FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2016
TABLE OF CONTENTS Page INDEPENDENT AUDITOR S REPORT 1-3 FINANCIAL STATEMENTS Statement of financial position 4 Statement of activities 5 Statement of cash flows 6 and 7 Notes to financial statements 8-10 SUPPLEMENTARY INFORMATION Supplementary data required by HUD 11-20 Schedule of expenditures of federal awards 21 Notes to schedule of expenditures of federal awards 22 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 23 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 24 and 25 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE 26-28 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 29 CORRECTIVE ACTION PLAN 30 CERTIFICATION OF OFFICERS 31 MANAGEMENT AGENT S CERTIFICATION 32
INDEPENDENT AUDITOR'S REPORT Board of Directors Atmore Senior Housing, Inc. Mobile, Alabama Report on the Financial Statements We have audited the accompanying financial statements of Atmore Senior Housing, Inc., HUD Project No. 062-11147, which comprise the statement of financial position as of June 30, 2016, 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 of material misstatement. -1- Smith, Dukes & Buckalew LLP Mobile 3800 Airport Blvd. Suite 101 Mobile, Alabama 36608 phone 251-343-1200 fax 251-344-0966 smithdukes.com Daphne 6475 Van Buren Ave. Suite 200 Daphne, Alabama 36526 phone 251-621-9600 fax 251-621-9608
Board of Directors Atmore Senior Housing, Inc. Page Two 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atmore Senior Housing, Inc., HUD Project No. 062-11147 as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Information 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 the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and is not a required part of the financial statements. The accompanying supplementary information on pages 11-20 is also 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. -2-
Board of Directors Atmore Senior Housing, Inc. Page Three The summary schedule of prior audit findings 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 In accordance with Government Auditing Standards, we have also issued our report dated September 19, 2016 on our consideration of Atmore Senior Housing, Inc. 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 the 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 Atmore Senior Housing, Inc. s internal control over financial reporting and compliance. Mobile, Alabama September 19, 2016-3-
FINANCIAL STATEMENTS
ASSETS STATEMENT OF FINANCIAL POSITION June 30, 2016 Cash - operations $ 7,941 Tenant accounts receivable 929 Accounts receivable - HUD 181 Prepaid expenses 24,894 33,945 Property and equipment Building 1,177,225 Building equipment 86,180 Furniture for project/tenant use 12,333 Office furniture and equipment 10,923 1,286,661 Accumulated depreciation (212,051) 1,074,610 Land 51,750 1,126,360 Restricted deposits Escrow deposits 14,008 Replacement reserve 188,751 Residual receipts reserve 10,004 Tenant deposits held in trust 7,631 220,394 Total assets $ 1,380,699 The Notes to Financial Statements are an integral part of these statements. -4-
LIABILITIES AND NET ASSETS (DEFICIT) LIABILITIES Accounts payable - operations $ 6,823 Accrued liabilities 20,551 Mortgage payable 1,431,427 Prepaid revenue 2,191 Total liabilities 1,460,992 NET ASSETS (DEFICIT) Unrestricted net assets (deficit) (80,293) Total liabilities and net assets (deficit) $ 1,380,699
STATEMENT OF ACTIVITIES For the Year Ended June 30, 2016 REVENUES Rent $ 376,742 Financial 65 Other 1,100 Total revenue 377,907 EXPENSES Program services Administrative 82,582 Utilities 36,657 Operating and maintenance 86,424 Taxes and insurance 42,952 Financial 59,998 Depreciation 59,845 Total expenses 368,458 Change in net assets 9,449 Net assets (deficit) at beginning of year (89,742) Net assets (deficit) at end of year $ (80,293) The Notes to Financial Statements are an integral part of these statements. -5-
