consideration of Home Share s internal control over financial reporting and on our tests of its compliance with certain provisions, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. This report is an integral part of Government Auditing Standards and should be considered in assessing the results of our audit. Respectfully submitted, CARLSON ADVISORS, LLP Minneapolis, Minnesota March 30, 2017
STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 AND 2015 ASSETS December 31, 2016 2015 CURRENT ASSETS Cash in Bank $ 112,520 $ 94,182 Rent Receivable Tenants (Net of Allowance for Doubtful Accounts of $1,000 as of December 31, 2016 and 2015) 640 772 Rent Receivable HUD 4,294 - Total Current Assets 117,454 94,954 RESTRICTED DEPOSITS AND FUNDED RESERVES Investments, Reserve for Replacement 427,712 441,315 Cash, Tenant Damage Deposits 6,562 6,560 Cash, Residual Receipts Reserve 27,352 27,370 Total Restricted Deposits and Funded Reserves 461,626 475,245 PROPERTY AND EQUIPMENT Land 73,252 73,252 Building and Improvements 1,291,551 1,291,551 Apartment Furnishings and Equipment 10,669 10,669 Motor Vehicles 1,203 1,203 Total 1,376,675 1,376,675 Less: Accumulated Depreciation 706,323 658,699 Total Property and Equipment (At Depreciated Cost) 670,352 717,976 Total Assets $ 1,249,432 $ 1,288,175 See accompanying Notes to Financial Statements. (3)
LIABILITIES AND NET ASSETS December 31, 2016 2015 CURRENT LIABILITIES Accounts Payable $ 1,128 $ 1,193 LONG-TERM LIABILITIES Due to Related Party 286,845 252,531 Tenant Damage Deposits 4,592 4,576 Total Long-Term Liabilities 291,437 257,107 Total Liabilities 292,565 258,300 NET ASSETS Unrestricted 312,912 346,013 Temporarily Restricted 643,955 683,862 Total Net Assets 956,867 1,029,875 Total Liabilities and Net Assets $ 1,249,432 $ 1,288,175 (4)
STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2016 Temporarily Unrestricted Restricted Total REVENUE Tenant Rent $ 59,056 $ - $ 59,056 Tenant Assistance Payments 57,005-57,005 Interest Income 1-1 Gain (Loss) on Investments (936) (3,722) (4,658) Other Income 9,679-9,679 Total Revenue 124,805 (3,722) 121,083 Net Assets Released from Restriction 36,185 (36,185) - Net Revenue 160,990 (39,907) 121,083 EXPENSES Management Consultants 2,598-2,598 Management Fee 17,808-17,808 Audit Expense 5,600-5,600 Bad Debts 375-375 Total Administrative Expenses 26,381-26,381 Utilities 26,886-26,886 Supplies 391-391 Garbage and Trash Removal 2,601-2,601 Maintenance Allocation 65,900-65,900 Miscellaneous Maintenance and Repairs 15,674-15,674 Interest Expense - - - Gain on Disposal of Assets - - - Total Operating and Maintenance Expenses 84,566-84,566 Real Estate Taxes 225-225 Insurance 6,985-6,985 Miscellaneous Taxes, Licenses and Insurance 1,423-1,423 Total Taxes and Insurance 8,633-8,633 Total Cost of Operation Before Depreciation 146,466-146,466 Depreciation 47,625-47,625 Total Expenses 194,091-194,091 DECREASE IN NET ASSETS (33,101) (39,907) (73,008) NET ASSETS, BEGINNING OF YEAR 346,013 683,862 1,029,875 NET ASSETS, END OF YEAR $ 312,912 $ 643,955 $ 956,867 See accompanying Notes to Financial Statements. (5)
STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2015 Temporarily Unrestricted Restricted Total REVENUE Tenant Rent $ 61,851 $ - $ 61,851 Tenant Assistance Payments 28,800-28,800 Interest Income 474-474 Gain (Loss) on Investments (473) 4,648 4,175 Other Income - - - Total Revenue 90,652 4,648 95,300 Net Assets Released from Restriction 26,304 (26,304) - Net Revenue 116,956 (21,656) 95,300 EXPENSES Management Consultants 2,813-2,813 Management Fee 12,000-12,000 Audit Expense 5,200-5,200 Bad Debts 2,600-2,600 Total Administrative Expenses 22,613-22,613 Utilities 26,534-26,534 Supplies 1,605-1,605 Garbage and Trash Removal 2,781-2,781 Maintenance Allocation 64,400-64,400 Miscellaneous Maintenance and Repairs 10,794-10,794 Interest Expense 38-38 Gain on Disposal of Assets (10,603) - (10,603) Total Operating and Maintenance Expenses 69,015-69,015 Real Estate Taxes 529-529 Insurance 8,204-8,204 Miscellaneous Taxes, Licenses and Insurance 510-510 Total Taxes and Insurance 9,243-9,243 Total Cost of Operation Before Depreciation 127,405-127,405 Depreciation 47,689-47,689 Total Expenses 175,094-175,094 DECREASE IN NET ASSETS (58,138) (21,656) (79,794) NET ASSETS, BEGINNING OF YEAR 404,151 705,518 1,109,669 NET ASSETS, END OF YEAR $ 346,013 $ 683,862 $ 1,029,875 See accompanying Notes to Financial Statements. (6)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Year Ended December 31, 2016 2015 CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Decrease in Net Assets $ (73,008) $ (79,794) Adjustments to Reconcile Decrease in Net Assets to Net Cash Used For Operating Activities: