YEAR ENDED JUNE 30, 2016

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 Picayune VOA Senior Housing, Inc. Mobile, Alabama Report on the Financial Statements We have audited the accompanying financial statements of Picayune VOA Senior Housing, Inc., HUD Project No. 065-EE052, 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 from 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 Picayune VOA 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 Picayune VOA Senior Housing, Inc., HUD Project No. 065-EE052, as of June 30, 2016, 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 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 Picayune VOA 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 a report dated September 19, 2016, on our consideration of Picayune VOA 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 internal control over financial reporting and compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Picayune VOA Senior Housing, Inc. s internal control over financial reporting and compliance. Mobile, Alabama September 19, 2016-3-

FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION June 30, 2016 ASSETS Cash - operations $ 121 Tenant accounts receivable 44 Certificate of deposit 5,984 Prepaid expenses 278 6,427 Property and equipment Buildings 1,202,568 Furniture for project/tenant use 4,894 1,207,462 Accumulated depreciation (87,163) 1,120,299 Land 141,175 1,261,474 Restricted deposits Replacement reserve 9,119 Tenant deposits held in trust 3,328 12,447 Total assets $ 1,280,348 The Notes to Financial Statements are an integral part of these statements. -4-

LIABILITIES AND NET ASSETS LIABILITIES Accounts payable - operations $ 24,212 Accrued liabilities 13,839 Prepaid revenue 319 Total liabilities 38,370 CONTINGENCY NET ASSETS Unrestricted net assets 1,241,978 Total net assets 1,241,978 Total liabilities and net assets $ 1,280,348

STATEMENT OF ACTIVITIES For the Year Ending June 30, 2016 REVENUES Rent $ 62,964 Financial 8 Total revenue 62,972 EXPENSES Program services Administrative 34,548 Utilities 10,072 Operating and maintenance 18,988 Taxes and insurance 5,121 Depreciation 30,763 Total expenses 99,492 Change in net assets (36,520) Net assets at beginning of year 1,278,498 Net assets at end of year $ 1,241,978 The Notes to Financial Statements are an integral part of these statements. -5-

STATEMENT OF CASH FLOWS For the Year Ending June 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Rental receipts $ 63,229 Interest receipts 8 Total receipts 63,237 Administrative 5,129 Management fee 5,873 Utilities 14,198 Salaries and wages 10,582 Operating and maintenance 18,988 Taxes and insurance 5,130 Tenant security deposits 91 Miscellaneous financial 7 Total disbursements 59,998 Net cash provided by operating activities 3,239 CASH FLOWS FROM INVESTING ACTIVITIES Net deposits to reserve for replacement account (3,218) Net cash used in investing activities (3,218) Net increase in cash 21 CASH AT BEGINNING OF YEAR 100 CASH AT END OF YEAR $ 121 The Notes to Financial Statements are an integral part of these statements. -6-

STATEMENT OF CASH FLOWS For the Year Ending June 30, 2016 (Continued) CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (36,520) Adjustments to reconcile decrease in net assets to net cash provided by operating activities Depreciation 30,763 Decrease (increase) in: Tenant accounts receivable (44) Prepaid expenses (9) Cash restricted for tenant security deposits 309 Increase (decrease) in: Accounts payable 3,528 Accrued liabilities 5,310 Tenant security deposits held in trust (400) Prepaid revenue 309 Other adjustments to reconcile decrease in net assets to net cash provided by operating activities (7) Net cash provided by operating activities $ 3,239 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 12-unit apartment project for the low-income elderly located in Picayune, Mississippi. The Project is operated under Section 202 of the Housing Act of 1959 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 under Section 202 capital advance with project rental assistance. 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 estimated useful lives of the related assets. Income Taxes Neither the Project, nor its nonprofit corporate owner, is subject to income taxes. 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. 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 - CONTINGENCY HUD agreed to provide a capital advance under Section 202 of the Housing Act of 1959. The Capital Advance Agreement provides funding of $1,195,400. Under the terms of a Regulatory Agreement, there is no interest payable and repayment of the capital advance is not required. The Regulatory Agreement requires that the housing remain available for low-income elderly persons. HUD maintains a deed to secure debt (a mortgage) on the property. All land, buildings and equipment serve as collateral for the mortgage note. If default occurs by the Project under the terms of the Regulatory Agreement, the entire capital advance will at once become due and payable without notice at the option of the Secretary of HUD. Interest, at the rate of 4.00% per annum will be payable on demand with respect to the payment of the capital advance upon default. Management fully intends to stay in compliance with the capital advance agreement. 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. HUDrestricted deposits, which approximate $9,119 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 13.00% of residential income collected to the managing agent, VOA Southeast, Inc. NOTE 7 - 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 8 - 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 $ 8,185 Management fee payable $ 2,694 Other payables due VOASE $ 26,707 NOTE 9 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Project's sole asset is a 12-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 10 - 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 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 -11-