STATEMENT OF CASH FLOWS For the Year Ended June 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Rental receipts $ 378,848 Interest receipts 65 Other operating receipts 1,100 Total receipts 380,013 Administrative 43,665 Management fee 22,656 Utilities 36,657 Salaries and wages 31,531 Operating and maintenance 86,060 Taxes and insurance 41,869 Tenant security deposits 113 Interest on mortgages 53,458 Mortgage insurance premium 6,609 Total disbursements 322,618 Net cash provided by operating activities 57,395 CASH FLOWS FROM INVESTING ACTIVITIES Net deposits to the reserve for replacement account (20,530) Net deposits to other reserves (5,515) Net deposits to the residual receipts account (3) Net purchase of fixed assets (29,103) Net cash used in investing activities (55,151) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments - first mortgage (24,555) Net cash used in financing activities (24,555) Net decrease in cash (22,311) CASH AT BEGINNING OF YEAR 30,252 CASH AT END OF YEAR $ 7,941 The Notes to Financial Statements are an integral part of these statements. -6-
STATEMENT OF CASH FLOWS For the Year Ended June 30, 2016 (Continued) CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 9,449 Adjustments to reconcile increase in net assets to net cash provided by operating activities Depreciation 59,845 Decrease (increase) in: Tenant accounts receivable (118) Accounts receivable - other 1,684 Prepaid expenses 1,083 Cash restricted for tenant deposits held in trust (283) Increase (decrease) in: Accounts payable (15,041) Accrued liabilities 66 Tenant deposits held in trust 170 Prepaid revenue 540 Net cash provided by operating activities $ 57,395 The Notes to Financial Statements are an integral part of these statements. -7-
NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization and Operations The Project is a 40-unit apartment project for the low-income elderly located in Atmore, Alabama. The Project is operated under Section 223(f) of the Housing Act and regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges and operating methods. The Project's major program is its Section 223(f) HUD insured loan. Method of Accounting The accrual method of accounting is used for financial statement purposes. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straightline method over the remaining estimated useful lives of the related assets. Distributions The Project's Regulatory Agreement with HUD stipulates, among other things, that the Project will not make distributions of assets or income to any of its officers or directors. Income Taxes Neither the Project, nor its nonprofit corporate owner is subject to income taxes. 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 certain reported amounts and disclosures. Cash Equivalents For the statement of cash flows, all unrestricted investment instruments with original maturities of three months or less are cash equivalents. The Project has no cash equivalents at June 30, 2016. -8-
NOTE 2 - MORTGAGE PAYABLE Mortgage payable as of June 30, 2016, represents a permanent building loan provided by Berkadia Commercial Mortgage and insured by HUD. The balance due as of June 30, 2016, is $1,431,427. The monthly installments for principal and interest are $6,501 with a maturity date of March 1, 2047. Interest is being charged at 3.7%. All land, buildings and equipment serve as collateral for the mortgage note. Maturities of the mortgage note in each of the five following years are as follows: 2017 $ 25,479 2018 26,438 2019 27,433 2020 28,465 2021 29,537 Thereafter 1,294,075 $ 1,431,427 NOTE 3 - HUD-RESTRICTED DEPOSITS Under the Regulatory Agreement, the Project is required to set aside amounts for the replacement of property and other project expenditures approved by HUD. HUD restricted deposits, which approximate $198,755 at June 30, 2016, are held in separate accounts and generally are not available for operating purposes. NOTE 4 - UNRESTRICTED NET ASSETS None of the Project s net assets are subject to donor-imposed restrictions. Accordingly, all net assets are accounted for as unrestricted net assets. NOTE 5 - RENT INCREASES Under the Regulatory Agreement, the Project may not increase rents charged to tenants without HUD approval. NOTE 6 - MANAGEMENT FEE The Project pays a management fee equal to 6.19% of residential income collected to the managing agent, VOA Southeast, Inc. NOTE 7 - RESIDUAL RECEIPTS ACCOUNT Use of the residual receipts account is contingent upon HUD s prior written approval. NOTE 8 - FUNCTIONAL ALLOCATION OF EXPENSES Expenditures incurred in connection with project operations have been summarized on a functional basis in the statement of activities. -9-