Gain on Disposal of Property and Equipment - (10,603) Unrealized Loss (Gain) on Investments 3,722 (4,175) Depreciation 47,625 47,689 Decrease (Increase) in Operating Assets: Rent Receivable 132 1,126 HUD Receivable (4,294) 10,562 Increase (Decrease) in Operating Liabilities: Accounts Payable (68) (957) Net Change in Tenant Damage Deposits 16 788 Net Change in Residual Receipt Reserve Deposits 18 (18) Net Cash Used For Operating Activities (25,857) (35,382) CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES Purchases of Property and Equipment - (32,046) Proceeds from Disposal of Property and Equipment - 12,900 (Additions to) Subractions from Investment, Reserve for Replacement 9,881 (473) Net Cash Provided By(Used For) Investing Activities 9,881 (19,619) CASH PROVIDED BY FINANCING ACTIVITIES Due to Related Party 34,314 65,337 NET INCREASE IN CASH 18,338 10,336 CASH BEGINNING 94,182 83,846 CASH ENDING $ 112,520 $ 94,182 Supplemental Disclosure of Cash Flow Information Cash Paid for Interest $ - $ 38 See accompanying Notes to Financial Statements. (7)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 1 SUMMARY OF ORGANIZATION Home Share (Organization) is a Minnesota not-for-profit corporation organized to operate residential residences for individuals with severe and persistent mental illness under Section 811 (Supportive Housing for Persons With Disabilities) and Section 8 (Housing Choice Vouchers) of the National Housing Act. Such projects are regulated by the United States Department of Housing and Urban Development (HUD) as to rent charges and operating methods. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Standards of Accounting and Financial Reporting The organization follows the accounting guidance in the audit and accounting guide, Health Care Organizations, which is in conformity with the recommendations of the American Institute of Certified Public Accountants. Financial Statement Presentation The financial statements of the Organization have been prepared on the accrual basis of accounting and are presented in accordance with the FASB Accounting Standards Codification (ASC) 958, Not-for-Profit Entities. ASC 958 requires the Organization 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. Assets accumulated and resources received and expended by the Organization are either unrestricted as to use or purpose or restricted by the donor for a particular purpose. Permanently restricted net assets account for donations restricted for specific purposes whereby the restriction does not expire. Temporarily restricted net assets represent contributions to the Organization whose use is limited by donor-imposed stipulations that either expire by the passage of time or can be fulfilled by expending the funds for their restricted purpose. The designation of net assets for specific purposes by the Organization itself does not constitute a basis for reclassifying them as temporarily restricted. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits in banks and money market instruments. The Organization also considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Organization had no cash equivalents as of December 31, 2016 and 2015. The Organization places its temporary cash investments with one financial institution. (8)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Rent Receivable Billings for rental services are recognized as income as the rent is due. Billings to governmental agencies for subsidized services, are based upon contract billing rates which may be subsequently changed by the government authorities. Changes in regulations or governmental funding could result in the reduction of services. Any such adjustments to the contract rates are recognized as a reduction of income when their effect becomes reasonably determinable. Bad debts are provided on the allowance method based on historical experience and management's evaluation of outstanding rent receivable. The accounts receivable are stated net of an allowance for doubtful accounts. The allowance for doubtful accounts was $1,000 as of December 31, 2016 and 2015. Property and Equipment Property and equipment are stated at cost if purchased or fair market value at the date of the gift if donated. The Organization s capitalization threshold is for property and equipment which exceed $5,000. Renewals and betterments with a cost of greater than the threshold that materially prolong the useful lives of assets are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. Property and equipment are depreciated using the straight-line method over their estimated useful lives. The estimated useful lives of the assets are as follows: Buildings and Improvements Apartment Furnishings and Equipment Motor Vehicles 5 to 30 Years 5 to 8 Years 5 Years Impairment of Long-Lived Assets The Organization reviews long-lived assets, including property, equipment and certain identifiable intangibles, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recovered. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. The Organization has determined that no impairment existed at December 31, 2016 and 2015. (9)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Revenue Recognition Revenues are recognized when rent is due. Revenue is generated by renting apartment space to residents. Contributions, including unconditional promises to give (pledges), are recognized in the period received. Conditional promises are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. When a temporary restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Organization records restricted contributions for which the restriction is met in the same reporting period as unrestricted contributions. As of December 31, 2016 and 2015, the Organization had not received any contributions. Donated Materials and Services Donated materials are reflected as contributions in the financial statements at their estimated value at the date of receipt. Donated services are recognized as contributions in accordance with GAAP, if the service (a) creates or enhances nonfinancial assets or, (b) specialized skills are performed by people with those skills that would otherwise be purchased by the Organization. No amounts have been reflected in the statements for donated materials or services as of December 31, 2016 and 2015. Distributions The Organization's regulatory agreement with HUD stipulates, among other things, that the Organization will not make distributions of assets or income to any of its officers or directors. Amortization of Federal Awards Mortgage The Organization received Section 811 Capital Advance Program funds from the U.S. Department of Housing and Urban Development in April 1995 (see Note 9). At that time, the organization recorded the mortgage liability for repayment of the federal awards as temporarily restricted net assets. Because the Organization believes all requirements for forgiveness of the mortgage will be met, it is transferring the temporarily restricted net assets to unrestricted net assets ratably over the 30 year life of the mortgage. Income Tax Status The Organization was incorporated under the laws of Minnesota as a not-for-profit corporation and is exempt from federal income tax under Internal Revenue Code 501(c)(3). (10)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Uncertain Tax Positions The Organization has adopted accounting guidance related to uncertainty in income taxes. This guidance clarifies the recognition threshold and measurement requirements for income tax positions taken or expected to be taken on income tax returns. This includes positions that the entity is exempt from income taxes or not subject to income taxes on unrelated business income. Under the standards, the Organization recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities. The Organization has identified no income tax uncertainties. Use of Estimates The preparation of financial statements in conformity with the regulatory basis of accounting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include: the allowance for doubtful accounts and the useful lives of property and equipment. Functional Allocation of Expenses The costs of providing the programs and supporting service activities have been allocated. Salaries and related costs are allocated between the program and supporting service categories based upon the estimated time expended by the employee in those categories. Other costs are allocated according to management s estimate or on a direct basis. Functional expense totals for the years ended December 31, 2016 and 2015 are as follows: 2016 2015 Amount % Amount % Program $ 167,710 86.4 $ 152,481 87.1 Management and General 26,381 13.6 22,613 12.9 Fundraising - - - - Total $ 194,091 $ 175,094 Reclassifications Certain reclassifications have been made on the 2015 financial statements to conform to the 2016 presentation. The reclassifications have no effect on the net income or retained earnings as previously reported. In preparing these financial statements, in prior years the Organization had reported releasing more restricted net assets to unrestricted net assets than allowed. The Organization has restated its 2015 Net Assets Released from Restrictions on the Statements of Changes in Net Assets to the corrected amount. (11)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued New Accounting Standards In August 2016, the FASB issued ASU 