FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION AUGUST 31, 2017 L & C Leaf & Cole, LLP Certified Public Accountants
L & C Leaf & Cole, LLP Certified Public Accountants A Partnership of Professional Corporations To the Board of Directors Astoria Gardens Tenant Association Attached is the financial report of Astoria Gardens Tenant Association for the year ended August 31, 2017: Audit Partner Information Name: Michael J. Zizzi Address: 2810 Camino Del Rio South, Suite 200 San Diego, CA 92108 Phone No.: (619) 294-7200 Firm s Federal Employer Identification Number Leaf & Cole, LLP: 95-2076568 San Diego, California May 22, 2018 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com
FINANCIAL STATEMENTS AUGUST 31, 2017 TABLE OF CONTENTS Independent Auditor s Report 1-2 Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Notes to Financial Statements 6-11 Supplementary Information: Supplementary Statement of Financial Position 12-13 Supplementary Profit and Loss Data 14-17 Supplementary Cash Flow Data 18-19 Supplementary Data Required by HUD 20-21 Schedule of Expenditures of Federal Awards 22 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 23-24 Independent Auditor s Report on Compliance for the Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 25-26 Schedule of Findings and Questioned Costs 27 Summary Schedule of Prior Audit Findings 28 Management Agent s Certification 29 Certificate of Officers 30 Page i
L & C Leaf & Cole, LLP Certified Public Accountants A Partnership of Professional Corporations Independent Auditor s Report To the Board of Directors Astoria Gardens Tenant Association Report on the Financial Statements We have audited the accompanying financial statements of Astoria Gardens Tenant Association, which comprise the statement of financial position as of August 31, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com
To the Board of Directors Page 2 Astoria Gardens Tenant Association Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Astoria Gardens Tenant Association as of August 31, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information on pages 12 to 21 is presented for purposes of additional analysis as required by the Uniform Financial Reporting Standards issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 22, 2018, on our consideration of Astoria Gardens Tenant Association s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Astoria Gardens Tenant Association s internal control over financial reporting and compliance. San Diego, California May 22, 2018 2
STATEMENT OF FINANCIAL POSITION AUGUST 31, 2017 ASSETS Investment in Real Estate: (Notes 2 and 4) Land $ 1,778,448 Buildings 7,443,030 Furnishings and equipment 740,509 Miscellaneous fixed assets 102,921 Less: Accumulated depreciation (4,080,098) Net Investment in Real Estate 5,984,810 Other Assets: (Note 2) Cash and cash equivalents 147,343 Accounts receivable 140,314 Prepaid expenses 30,953 Tenant security deposits 67,109 Total Other Assets 385,719 Restricted Deposits: (Note 3) Escrow deposits 82,137 Replacement reserve 230,071 Residual receipts reserve 390,982 Total Restricted Deposits 703,190 TOTAL ASSETS $ 7,073,719 LIABILITIES AND NET ASSETS Liabilities: (Notes 2, 4 and 5) Mortgage payable $ 5,065,139 Accrued interest payable 27,436 Accounts payable and accrued expenses 322,448 Prepaid rents 20,144 Tenant security deposits 59,836 Total Liabilities 5,495,003 Unrestricted Net Assets (Note 2) 1,578,716 TOTAL LIABILITIES AND NET ASSETS $ 7,073,719 The accompanying notes are an integral part of the financial statements. 3
ASTORIA GARDEN TENANT ASSOCIATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2017 Income: Rental income $ 2,273,079 Other income 36,478 Interest income 769 Total Income 2,310,326 Expenses: Program Expenses: Operating and maintenance 535,396 Utilities 367,980 Financial 356,281 Depreciation 260,835 Taxes and insurance 143,309 Total Program Expenses 1,663,801 Supporting Services: Administrative expenses 383,158 Total Program and Supporting Services Expenses 2,046,959 Entity Expenses: Board activities 19,838 Total Expenses 2,066,797 Change in Unrestricted Net Assets 243,529 Unrestricted Net Assets at August 31, 2016 1,335,187 UNRESTRICTED NET ASSETS AT AUGUST 31, 2017 $ 1,578,716 The accompanying notes are an integral part of the financial statements. 4