NOTE 9 - RELATED PARTY Volunteers of America Southeast Inc. (VOASE), the managing agent of the Project, is related by common control. VOASE earns a management fee from the Project and pays various expenses on behalf of the Project. Below is a summary of the management fees incurred by the Project during the year and the amount due VOASE for various expenses paid on the Project s behalf as of June 30, 2016: Management fee incurred $ 22,677 Management fee payable $ 1,811 Other payables due VOASE $ 3,669 NOTE 10 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Project s sole asset is a 40-unit apartment project. The Project s operations are concentrated in the multifamily real estate market. In addition, the Project operates in a heavily regulated environment. The operations of the Project 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 11 - SUBSEQUENT EVENTS Management has evaluated subsequent events through September 19, 2016, the date at which the financial statements were available to be issued. -10-
SUPPLEMENTARY INFORMATION
INDEX TO SUPPLEMENTARY INFORMATION REQUIRED BY HUD For the Year Ended June 30, 2016 ITEM Statement of Financial Position Data Statement of Activities Data Statement of Cash Flows Data Computation of Surplus Cash, Distributions, and Residual Receipts Annual Schedule of Changes in Fixed Asset Accounts Schedule of Reserve for Replacements Schedule of Residual Receipts -11-
STATEMENT OF FINANCIAL POSITION DATA June 30, 2016 Account No. ASSETS CURRENT ASSETS 1120 Cash - operations $ 7,941 1130 Tenant accounts receivable 929 1135 Accounts receivable - HUD 181 1200 Prepaid expenses 24,894 1100T Total current assets 33,945 1191 Tenant deposits held in trust 7,631 RESTRICTED DEPOSITS 1310 Escrow deposits 14,008 1320 Replacement reserve 188,751 1340 Residual receipts reserve 10,004 1300T Total deposits 212,763 PROPERTY AND EQUIPMENT 1410 Land 51,750 1420 Building 1,177,225 1440 Building equipment 86,180 1450 Furniture for project/tenant use 12,333 1465 Office furniture and equipment 10,923 1400T Total fixed assets 1,338,411 1495 Accumulated depreciation (212,051) 1400N Net fixed assets 1,126,360 1000T Total assets $ 1,380,699-12-
Account No. LIABILITIES AND NET ASSETS (DEFICIT) CURRENT LIABILITIES 2110 Accounts payable - operations $ 6,823 2120 Accrued wages payable 3,205 2123 Accrued management fee payable 1,811 2130 Accrued interest payable - first mortgage 4,414 2170 Mortgage payable - first mortgage (short-term) 25,479 2190 Miscellaneous current liabilities Accrued audit expense 3,850 2210 Prepaid revenue 2,191 2122T Total current liabilities 47,773 LONG-TERM LIABILITIES 2191 Tenant security deposits 7,271 2320 Mortgage payable - first mortgage 1,405,948 2300T Total long-term liabilities 1,413,219 2000T Total liabilities 1,460,992 NET ASSETS (DEFICIT) 3131 Unrestricted net assets (deficit) (80,293) 3130 Total net assets (deficit) (80,293) 2033T Total liabilities and net assets (deficit) $ 1,380,699
STATEMENT OF ACTIVITIES DATA For the Year Ended June 30, 2016 Account No. REVENUES 5120 Rent revenue - gross potential $ 101,146 5121 Tenant assistance payments 292,941 5100T Total rent revenue 394,087 5220 Vacancies - apartments (17,345) 5200T Total vacancies (17,345) 5152N Net rental revenue 376,742 5410 Financial revenue - project operations 1 5430 Revenue from investments - residual receipts 3 5440 Revenue from investments - replacement reserve 61 5400T Total financial revenue 65 5910 Laundry and vending income 848 5920 Tenant charges 252 5900T Total other revenue 1,100 5000T Total revenue 377,907 EXPENSES 6203 Conventions and meetings 863 6210 Advertising and marketing 3,088 6311 Office expenses 6,151 6320 Management fee 22,677 6330 Management salaries 31,651 6331 Administrative rent free unit 11,491 6340 Legal expenses 672 6350 Audit expense 3,850 6351 Bookkeeping fees/accounting services 2,139 6263T Total administrative expenses 82,582-13-