STATEMENT OF FINANCIAL POSITION DATA June 30, 2016 Account No. ASSETS CURRENT ASSETS 1120 Cash - operations $ 121 1130 Tenant accounts receivable 44 1190 Miscellaneous current assets Certificate of deposit 5,984 1200 Prepaid expenses 278 1100T Total current assets 6,427 1191 Tenant deposits held in trust 3,328 RESTRICTED DEPOSITS 1320 Replacement reserve 9,119 1300T Total deposits 9,119 PROPERTY AND EQUIPMENT 1410 Land 141,175 1420 Buildings 1,202,568 1450 Furniture for project/tenant use 4,894 1400T Total fixed assets 1,348,637 1495 Accumulated depreciation (87,163) 1400N Net fixed assets 1,261,474 1000T Total assets $ 1,280,348-12-

Account No. LIABILITIES AND NET ASSETS CURRENT LIABILITIES 2110 Accounts payable - operations $ 24,212 2120 Accrued wages payable 4,166 2123 Accrued management fee payable 2,694 2190 Miscellaneous current liabilities Accrued audit expense 3,850 2210 Prepaid revenue 319 2122T Total current liabilities 35,241 LONG-TERM LIABILITIES 2191 Tenant security deposits 3,129 2300T Total long-term liabilities 3,129 2000T Total liabilities 38,370 CONTINGENCY NET ASSETS 3131 Unrestricted net assets 1,241,978 3130 Total net assets 1,241,978 2033T Total liabilities and net assets $ 1,280,348

STATEMENT OF ACTIVITIES DATA For the Year Ending June 30, 2016 Account No. REVENUES 5120 Rent revenue - gross potential $ 29,730 5121 Tenant assistance payments 33,630 5100T Total rent revenue 63,360 5220 Vacancies - apartments (396) 5200T Total vacancies (396) 5152N Net rental revenue 62,964 5410 Financial revenue - project operations 7 5440 Revenue from investments - replacement reserve 1 5400T Total financial revenue 8 5000T Total revenue 62,972 EXPENSES 6203 Conventions and meetings 490 6210 Advertising and marketing 237 6311 Office expenses 4,979 6320 Management fee 8,185 6330 Manager or superintendent salaries 13,579 6340 Legal expense - project 1,128 6350 Audit expense 3,850 6351 Bookkeeping fees/accounting services 2,100 6263T Total administrative expenses 34,548-13-

STATEMENT OF ACTIVITIES DATA For the Year Ending June 30, 2016 (Continued) Account No. EXPENSES (continued) 6450 Electricity $ 2,582 6451 Water 3,745 6453 Sewer 3,745 6400T Total utilities expense 10,072 6515 Supplies 1,443 6520 Contracts 12,219 6525 Garbage and trash removal 1,931 6530 Security payroll/contract 3,058 6546 Heating/cooling repairs and maintenance 337 6500T Total operating and maintenance expenses 18,988 6711 Payroll taxes 1,031 6720 Property and liability insurance 3,532 6722 Workmen's compensation 407 6723 Health insurance and other employee benefits 151 6700T Total taxes and insurance 5,121 6000T Total cost of operations before depreciation 68,729 5060T Change in net assets before depreciation (5,757) 6600 Depreciation expense 30,763 3250 Change in net assets $ (36,520) -14-

STATEMENT OF ACTIVITIES DATA For the Year Ending 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. N/A 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. $ 3,533 S1000-030 Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss Statement. $ 316 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 FLOWS DATA For the Year Ending June 30, 2016 Account No. CASH FLOWS FROM OPERATING ACTIVITIES S1200-010 Rental receipts $ 63,229 S1200-020 Interest receipts 8 S1200-040 Total receipts 63,237 S1200-050 Administrative (5,129) S1200-070 Management fee (5,873) S1200-090 Utilities (14,198) S1200-100 Salaries and wages (10,582) S1200-110 Operating and maintenance (18,988) S1200-150 Taxes and insurance (5,130) S1200-160 Tenant security deposits (91) S1200-220 Miscellaneous financial (7) S1200-230 Total disbursements (59,998) S1200-240 Net cash provided by operating activities 3,239 CASH FLOWS FROM INVESTING ACTIVITIES S1200-250 Net deposits to reserve for replacement account (3,218) S1200-350 Net cash used in investing activities (3,218) S1200-470 Net decrease in cash 21 S1200-480 CASH AT BEGINNING OF YEAR 100 S1200T CASH AT END OF YEAR $ 121-16-