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31, 2017 Cash Flows From Operating Activities: Change in unrestricted net assets $ 243,529 Adjustments to reconcile change in unrestricted net assets to net cash provided by operating activities: Depreciation 260,835 (Increase) Decrease in: Accounts receivable 7,634 Prepaid expenses (3,943) Tenant security deposits (764) Increase (Decrease) in: Accrued interest payable (699) Accounts payable and accrued expenses (22,931) Prepaid rents (18,280) Tenant security deposits 375 Net Cash Provided by Operating Activities 465,756 Cash Flows From Investing Activities: Net purchase of investment in real estate (363,061) Net deposits to escrow deposits (3,472) Net withdrawals from replacement reserve 111,077 Net withdrawals from residual receipts reserve 27,962 Net Cash Used in Investing Activities (227,494) Cash Flows From Financing Activities: Payments on mortgage payable (129,021) Net Cash Used in Financing Activities (129,021) Net Increase in Cash and Cash Equivalents 109,241 Cash and Cash Equivalents at Beginning of Year 38,102 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 147,343 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 333,822 The accompanying notes are an integral part of the financial statements. 5
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2017 Note 1 - Organization: Astoria Gardens Tenant Association (the Association ) located in Sylmar, California was built on April 6, 1969 and provides subsidized housing to 136 low and moderate income families. The Association acquired the apartment complex on September 9, 1996 with financing under Sections 236 and 241 of the National Housing Act. The project is regulated by the Department of Housing and Urban Development (HUD) as to rent charges and operating methods. Note 2 - Summary of Significant Accounting Policies: Accounting Method The Association s books are maintained on the accrual basis of accounting, which is in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and, accordingly, reflect all significant receivables, payables, and other liabilities. Financial Statement Presentation The financial statements present information regarding the financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value Measurements Fair value accounting standards define fair value, establish a framework for measuring fair value, outline a fair value hierarchy based on inputs used to measure fair value and enhance disclosure requirements for fair value measurements. The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 or 2 of the hierarchy) and the reporting entity s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The Association had no financial instruments at August 31, 2017. 6
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2017 Note 2 - Summary of Significant Accounting Policies: (Continued) Capitalization and Depreciation The Association capitalizes all expenditures in excess of $6,000 for investment in real estate at cost, while donations of property and equipment are recorded at their estimated fair value. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how those donated assets must be maintained, the Association reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Association reclassifies temporarily restricted net assets to unrestricted net assets at that time. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. The estimated service life of the assets for depreciation purposes may be different than their actual economic useful lives. Method Estimated Life Buildings Straight-line 40 years Furnishings and equipment Straight-line 5-10 years Miscellaneous fixed assets Straight-line 5-7 years Depreciation totaled $260,835 for the year ended August 31, 2017. Maintenance, repairs and minor renewals are charged to operations as incurred. Upon sale or disposition of property and equipment, the asset account is relieved of the cost and the accumulated depreciation account is charged with depreciation taken prior to the sale and any resultant gain or loss is credited or charged to earnings. Impairment of Real Estate The Association reviews its investment in real estate for impairment whenever events and changes in circumstances indicate that the carrying value of such property may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the real estate to the future net undiscounted net cash flows expected to be generated by the rental property and any estimated proceeds from the eventual disposition of the real estate. If the real estate is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of real estate exceeds the fair value of such property. There was no impairment loss recognized in 2017. 7