STATEMENT OF ACTIVITIES DATA For the Year Ended June 30, 2016 (Continued) Account No. EXPENSES (continued) 6450 Electricity $ 15,518 6451 Water 6,975 6453 Sewer 14,164 6400T Total utilities expense 36,657 6515 Supplies 5,262 6520 Contracts 71,990 6525 Garbage and trash removal 5,051 6530 Security payroll/contract 1,366 6546 Heating/cooling repairs and maintenance 2,755 6500T Total operating and maintenance expenses 86,424 6711 Payroll taxes 2,376 6720 Property and liability insurance 34,275 6722 Workmen's compensation 950 6723 Health insurance and other employee benefits 5,351 6700T Total taxes and insurance 42,952 6820 Interest on mortgage payable 53,383 6850 Mortgage insurance premium 6,609 6890 Miscellaneous financial expenses 6 6800T Total financial expenses 59,998 6000T Total cost of operations before depreciation 308,613 5060T Change in net assets before depreciation 69,294 6600 Depreciation expense 59,845 3250 Change in net assets $ 9,449-14-
STATEMENT OF ACTIVITIES DATA For the Year Ended June 30, 2016 (Continued) Account No. EXPENSES (continued) S1000-010 Total mortgage principal payments required during the audit year [12 monthly payments]. This applies to all direct loans and HUD-held and fully insured mortgages. Any HUD approved mortgage should be included in the figures. $ 24,555 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. $ 20,484 S1000-030 Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss Statement. $ 15 S1000-040 Project Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. N/A -15-
STATEMENT OF CASH FLOW DATA For the Year Ended June 30, 2016 Account No. CASH FLOWS FROM OPERATING ACTIVITIES S1200-010 Rental receipts $ 378,848 S1200-020 Interest receipts 65 S1200-030 Other operating receipts 1,100 S1200-040 Total receipts 380,013 S1200-050 Administrative (43,665) S1200-070 Management fee (22,656) S1200-090 Utilities (36,657) S1200-100 Salaries and wages (31,531) S1200-110 Operating and maintenance (86,060) S1200-150 Taxes and insurance (41,869) S1200-160 Tenant security deposits (113) S1200-180 Interest on mortgages (53,458) S1200-210 Mortgage insurance premium (6,609) S1200-230 Total disbursements (322,618) S1200-240 Net cash provided by operating activities 57,395 CASH FLOWS FROM INVESTING ACTIVITIES S1200-250 Net deposits to the reserve for replacement account (20,530) S1200-255 Net deposits to other reserves (5,515) S1200-260 Net deposits to the residual receipts account (3) S1200-330 Net purchase of fixed assets (29,103) S1200-350 Net cash used in investing activities (55,151) CASH FLOWS FROM FINANCING ACTIVITIES S1200-360 Principal payments - first mortgage (24,555) S1200-460 Net cash used in financing activities (24,555) S1200-470 Net decrease in cash (22,311) S1200-480 CASH AT BEGINNING OF YEAR 30,252 S1200T CASH AT END OF YEAR $ 7,941-16-
STATEMENT OF CASH FLOW DATA For the Year Ended June 30, 2016 (Continued) Account No. CASH FLOWS FROM OPERATING ACTIVITIES 3250 Change in net assets $ 9,449 Adjustments to reconcile increase in net assets to net cash provided by operating activities 6600 Depreciation 59,845 Decrease (increase) in: S1200-490 Tenant accounts receivable (118) S1200-500 Accounts receivable - other 1,684 S1200-520 Prepaid expenses 1,083 S1200-530 Cash restricted for tenant deposits held in trust (283) Increase (decrease) in: S1200-540 Accounts payable (15,041) S1200-560 Accrued liabilities 66 S1200-580 Tenant deposits held in trust 170 S1200-590 Prepaid revenue 540 S1200-610 Net cash provided by operating activities $ 57,395-17-
SUPPLEMENTARY DATA REQUIRED BY HUD For the Year Ended June 30, 2016 Computation of Surplus Cash, Distributions, and Residual Receipts - Annual Part A Cash S1300-010 Cash $ 15,572 1135 Tenant subsidy due for period covered by financial statement 181 S1300-040 Total cash 15,753 Current obligations S1300-050 Accrued mortgage interest payable 4,414 S1300-075 Accounts payable due within 30 days 6,823 S1300-100 Accrued expenses 8,866 2210 Prepaid revenue 2,191 2191 Tenant security deposits 7,271 S1300-110 Other current obligations 3,795 S1300-140 Total current obligations 33,360 S1300-150 Cash deficiency $ (17,607) -18-