2016-14, Not-For-Profit Entities (Topic 958): Presentation of Financial Statements of Not-For-Profit Entities, which provides guidance for the presentation of Not-for-Profit financial statements. The guidance requires Not-for-Profit entities to 1) reclassify Net Assets into two classes ( Without Donor Restrictions or With Donor Restrictions ) rather than three classes, 2) present both qualitative and quantitative information that communicates how the organization manages its liquid resources and the availability of financial assets to meet cash needs within one year of the balance sheet date, 3) present an analysis of expenses by function and nature, 4) present Investment Return amounts as a net presentation of investment expenses against investment returns, 5) present the Statement of Cash Flows in either direct or indirect method, but if using direct method, no longer required to show indirect reconciliation. The guidance will initially be applied using a retrospective approach. The amendments in the guidance are effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. Management is evaluating the impact of the amended guidance on the entity s financial statements. NOTE 3 HUD RESTRICTED DEPOSITS AND FUNDED RESERVES Reserve for Replacement Under the regulatory agreement, the Organization is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. HUD-restricted deposits which were $427,712 and $441,315 at December 31, 2016 and 2015, respectively, are being held in investment accounts and generally are not available for operating purposes. During the years ended December 31, 2016 and 2015, HUD authorized withdrawals from this reserve of $9,881 and $0, respectively. Tenant Damage Deposits Under the regulatory agreement, the Organization is required to set aside amounts for the return of resident paid damage deposits. HUD-restricted deposits, which were $6,562 and $6,560 at December 31, 2016 and 2015, respectively, are being held in a separate bank account and generally are not available for operating purposes. Residual Receipts Reserve As of December 31, 2016 and 2015, the residual receipts account balance was $27,352 and $27,370, respectively. The funds are held in a separate bank account and are generally not available for operating purposes. NOTE 4 DUE TO RELATED PARTY Community Involvement Programs (CIP), a Minnesota not-for-profit corporation, is a related party to the Organization because of common members of their Board of Directors. CIP provides office space and management support to the Organization as needed. (12)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 4 DUE TO RELATED PARTY - Continued Due to related party consists of total unreimbursed expenses paid by CIP's general fund on behalf of North Court Apartments Project. The general fund pays all common expenses of its programs and the programs reimburse the fund as needed. At December 31, 2016 and 2015, the liability balance $286,845 and $252,531, respectively, of unreimbursed expenses paid by the general fund for North Court Apartments was substantially for maintenance, utilities and insurance costs, wages and benefits, and allocation of administrative costs. NOTE 5 CONTINGENCY The Organization has received capital advances for project development from HUD. These capital advances are non-interest bearing and are to be repaid only if default occurs within forty years of the agreement date. Conditions of default include termination of interest in the housing unit or the housing unit ceases to be used as housing for low income tenants. If no default occurs, the loans will be deemed to have been paid in full in the final year of the agreement and no payment will be required. Because the likelihood of the Organization defaulting is remote, the Organization has recognized the funds as temporarily restricted net assets in the statement of activities. The funds are transferred out of temporarily restricted net assets to unrestricted net assets at the same rate as the assets acquired when the funds are depreciated. The original total amount of these capital advances was $1,216,317. NOTE 6 CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Organization's sole asset is a 22-unit apartment project. The Organization's operations are concentrated in the multifamily real estate market. In addition, the Organization operates in a heavily regulated environment. The operations of the Organization 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. NOTE 7 MAINTENANCE AND ADMINISTRATIVE ALLOCATION The Organization does not have any employees, nor does it pay any related payroll taxes or benefits. All maintenance on the project is performed by CIP, a related Organization. CIP allocates a portion of its