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2017 Note 2 - Summary of Significant Accounting Policies: (Continued) Allowance for Doubtful Accounts Bad debts are recognized on the allowance method based on management s evaluation of outstanding accounts receivable. Management believes that all accounts receivable were fully collectible; therefore, no allowance for doubtful accounts receivable was recorded at August 31, 2017. Deferred Income and Prepaid Rents Laundry payments received in advance are classified as liabilities until earned. Advanced laundry payments are earned and recognized as revenue over the term of the laundry contract. Rental payments received in advance are deferred and classified as liabilities until earned. Distributions The Association s Regulatory Agreement with HUD stipulates, among other things, that the Association will not make distributions of assets or income to any of its officers or directors. No distributions were made for the year ended August 31, 2017. Revenue Recognition Rental revenue attributable to residential leases is recorded when due from residents, generally upon the first day of each month. Leases are for periods of up to one year, with rental payments due monthly. Other revenue includes fees for late payments, cleaning, damages, laundry facilities and other charges and is recorded when earned. Rental income is shown at its maximum gross potential. Vacancy loss is shown as a reduction in rental income. Rental units occupied by employees are included in rental income and as an expense of operations. Housing Assistance Payments Contract The Association entered into a housing assistance payment contract with the Department of Housing and Urban Development ( HUD ) under Section 8 of the Housing Act, Contract #CA162000046 which expires August 1, 2018. The amount earned on the contract totaled $1,283,833 for the year ended August 31, 2017, and is included in rental income. Allocated Expenses Expenses by function have been allocated among program and supporting services classifications on the basis of internal records and estimates made by the Association s management. 8
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2017 Note 2 - Summary of Significant Accounting Policies: (Continued) Income Taxes The Association is a nonprofit organization and is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. The Association believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements. The Association is not a private foundation. The Association s Return of Organization Exempt from Income Tax for the years ended August 31, 2017, 2016, 2015 and 2014 are subject to examination by the Internal Revenue Service and State taxing authorities, generally three to four years after the returns were filed. Concentrations The Association s operations are concentrated in the multi-family real estate market. In addition, the Association operates in a heavily regulated environment. The operations of the Association are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change. 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. Cash and Cash Equivalents For purposes of the statement of cash flows, the Association considers all highly liquid instruments with original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of unrestricted checking accounts and petty cash. Not included as cash are funds restricted as to their use, regardless of liquidity, such as escrow deposits, replacement reserve and residual receipts reserve. The Association occasionally maintains cash on deposit at a bank in excess of the Federal Deposit Insurance Corporation limit. The Association has not experienced any losses in such accounts. Subsequent Events In preparing these financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through May 22, 2018, the date the financial statements were available to be issued. 9