SUPPLEMENTARY DATA REQUIRED BY HUD For the Year Ended June 30, 2016 Schedule of Changes in Fixed Asset Accounts Beginning Balance Additions Account Account No. Amount No. Amount Land 1410P $ 51,750 1410AT $ - Buildings 1420P 1,150,825 1420AT 26,400 Building equipment (portable) 1440P 86,180 1440AT - Furniture for project/tenant use 1450P 12,333 1450AT - Office furniture and equipment 1465P 8,220 1465AT 2,703 TOTAL 1400PT $ 1,309,308 1400AT $ 29,103 Accumulated depreciation 1495P $ 152,206 6600 $ 59,845-19-
Deductions Ending Balance Net Book Value Account Account Account No. Amount No. Amount No. Amount 1410DT $ - 1410 $ 51,750 $ 51,750 1420DT - 1420 1,177,225 1,039,749 1440DT - 1440 86,180 24,036 1450DT - 1450 12,333 6,059 1465DT - 1465 10,923 4,766 1400DT $ - 1400T $ 1,338,411 1400N $ 1,126,360 1400ADT $ - 1495 $ 212,051
SUPPLEMENTARY DATA REQUIRED BY HUD For the Year Ended June 30, 2016 Schedule of Reserve for Replacements 1320P Balance at beginning of year $ 168,221 1320DT Total monthly deposits 20,484 1320INT Interest on replacement reserve account 61 1320OWT Other withdrawals (15) 1320 Balance at end of year $ 188,751 Schedule of Residual Receipts 1340P Balance at beginning of year $ 10,001 1340INT Interest on residual receipt account 3 1340 Balance at current fiscal year end $ 10,004-20-
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2016 Federal Federal Grantor/Passthrough CFDA Federal Grantor/Program Title Number Expenditures U.S. Department of Housing and Urban Development: Mortgage Insurance for Purchase or Refinancing of Existing Multifamily Housing Projects 14.155 $ 1,431,427 Section 8 Housing Assistance Payments 14.195 292,941 $ 1,724,368-21-
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2016 NOTE 1 - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Atmore Senior Housing, Inc., HUD Project No. 062-11147, and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of 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. NOTE 2 - FEDERAL LOAN PROGRAMS The amount of federal expenditures in the accompanying schedule of expenditures of federal awards includes the outstanding balance of a mortgage payable to HUD of $1,431,427 as of June 30, 2016. See Note 2 of the preceding Notes to Financial Statements for additional information. NOTE 3 - INDIRECT COST RATE The Project has not elected to use the 10-percent de minimis cost rate allowed under the Uniform Guidance. -22-
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS For the Year Ended June 30, 2016 Department of Housing and Urban Development: No prior year audit findings. There were no reports issued by HUD OIG or other Federal agencies or contract administrators during the period covered by this audit. There were no letters or reports issued by management during the period covered by this audit. -23-
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 Atmore Senior Housing, Inc. Mobile, Alabama Independent Auditor s Report We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Atmore Senior Housing, Inc., which comprise the statement of financial position as of June 30, 2016, 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 September 19, 2016. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Atmore Senior Housing, Inc. 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 Atmore Senior Housing, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Atmore Senior Housing, Inc. 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. -24- Smith, Dukes & Buckalew LLP Mobile 3800 Airport Blvd. Suite 101 Mobile, Alabama 36608 phone 251-343-1200 fax 251-344-0966 smithdukes.com Daphne 6475 Van Buren Ave. Suite 200 Daphne, Alabama 36526 phone 251-621-9600 fax 251-621-9608
Board of Directors Atmore Senior Housing, Inc. Page Two 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 Atmore Senior Housing, Inc. 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 entity 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Mobile, Alabama September 19, 2016-25-