maintenance and administrative expenses to Home Share. Maintenance expenses are allocated based on the number of units (22) compared to the number of units in the Organization (98). The maintenance allocation was $65,900 and $64,400 for the years ended December 31, 2016 and 2015, respectively. Administrative expenses are allocated based on a percentage of budgeted revenues. The management fee was $17,808 and $12,000 for each of the years ended December 31, 2016 and 2015, respectively. (13)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 8 INVESTMENTS Investments are carried at fair value and consist of money market securities and exchange traded funds with a broker. Investments are classified as available-for-sale investments with unrealized gains and losses recognized in the current period. Investments consisted of the following at December 31, 2016 and 2015: 2016 2015 Money Market Funds $ 35,304 $ 153,442 Exchange Traded Funds 392,408 287,873 Total $ 427,712 $ 441,315 Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2016 and 2015. Money Market Fund: Valued at fair value based on the net asset value (NAV) of the observable market prices of the underlying assets within that account, less liabilities. Exchange Traded Funds: Valued at fair value based on observable market prices in active markets. NOTE 9 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consist of the following: December 31, 2016 2015 Unamortized Federal Awards Mortgage $ 216,243 $ 242,547 Reserve for Replacement 427,712 441,315 Total $ 643,955 $ 683,862 In April 1995, the Organization received $1,216,317 ($789,112 for construction of housing and $427,205 designated as replacement reserve) of Section 811 Capital Advance Program funding from the U.S. Department of Housing and Urban Development (HUD) for the purchase and rehabilitation of housing designated for very low-income elderly persons or very low-income persons with disabilities. These capital advances are secured by a non-interest bearing mortgage which must be repaid only if default occurs within thirty years of the agreement date. Conditions of default include termination of interest in the housing unit or the housing unit ceases to be used as housing for low income tenants. If no default occurs, the loans will be deemed to have been paid in full in the final year of the agreement and no payment will be required. Because the likelihood of the Organization defaulting is remote, the Organization has recognized the funds as temporarily restricted net assets. Home Share, Inc. has met all loan and operating method requirements as of December 31, 2016. Use of replacement reserve funds must be approved by HUD. (14)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 NOTE 10 COMMITMENTS AND CONTINGENCIES The Organization has received capital advances for project development from HUD as described in Note 9. The outstanding balance of the mortgage payable to HUD as of December 31, 2016 was $1,216,317. The Organization is subject to legal proceedings and claims which arise in the course of providing health care services. The Organization maintains liability insurance coverage for claims made during the policy year. In management s opinion, adequate provision has been made for amounts expected to be paid under the policy s deductible limits for unasserted claims not covered by the policy and any other uninsured liability. The health care industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for resident services, and Medicare and Medicaid fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse of statutes and regulations by health care providers. Violations of these laws and regulations could result in expulsion from government health care programs together with the imposition of significant fines and penalties, as well as significant repayments for resident services previously billed. NOTE 11 SUBSEQUENT EVENTS In preparing these financial statements, the Organization has evaluated for recognition or disclosure the events or transactions that occurred through March 30, 2017, the date the financial statements were available to be issued. (15)
SUPPLEMENTARY INFORMATION