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2017 Note 3 - Restricted Deposits: Escrow Deposits Restricted funds are held by Wells Fargo Bank in accordance with the provisions of the Regulatory Agreement to be used for mortgage escrow deposits as follows: Balance, August 31, 2016 $ 78,665 Add: Monthly deposits 99,088 Less Withdrawals: Mortgage insurance (23,062) Property insurance (56,013) Real estate taxes (16,541) Balance, August 31, 2017 $ 82,137 Replacement Reserve The replacement reserves are held by Wells Fargo Bank in accordance with the provisions of the Regulatory Agreement to be used for replacement of property with the approval of HUD as follows: Balance, August 31, 2016 $ 341,148 Add: Monthly deposits 85,284 Interest income 35 Less: Approved withdrawals (95,413) Other withdrawals - HUD subsidy (100,983) Balance, August 31, 2017 $ 230,071 Residual Receipts Reserve The Association has funded a residual receipts reserve in accordance with the provisions of the Regulatory Agreement to be used with the approval of HUD as follows: Balance, August 31, 2016 $ 418,944 Add: Interest income 734 Less: Approved withdrawals (28,696) Balance, August 31, 2017 $ 390,982 Tenant Security Deposits The Association is required to hold security deposits in a separate bank account in the name of the Project. The amount held by the Association totaled $67,109 at August 31, 2017. 10
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2017 Note 4 - Mortgage Payable: The 6.5% mortgage payable is held by Wells Fargo Bank, and is insured by Federal Housing Administration (FHA) under Section 241 pursuant to Section 223(a)(7) of the National Housing Act and Regulations. The mortgage is payable in monthly installments of $38,570 including principal and interest, with any remaining unpaid principal due in full on October 1, 2036. Monthly payments to the mortgagee to cover insurance, taxes and reserve for replacement fund totaled $14,835. Accrued interest payable totaled $27,436 at August 31, 2017. Substantially all investment in real estate is pledged as collateral to the mortgage payable. The future principal payments on the mortgage payable are as follows: Years Ended August 31 Note 5 - Management Fee: 2018 $ 137,662 2019 146,882 2020 156,718 2021 167,214 2022 178,413 Thereafter 4,278,250 Total $ 5,065,139 Management fees were earned by TELACU Property Management Inc. as follows for the year ended August 31, 2017: Accrued Management Fee, August 31, 2016 $ 3,701 Management fee earned 120,409 Management fee paid (112,213) Accrued Management Fee Payable, August 31, 2017 $ 11,897 (Included in accounts payable and accrued expenses) 11
SUPPLEMENTARY STATEMENT OF FINANCIAL POSITION AUGUST 31, 2017 ASSETS Current Assets: 1120 Cash - Operations $ 133,593 1125 Cash - Entity 13,750 1130 Tenant receivable 22,196 1135 Accounts receivable - HUD 118,118 1200 Prepaid expenses 30,953 1100T Total Current Assets 318,610 Deposits Held in Trust: 1191 Tenant security deposits held in trust 67,109 Restricted Deposits: 1310 Escrow deposits 82,137 1320 Replacement reserve 230,071 1340 Residual receipts reserve 390,982 1300T Total Restricted Deposits 703,190 Fixed Assets: 1410 Land 1,778,448 1420 Buildings 7,443,030 1440 Building equipment - Portable 297,637 1450 Furniture for Project/tenant use 408,413 1465 Office furniture and equipment 34,459 1490 Miscellaneous fixed assets 102,921 1400T Total Fixed Assets 10,064,908 1495 Less: Accumulated depreciation (4,080,098) 1400N Net Fixed Assets 5,984,810 1000T Total Assets $ 7,073,719 12
SUPPLEMENTARY STATEMENT OF FINANCIAL POSITION (CONTINUED) AUGUST 31, 2017 LIABILITIES AND NET ASSETS Current Liabilities: 2110 Accounts payable - Operations $ 276,581 2120 Accrued wages payable 11,176 2123 Accrued management fee payable 11,897 2131 Accrued interest payable - First mortgage 27,436 2170 Current portion of first mortgage payable 137,662 2190 Miscellaneous current liabilities 22,794 2210 Prepaid revenue 20,144 2122T Total Current Liabilities 507,690 Other Liabilities: 2191 Tenant security deposits payable 59,836 Long-Term Liabilities: 2320 First mortgage payable 4,927,477 2300T Total Long-term Liabilities 4,927,477 2000T Total Liabilities 5,495,003 Net Assets: 4100 Unrestricted net assets 1,578,716 4000T Total Net Assets 1,578,716 2040T Total Liabilities and Net Assets $ 7,073,719 Supplementary Information Related to the Statement of Financial Position Account 2190 - Miscellaneous Current Liabilities: Accrued utilities and renovation costs $ 9,479 Accrued audit fees 10,750 Accrued workers compensation 2,565 $ 22,794 13