STATEMENT OF CASH FLOWS DATA For the Year Ending June 30, 2016 (Continued) Account No. CASH FLOWS FROM OPERATING ACTIVITIES 3250 Change in net assets $ (36,520) Adjustments to reconcile decrease in net assets to net cash provided by operating activities 6600 Depreciation 30,763 Decrease (increase) in: S1200-490 Tenant accounts receivable (44) S1200-520 Prepaid expenses (9) S1200-530 Cash restricted for tenant security deposits 309 Increase (decrease) in: S1200-540 Accounts payable 3,528 S1200-560 Accrued liabilities 5,310 S1200-580 Tenant security deposits held in trust (400) S1200-590 Prepaid revenue 309 S1200-600 Other adjustments to reconcile decrease in net assets to net cash provided by operating activities (7) S1200-610 Net cash provided by operating activities $ 3,239-17-

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 $ 3,449 S1300-040 Total cash 3,449 Current obligations S1300-075 Accounts payable due within 30 days 24,212 S1300-100 Accrued expenses 10,710 2210 Prepaid revenue 319 2191 Tenant security deposits 3,129 S1300-110 Other current obligations 294 S1300-140 Total current obligations 38,664 S1300-150 Cash deficiency $ (35,215) -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 $ 141,175 1410AT $ - Buildings 1420P 1,202,568 1420AT - Furniture for project/ 1450P 4,894 1450AT - tenant use TOTAL 1400PT $ 1,348,637 1400AT $ - Accumulated depreciation 1495P $ 56,400 6600 $ 30,763-19-

Deductions Ending Balance Net Book Value Account Account Account No. Amount No. Amount No. Amount 1410DT $ - 1410 $ 141,175 $ 141,175 1420DT - 1420 1,202,568 1,117,386 1450DT - 1450 4,894 2,913 1400DT $ - 1400T $ 1,348,637 1400N $ 1,261,474 1400ADT $ - 1495 $ 87,163

SUPPLEMENTARY DATA REQUIRED BY HUD For the Year Ended June 30, 2016 Schedule of Reserve for Replacements 1320P Balance at beginning of year $ 5,901 1320DT Total monthly deposits 3,533 1320INT Interest on replacement reserve accounts 1 1320OWT Other withdrawals (316) 1320 Balance at end of year $ 9,119-20-

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2016 Federal Grantor/Passthrough Grantor/Program Title U.S. Department of Housing and Urban Development: Federal CFDA Number Federal Expenditures Supportive Housing for the Elderly (Section 202) 14.157 $ 1,229,030-21-

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 Picayune VOA Senior Housing, Inc., HUD Project No. 065-EE052, 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 HUD capital advance funds of $1,195,400 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA Senior Housing, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA Senior Housing, Inc. Mobile, Alabama Independent Auditor s Report Report on Compliance for Each Major Federal Program We have audited Picayune VOA 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 Picayune VOA Senior Housing, Inc. s major federal programs for the year ended June 30, 2016. Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA Senior Housing, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Picayune VOA Senior Housing, Inc. 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 June 30, 2016. Report on Internal Control over Compliance Management of Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA 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 Picayune VOA Senior Housing, Inc. expresses an unmodified opinion. 6. There are no audit findings relative to the major federal award program for Picayune VOA Senior Housing, Inc. 7. The program tested as a major program included: Supportive Housing for the Elderly, CFDA 14.157. 8. The threshold for distinguishing Types A and B programs was $750,000. 9. Picayune VOA Senior Housing, Inc. qualified 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 Picayune VOA 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 findings from the June 30, 2016 schedule of findings and questioned costs are discussed below. The findings are numbered consistently with the numbers assigned in the schedule. Section A of the schedule, Summary of Audit Results, does not include findings and is not addressed. FINDINGS-FINANCIAL STATEMENT AUDIT NONE FINDINGS-FEDERAL AWARD PROGRAMS AUDITS NONE -30-

PICA YUNE VOA SENIOR HOUSING, INC. MANAGEMENT AGENT'S CERTIFICATION We hereby ce11ify that we have examined the accompanying financial statements and supplemental data of Picayune VOA Senior Housing, Inc., HUD Project No. 065-EE052 and, to the best of our knowledge and belief, the same are accurate and complete. Employer Identification No. 63-1220329 September 19, 2016-32-