SCHEDULES OF FUNCTIONAL EXPENSES FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (UNAUDITED) 2016 2015 Management Management Total Program and Total Program and Costs Services General Fundraising Costs Services General Fundraising Maintenance Allocation $ 65,900 $ 65,900 $ - $ - $ 64,400 $ 64,400 $ - $ - Utilities 26,886 26,886 - - 26,534 26,534 - - Miscellaneous Maintenance and Repairs 15,674 15,674 - - 10,794 10,794 - - Interest Expense - - - - 38 38 - - Administrative Allocation 17,808-17,808-12,000-12,000 - Insurance 6,985 6,985 - - 8,204 8,204 - - Audit Expense 5,600-5,600-5,200-5,200 - Garbage and Trash Removal 2,601 2,601 - - 2,781 2,781 - - Supplies 391 391 - - 1,605 1,605 - - Management Consultants 2,598-2,598-2,813-2,813 - Bad Debt Expense 375-375 - 2,600-2,600 - Real Estate Taxes 225 225 - - 529 529 - - Licenses 1,423 1,423 - - 510 510 - - Gain on Disposal of Assets - - - - (10,603) (10,603) - - Expenses Before Depreciation 146,466 120,085 26,381-127,405 104,792 22,613 - Depreciation 47,625 47,625 - - 47,689 47,689 - - Total Expenses $ 194,091 $ 167,710 $ 26,381 $ - $ 175,094 $ 152,481 $ 22,613 $ - See accompanying Independent Auditor's Report. (16)
REPORTS REQUIRED BY OMB UNIFORM GUIDANCE
SUPPORTING DATA REQUIRED BY HUD FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Accounts Receivable (Other than Regular Tenants and HUD): None. Mortgage Escrow Deposits No escrow deposits required. Tenant Security Deposits Tenant security deposits are on deposit at Sunrise Bank, St. Paul, Minnesota. Residual Receipts Reserve: In accordance with the provisions of the regulatory agreement, restricted cash is held by SunRise Banks to be used for Section 8 properties expenses with the approval of HUD as follows: 2016 2015 Balance Beginning of Year $ 27,370 $ 27,388 (Decrease) Increase in Market Value - - Deposits - - Withdrawals (18) (18) Balance at End of Year $ 27,352 $ 27,370 Reserve for Replacement: In accordance with the provisions of the regulatory agreement, restricted cash is held by Wells Fargo Investment Services to be used for replacement of property with the approval of HUD as follows: 2016 2015 Balance Beginning of Year $ 441,315 $ 436,667 Increase (Decrease) in Market Value (3,722) 4,648 Authorized Withdrawals (9,881) - Balance at End of Year as Confirmed by Wells Fargo Investment Services $ 427,712 $ 441,315 Accrued Taxes None. Compensation of Officers Corporate officers serve without compensation. (17)
SUPPORTING DATA REQUIRED BY HUD Continued FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Identity of Interest Firms There have been no services provided to the project of $1,000 or more by identity of interest organizations, corporations, individuals or partnerships. Schedule of Cash and Temporary Cash Investments Account Number 2016 2015 Ending Amount Amount Sunrise Bank Operating Checking 6100 $ 112,520 $ 94,182 Security Deposits 8100 $ 6,562 $ 6,560 Residual Receipts 4100 $ 27,352 $ 27,370 Wells Fargo Investment Services Replacement Reserve 7153 $ 427,712 $ 441,315 Auditor CARLSON ADVIORS, LLP Certified Public Accountants 7101 Northland Circle Suite #123 Minneapolis, MN 55428 Lead Auditor Joel Gerdes, CPA (763) 535-8150 Federal I.D. Number 41-1504933 (18)
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Year Ended December 31, 2016 2015 CASH Cash $ 112,520 $ 94,182 Rent Receivable Tenants 640 772 Rent Receivable HUD 4,294 - Total Cash 117,454 94,954 OBLIGATIONS Accounts Payable Due in 30 Days 1,128 1,193 Accrued Expenses 286,845 252,531 Tenant Security Deposits 4,592 4,576 Total Obligations 292,565 258,300 CASH DEFICIT $ (175,111) $ (163,346) REQUIRED DEPOSIT TO RESIDUAL RECEIPTS - - (19)
SCHEDULE OF CHANGES IN FIXED ASSETS DECEMBER 31, 2016 Assets Balance Balance December 31, December 31, 2015 Additions Disposals 2016 Land $ 73,252 $ - $ - $ 73,252 Building and Improvements 1,291,551 - - 1,291,551 Apartment Furnishings and Equipment 10,669 - - 10,669 Motor Vehicles 1,203 - - 1,203 Total $ 1,376,675 $ - $ - $ 1,376,675 Accumulated Depreciation Net Book Balance Balance Value December 31, Current December 31, December 31, 2015 Provisions Disposals 2016 2016 Land $ - $ - $ - $ - $ 73,252 Building and Improvements 648,898 46,867-695,765 595,786 Apartment Furnishings and Equipment 8,598 757-9,355 1,314 Motor Vehicles 1,203 - - 1,203 - Total $ 658,699 $ 47,624 $ - $ 706,323 $ 670,352 (20)
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 1600 Broadway Street NE Minneapolis, MN 55413-2617 Members of the Board: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of Home Share as of and for the years ended December 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise Home Share s basic financial statements, and have issued our report thereon dated March 30, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Home Share'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 Home Share's internal control. Accordingly, we do not express an opinion on the effectiveness of Home Share's internal control. A deficiency in internal control exists when the design or operations 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Home Share's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control, that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters As part of obtaining reasonable assurance about whether Home Share'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 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 Home Share's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Home Share's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, CARLSON ADVISORS, LLP Minneapolis, Minnesota March 30, 2017 (22)