SUPPLEMENTARY PROFIT AND LOSS DATA FOR THE YEAR ENDED AUGUST 31, 2017 Revenues: Rental Revenue: 5120 Rent revenue - Gross potential $ 996,595 5121 Tenant assistance payments 1,283,833 5194 Retained excess income 5,706 5100T Total Rental Revenue 2,286,134 Vacancies: 5220 Vacancies - Apartments (13,055) 5220T Total Vacancies (13,055) 5152N Net Rental Revenue 2,273,079 Financial Revenue: 5430 Revenue from investments - Residual receipts 734 5440 Financial revenue - Replacement reserve 35 5400T Total Financial Revenue 769 Other Revenue: 5910 Laundry and vending revenue 23,117 5920 Tenant charges 2,105 5970 Gifts 11,256 5900T Total Other Revenue 36,478 5000T Total Revenue 2,310,326 Expenses: Administrative Expenses: 6250 Other renting expenses 3,087 6310 Office salaries 31,215 6311 Office expenses 42,204 6320 Management fee 120,409 6330 Manager or superintendent salaries 41,385 6331 Administrative rent free unit 32,690 6340 Legal expenses - Project 31,424 6350 Audit expense 10,750 6351 Accounting services 12,060 6390 Miscellaneous administrative expenses 57,934 6263T Total Administrative Expenses 383,158 (Continued) 14
SUPPLEMENTARY PROFIT AND LOSS DATA (CONTINUED) FOR THE YEAR ENDED AUGUST 31, 2017 Expenses: (Continued) Utilities Expense: 6450 Electricity $ 137,527 6451 Water 105,734 6452 Gas 47,368 6453 Sewer 77,351 6400T Total Utilities Expense 367,980 Operating and Maintenance Expenses: 6510 Payroll 66,935 6515 Supplies 23,782 6520 Contracts 112,537 6525 Garbage and trash removal 22,452 6530 Security Payroll/Contract 208,844 6546 Heating/Cooling repairs 1,270 6580 Non-recurring repairs and replacements 65,991 6590 Miscellaneous operating and maintenance expense 33,585 6500T Total Operating and Maintenance Expenses 535,396 Taxes and Insurance: 6710 Real estate taxes 16,541 6711 Payroll taxes 12,339 6720 Property and liability insurance 55,829 6722 Workmen's compensation 14,578 6723 Health insurance and other employee benefits 10,981 6790 Miscellaneous taxes, licenses, permits and insurance 33,041 6700T Total Taxes and Insurance 143,309 Financial Expenses: 6820 Interest on mortgage payable 333,123 6850 Mortgage insurance premium/ service charge 23,062 6890 Miscellaneous financial expense 96 6800T Total Financial Expenses 356,281 6000T Total Cost of Operations Before Depreciation 1,786,124 (Continued) 15
SUPPLEMENTARY PROFIT AND LOSS DATA (CONTINUED) FOR THE YEAR ENDED AUGUST 31, 2017 Expenses: (Continued) 5060T Profit (Loss) Before Depreciation $ 524,202 Depreciation: 6600 Depreciation expense 260,835 5060N Operating Profit 263,367 Corporate or Mortgagor Revenue/Expenses 7190 Other Expenses - Board activities 19,838 3250 Change in Unrestricted Net Assets 243,529 S1100-060 Unrestricted Net Assets at August 31, 2016 1,335,187 3131 Unrestricted Net Assets at August 31, 2017 $ 1,578,716 Supplementary Information Related to Profit and Loss Data: Account 6390 - Miscellaneous administrative expenses: Miscellaneous administrative expenses $ 37,366 Training and conferences 14,524 Computer software updates 3,402 Subscriptions 1,593 Other professional services 1,049 $ 57,934 Account 6790 - Miscellaneous taxes, licenses, permits and insurance: Directors and officer s insurance $ 26,800 Miscellaneous taxes, license and permits 6,241 $ 33,041 16
SUPPLEMENTARY PROFIT AND LOSS DATA (CONTINUED) FOR THE YEAR ENDED AUGUST 31, 2017 Supplementary Information Related to Profit and Loss Data: (Continued) S1000-010 Total first mortgage (or bond) principal payments required during the audit year (12 monthly payments). This applies to all direct loans, amortizing HUD-helds, and fully insured first mortgages. $ 129,021 S1000-020 Total of 12 monthly deposits in the audit year into the Replacement Reserve account, as required by the Regulatory Agreement, even if payments may be temporarily suspended or reduced. $ 85,284 S1000-030 Replacement Reserves, or Residual Receipts and Releases which are included as expense items on the Profit and Loss statement. $ - S1000-040 Profit Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on the Profit and Loss Statement. None 17
SUPPLEMENTARY CASH FLOW DATA FOR THE YEAR ENDED AUGUST 31, 2017 Cash Flows From Operating Activities: S1200-010 Rental receipts $ 2,229,743 S1200-020 Interest receipts 769 S1200-030 Other operating receipts 36,478 S1200-040 Total Receipts 2,266,990 S1200-050 Administrative (157,459) S1200-070 Management fee (112,213) S1200-090 Utilities (366,059) S1200-100 Salaries (139,455) S1200-110 Operating and maintenance (501,589) S1200-120 Real estate taxes (16,541) S1200-140 Property insurance (56,013) S1200-150 Miscellaneous taxes and insurance (74,698) S1200-160 Tenant security deposits (389) S1200-180 Interest on mortgage (333,822) S1200-210 Mortgage insurance premium (23,062) S1200-220 Miscellaneous financial (96) S1200-225 Entity/construction disbursements - Tenant events (19,838) S1200-230 Total Disbursements (1,801,234) S1200-240 Net Cash Provided by Operating Activities 465,756 Cash Flows From Investing Activities: S1200-245 Net deposits to escrow deposits (3,472) S1200-250 Net withdrawals from replacement reserve 111,077 S1200-260 Net withdrawals from residual receipts reserve 27,962 S1200-330 Net purchase of fixed assets (363,061) S1200-350 Net Cash Used in Investing Activities (227,494) Cash Flows From Financing Activities: S1200-360 Principal payments on first mortgage payable (129,021) S1200-460 Net Cash Used in Financing Activities (129,021) S1200-470 Net Increase in Cash and Cash Equivalents 109,241 S1200-480 Cash at Beginning of Year 38,102 S1200T Cash at End of Year $ 147,343 (Continued) 18
SUPPLEMENTARY CASH FLOW DATA (CONTINUED) FOR THE YEAR ENDED AUGUST 31, 2017 Reconciliation of Change in Unrestricted Net Assets to Net Cash Provided by Operating Activities: 3250 Change in total net assets from operations $ 243,529 Adjustments to reconcile change in unrestricted net assets to net cash provided by operating activities: 6600 Depreciation 260,835 (Increase) Decrease in: S1200-490 Tenant accounts receivable 11,717 S1200-500 Accounts receivable - other (4,083) S1200-520 Prepaid expenses (3,943) S1200-530 Tenant security deposits held in trust (764) Increase (Decrease) in: S1200-540 Accounts payable 1,921 S1200-560 Accrued liabilities (24,852) S1200-570 Accrued interest payable (699) S1200-580 Tenant security deposits payable 375 S1200-590 Prepaid revenue (18,280) S1200-610 Net Cash Provided by Operating Activities $ 465,756 19
SUPPLEMENTARY DATA REQUIRED BY HUD FOR THE YEAR ENDED AUGUST 31, 2017 Reserve Account Data Schedule of Reserve for Replacements: 1320P Balance, August 31, 2016 $ 341,148 1320DT Add: Total monthly deposits 85,284 1320 INT Interest income 35 1320WT Less: Approved withdrawals (95,413) 1320OWT Other withdrawals - HUD subsidy (100,983) 1320 Balance, August 31, 2017 $ 230,071 Schedule of Residual Receipts Reserve: 1340P Balance, August 31, 2016 $ 418,944 1340INT Add: Interest income 734 1340OWT Less: Approved withdrawals (28,696) 1320 Balance, August 31, 2017 $ 390,982 Surplus Cash and Fixed Assets Data Computation of Surplus Cash, Distributions, and Residual Receipts - Annual: Cash: S1300-010 Cash $ 200,202 1135 Accounts receivable - HUD 118,118 S1300-040 Total Cash 318,320 Current Obligations: S1300-050 Accrued mortgage interest payable 27,436 S1300-075 Accounts payable - Operations 276,581 S1300-100 Accrued expenses 23,073 2210 Prepaid revenue 20,144 2191 Tenant security deposits payable 59,836 S1300-110 Other current obligation - Other accrued expenses 22,794 S1300-140 Total Current Obligations 429,864 S1300-150 Surplus Cash (Deficiency) $ (111,544) S1300-210 Deposit Due Residual Receipts $ - 20
SUPPLEMENTARY DATA REQUIRED BY HUD (CONTINUED) FOR THE YEAR ENDED AUGUST 31, 2017 Fixed Asset Data: Balance August 31, 2016 Additions Deletions Balance August 31, 2017 1410 Land $ 1,778,448 $ - $ - $ 1,778,448 1420 Buildings 6,966,015 477,015-7,443,030 1440 Building equipment - Portable 292,437 5,200 297,637 1450 Furniture for Project/tenant use 408,413 - - 408,413 1465 Office furniture and equipment 34,459 - - 34,459 1490 Miscellaneous fixed assets - 102,921-102,921 1400T Total Fixed Assets $ 9,479,772 $ 585,136 $ - $ 10,064,908 1495 Accumulated Depreciation $ 3,819,263 $ 260,835 $ - $ 4,080,098 1400N Net Book Value $ 5,660,509 $ 5,984,810 Schedule of Additions to Fixed Assets: 1420AT 1440AT 1490AT Description Amount Buildings: Unit renovations $ 465,115 Shower conversion 7,500 Flooring replacement 4,400 Total Buildings 477,015 Building Equipment: Water heater 5,200 Total Building Equipment 5,200 Miscellaneous Fixed Assets: Construction in progress 102,921 Total Miscellaneous Fixed Assets 102,921 1400AT Total Additions to Fixed Assets $ 585,136 Schedule of Deletions to Fixed Assets: None 21