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE Board of Directors Atmore Senior Housing, Inc. Mobile, Alabama Independent Auditor s Report Report on Compliance for Each Major Federal Program We have audited Atmore Senior Housing, Inc. s compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of Atmore Senior Housing, Inc. s major federal programs for the year ended June 30, 2016. Atmore Senior Housing, Inc. 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 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 Atmore Senior Housing, Inc. 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 (CFR) 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 Atmore Senior Housing, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. -26- Smith, Dukes & Buckalew LLP Mobile 3800 Airport Blvd. Suite 101 Mobile, Alabama 36608 phone 251-343-1200 fax 251-344-0966 smithdukes.com Daphne 6475 Van Buren Ave. Suite 200 Daphne, Alabama 36526 phone 251-621-9600 fax 251-621-9608
Board of Directors Atmore Senior Housing, Inc. Page Two We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Atmore Senior Housing, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Atmore Senior Housing, Inc. complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2016. Report on Internal Control over Compliance Management of Atmore Senior Housing, Inc. 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 Atmore Senior Housing, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program as a basis for designing 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 Atmore Senior Housing, Inc. 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. -27-
Board of Directors Atmore Senior Housing, Inc. Page Three 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. Mobile, Alabama September 19, 2016-28-
SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2016 SUMMARY OF AUDIT RESULTS 1. The auditor's report expresses an unmodified opinion on the financial statements of Atmore Senior Housing, Inc. 2. No material weaknesses were identified during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements of Atmore Senior Housing, Inc. were disclosed during the audit. 4. No material weaknesses were identified during the audit of the major federal award program. 5. The auditor's report on compliance for the major federal award program for Atmore Senior Housing, Inc. expresses an unmodified opinion. 6. There were no audit findings relative to the major federal award program for Atmore Senior Housing, Inc. 7. The program tested as a major program included: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects, CFDA 14.155. 8. The threshold for distinguishing Types A and B programs was $750,000. 9. Atmore Senior Housing, Inc. did not qualify as a low-risk auditee. FINDINGS-FINANCIAL STATEMENTS AUDIT NONE FINDINGS-MAJOR FEDERAL AWARDS PROGRAM AUDIT NONE -29-
CORRECTIVE ACTION PLAN SEPTEMBER 19, 2016 Cognizant or Oversight Agency for Audit: Department of Housing and Urban Development Atmore Senior Housing, Inc. respectfully submits the following corrective action plan for the year ended June 30, 2016. Name and address of independent public accounting firm: Smith, Dukes & Buckalew, L.L.P. P.O. Box 160427 Mobile, Alabama 36616 Audit Period: July 1, 2015 - June 30, 2016 The finding from the June 30, 2016 schedule of findings and questioned costs are discussed below. The findings are numbered consistently with the number assigned in the schedule. Section A of the schedule, Summary of Audit Results, does not include finding and is not addressed. FINDINGS-FINANCIAL STATEMENT AUDIT NONE FINDINGS-FEDERAL AWARD PROGRAMS AUDITS NONE -30-
HUn PROJECT NO. 062-11147 MANAGEMENT AGENT'S CERTIFICATION We hereby certify that we have examined the accompanying financial statements and supplemental data of Atmore Senior Housing, Inc., HUD Project No. 062-11147, and to the best of our knowledge and belief, the same are accurate and complete. Porter Sue Simpson, Director of Program Development (251) 300-3500 Employer Identification No. 63-1220329 September 19, 2016-32-