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB UNIFORM GUIDANCE Board of Directors 1600 Broadway Street NE Minneapolis, MN 55413-2617 Members of the Board: Report on Compliance for Each Major Federal Program We have audited Home Share's compliance with the types of compliance requirements described in the OMB Compliance Supplement, that could have a direct and material effect on each of Home Share's major federal programs for the year ended December 31, 2016. Home Share's major federal programs are 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 the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Home Share'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 requirements referred to above that could have a material effect on the major federal programs occurred. An audit includes examining, on a test basis, evidence about Home Share'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 with each major program. However, our audit does not provide a legal determination of Home Share's compliance.
Opinion of Each Major Federal Program In our opinion, Home Share complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs identified above for the year ended December 31, 2016. Other Matters The results of our auditing procedures did not disclose any material instances of noncompliance which are to be reported in accordance with the Uniform Guidance. Our opinion is not modified with respect to these matters. Report on Internal Control Over Compliance Management of Home Share is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Home Share's internal control over compliance with the types of requirements that could have a direct and material effect on each major 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 Home Share's internal control over compliance. A deficiency in internal control over compliance 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, noncompliance with a type of compliance requirements 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 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 the attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses may exist that have not been identified. Report on Schedule of Expenditures of Federal Awards Required by Uniform Guidance. We have audited the financial statements of Home Share as of and for the year ended December 31, 2016, and have issued our report thereon dated March 30, 2017, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Uniform Guidance and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. (24)
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 our testing based on the requirements of Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Respectfully submitted, CARLSON ADVISORS, LLP Minneapolis, Minnesota March 30, 2017 (25)
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2016 Federal CFDA Federal Federal Grantor/Program Title Number Expenditures U.S. Department of Housing and Urban Development Section 811 Capital Advance 14.181 $ 1,216,317 Section 8 Housing Assistance Payments 14.871 57,005 $ 1,273,322 NOTE A BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Home Share, HUD Project No. 092-HD017, and is presented on the accrual basis of accounting. The beginning of the audit period balance of loans from previous years for which the Federal government imposes continuing compliance requirements is $1,216,317. The information in this schedule is presented in accordance with the requirements of OMB Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. (26)
SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2016 Section I. Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? yes x none reported Significant deficiency(s) identified that are not considered to be material weaknesses? yes x none reported Noncompliance material to financial statements noted yes x none reported Federal Awards Type of auditor's report issued on compliance for major federal programs: Unmodified Material weakness(es) identified? yes x none reported Significant deficiency(s) identified that are not considered to be material weaknesses? yes x none reported Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516 (a) yes x none reported Identification of major federal programs: CFDA No. 14.181 14.871 Names of Federal Program or Cluster Section 811 Capital Advance Section 8 Housing Assistance Payments (27)