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED AUGUST 31, 2017 Federal Passed Federal Grants/Pass-Through Grantor/ CFDA Through to Federal Program or Cluster Title Number Subrecipient Expenditures U.S. Department of Housing and Urban Development: Direct Programs: Insured Loan - Section 241 prusuant to Section 223(a)(7) of the National Housing Act and Regulations 14.103 $ - $ 5,194,160 Section 8 Housing Assistance Payments Program 14.195-1,283,833 Total Federal Awards Expended $ - $ 6,477,993 Note 1 - Basis of Presentation: The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Astoria Gardens Tenant Association under programs of the federal government for the year ended August 31, 2017. The information in this Schedule is presented in accordance with the 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). Because the Schedule presents only a selected portion of the operations of Astoria Gardens Tenant Association, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Astoria Gardens Tenant Association. Note 2 - Summary of Significant Accounting Policies: Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following OMB Circular A-122 Cost Principles for Nonprofit Organizations of the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through entity identifying numbers are presented where available. Astoria Gardens Tenant Association has elected to not use the 10 percent de minimum indirect cost rate as allowed under the Uniform Guidance. Note 3 - Mortgage Insurance - Rental Housing (Section 241): The following is the activity on the mortgage payable for the year ended August 31, 2017: Loan Principal Loans Awarded Repaid for the CFDA Loan Outstanding for the year Ended Year Ended Loan Outstanding at Number Program Name at August 31, 2016 August 31, 2017 August 31, 2017 August 31, 2017 14.103 Insured Loan - Section 241 pursuant to Section 223(a)(7) of the National Housing Act and Regulations $ 5,194,160 $ - $ (129,021) $ 5,065,139 22
L & C Leaf & Cole, LLP Certified Public Accountants A Partnership of Professional Corporations To the Board of Directors Astoria Gardens Tenant Association 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 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 Astoria Gardens Tenant Association, which comprise the statement of financial position as of August 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 May 22_, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Astoria Gardens Tenant Association 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 Astoria Gardens Tenant Association s internal control. Accordingly, we do not express an opinion on the effectiveness of Astoria Gardens Tenant Association s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 23 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com
To the Board of Directors Page 2 Astoria Gardens Tenant Association Compliance and Other Matters As part of obtaining reasonable assurance about whether Astoria Gardens Tenant Association s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Diego, California May 22, 2018 24
L & C Leaf & Cole, LLP Certified Public Accountants A Partnership of Professional Corporations To the Board of Directors Astoria Gardens Tenant Association Independent Auditor s Report on Compliance for the Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Report on Compliance for the Major Federal Program We have audited Astoria Gardens Tenant Association s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on Astoria Gardens Tenant Association s major federal program for the year ended August 31, 2017. Astoria Gardens Tenant Association 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 program. Auditor s Responsibility Our responsibility is to express an opinion on compliance for Astoria Gardens Tenant Association 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 (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Astoria Gardens Tenant Association 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 Astoria Gardens Tenant Association s compliance. 25 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com
To the Board of Directors Page 3 Astoria Gardens Tenant Association Opinion on the Major Federal Program In our opinion, Astoria Gardens Tenant Association 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 August 31, 2017. Report on Internal Control over Compliance Management of Astoria Gardens Tenant Association 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 Astoria Gardens Tenant Association s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the 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 Astoria Gardens Tenant Association s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. San Diego, California May 22, 2018 26
SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED AUGUST 31, 2017 Section I - Summary of Auditor s Results: Financial Statements Type of auditor s report issued on whether the financial statements audited were prepared in accordance with U.S. GAAP: Unmodified Internal control over financial reporting: Material weaknesses identified? Yes X No Significant deficiencies identified? Yes X No Noncompliance material to financial statements noted? Yes X No Federal Awards Type of auditor s report issued on compliance for major program: Unmodified Internal control over major program: Material weaknesses identified? Yes X No Significant deficiencies identified: X No Any audit findings that are required to be reported in accordance with 2 CFR Section 200.516(a)? Yes X No Identification of major program: CDFA Number Name of Federal Program or Cluster 14.103 Insured Loan - Section 241 pursuant to Section 223(a)(7) of the National Housing Act and Regulations Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? Yes X No Section II - Financial Statement Findings: None Section III - Federal Award Findings and Questioned Costs: None 27
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED AUGUST 31, 2017 Section II - Financial Statement Findings: Finding 2016-001 - Unauthorized Distributions: Condition The Association received a bonus of $15,050 for signing the laundry contract and transferred this amount to the entity cash account. Auditor s Recommendation The Association should transfer the funds back to the operating account. Status On June 22, 2017, HUD informed management it has cleared the finding. Section III - Federal Award Findings and Questioned Costs: Finding 2016-001 - Unauthorized Distributions: Condition The Association received a bonus of $15,050 for signing the laundry contract and transferred this amount to the entity cash account. Auditor s Recommendation The Association should transfer the funds back to the operating account. Status On June 22, 2017, HUD informed management it has cleared the finding. 28
AUGUST 31, 2017 MANAGEMENT AGENT S CERTIFICATION I, Jasmine Borrego, a representative of TELACU Property Management Group, Inc., hereby certify that I have examined the accompanying financial statements and supplementary information of Astoria Gardens Tenant Association, F.H.A. Project No. 122-41083-PM-REF at August 31, 2017, and to the best of my knowledge and belief, the same are complete and accurate. Signature Date Management Agent Jasmine Borrego TELACU Property Management, Inc. E.I.N.: 03-0462704 29
AUGUST 31, 2017 CERTIFICATE OF OFFICERS We hereby certify that we have examined the accompanying financial statements and supplementary information of Astoria Gardens Tenant Association, F.H.A. Project No. 122-41083-PM-REF at August 31, 2017, and to the best of our knowledge and belief, the same are complete and accurate. Signature Date Jorge Ruiz President Signature Date Miguel Sandoval Vice-President 30
L & C Leaf & Cole, LLP Certified Public Accountants A Partnership of Professional Corporations May 22, 2018 Ms. Jasmine Borrego Astoria Gardens Tenant Association c/o TELACU Property Management Group, Inc. 1248 Goodrich Boulevard Los Angeles, California 90022 Dear Ms. Borrego: Enclosed please find eight final copies of the audit of Astoria Gardens Tenant Association for the year ended August 31, 2017: 1. Mail one copy to the mortgagor as follows: a. Wells Fargo 2. Federal Audit Clearinghouse: The single audit reporting package is required to be submitted electronically through the Federal Audit Clearinghouse Internet Data Entry System. We have entered the Form SF-SAC and uploaded the complete single audit package as required. The submission must still be certified by both the auditee and the auditor. Upon receipt of the e-mail from the Federal Audit Clearinghouse we will certify as the auditor. You will receive an e-mail from the Federal Audit Clearinghouse with instructions as to how you enter your signature codes online to certify the submission. The Federal Audit Clearinghouse will send e-mails to the auditee and auditor to confirm the receipt of the Form SF-SAC and single audit reporting package. Please print the e-mail and retain for your records. 3. Retain the remaining copies for your file. 4. Obtain the certificate of officers for your records. If you have any questions please do not hesitate to call our office. Very truly yours, LEAF & COLE, LLP Enclosures Michael J. Zizzi 2810 Camino Del Rio South, Suite 200, San Diego, California 92108-3820 619.294.7200, 619.294.7077 fax, www.leaf-cole.com, leafcole@leaf-cole.com