WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 FINANCIAL AND COMPLIANCE REPORT DECEMBER 31, 2016 Person Responsible for Audit: Smith, Schafer and Associates, Ltd. Benjamin J. Turnquist, Senior Manager Suite 102 220 South Broadway Rochester, Minnesota (507) 288-3277 Smith Schafer's Federal Identification Number 41-1489071
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 CONTENTS Page INDEPENDENT AUDITOR'S REPORT 1-2 FINANCIAL STATEMENTS Statements of Financial Position 3-4 Statements of Activities 5 Statements of Changes in Members' Equity 6 Statements of Cash Flows 7-8 Notes to Financial Statements 9-12 SUPPORTING DATA Schedule of: Reserves 13 Changes in Fixed Asset Accounts 14-15 Statements of Profit and Loss 16-17 COMPLIANCE REPORT 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 18-19 Compliance for Each Major Program and on Internal Control Over Compliance required by the Uniform Guidance. 20-21 Schedule of Expenditures of Federal Awards 22 Schedule of Findings and Questioned Costs 23 Independent Auditor s Comments on Prior Audit Findings 24 CERTIFICATE OF MEMBERS AND MANAGEMENT AGENT 25
INDEPENDENT AUDITOR'S REPORT To the Members U.S. Department of Housing Willow Brook Cooperative of Winona and Urban Development Winona, Minnesota Minneapolis, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Willow Brook Cooperative of Winona, U.S. Department of Housing and Urban Development (HUD) Project No. 092-23174, which comprise the statement of financial position as of December 31, 2016 and 2015, and the related statements of activities, changes in members equity, and cash flows for the years then ended, and the related notes to 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Willow Brook Cooperative of Winona, HUD Project No.092-23174, as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
To the Members Willow Brook Cooperative of Winona Page Two Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supporting data shown on pages 13-17 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements.. The accompanying schedule of expenditures of federal awards, 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 (Uniform Guidance), 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 March 29, 2017 on our consideration of Willow Brook Cooperative of Winona, HUD Project No.092-23174 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 Willow Brook Cooperative of Winona, HUD Project No.092-23174 s internal control over financial reporting and compliance. Rochester, Minnesota March 29, 2017
FINANCIAL STATEMENTS
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 STATEMENTS OF FINANCIAL POSITION December 31, 2016 and 2015 ASSETS 2016 2015 Current Assets 1120 Cash - operations $ 15,943 $ 17,623 1170 Supplemental reserve 190,358 125,112 1200 Prepaid expenses 26,606 27,072 Total Current Assets 232,907 169,807 Deposits Held in Trust 1191 Deposits held in trust 10,000 7,500 Restricted Deposits (Note 3) 1310 Escrow deposits 21,334 21,670 1320 Replacement reserve 84,042 73,110 1330 General operating reserve 63,088 48,389 Total Restricted Deposits 168,464 143,169 Property and Equipment, at Cost 1410 Land and improvements 500,000 500,000 1420 Buildings 6,966,617 6,966,617 1460 Furnishings and equipment 78,512 69,907 Total Property and Equipment 7,545,129 7,536,524 1495 Less: Accumulated depreciation 760,327 580,936 Property and Equipment - Net 6,784,802 6,955,588 Intangible Assets (Note 1) 1520 Deferred financing costs, net 60,363 62,053 TOTAL ASSETS $ 7,256,536 $ 7,338,117 See Notes to Financial Statements 3
LIABILITIES AND MEMBERS' EQUITY 2016 2015 Current Liabilities 2110 Accounts payable - operations $ 5,800 $ 5,250 2123 Accrued management fees 1,530 1,418 2131 Accrued interest - mortgage 8,954 9,107 2150 Accrued property taxes 16,334 16,334 2170 Current portion of mortgage payable 75,560 73,703 2210 Prepaid revenue 856 856 Total Current Liabilities 109,034 106,668 Deposit Liabilities 2191 Deposits held in trust 10,000 7,500 Notes Payable (Note 3) 2320 Mortgage payable 4,315,138 4,388,841 2170 Less: Current portion (75,560) (73,703) Total Notes Payable 4,239,578 4,315,138 TOTAL LIABILITIES 4,358,612 4,429,306 MEMBERS' EQUITY 2,897,924 2,908,811 TOTAL LIABILITIES AND MEMBERS' EQUITY $ 7,256,536 $ 7,338,117 4
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 STATEMENTS OF ACTIVITIES For the Years Ended December 31, 2016 and 2015 2016 2015 Revenues Member carrying charges $ 497,544 $ 497,544 Interest 1,922 135 Other income 5,586 8,456 Total Revenues 505,052 506,135 Expenses General and Administrative 55,799 53,751 Utilities 24,849 28,532 Operating and maintenance 50,231 51,655 Taxes and insurance 73,337 73,703 Interest and financial 130,642 131,913 Depreciation and amortization 181,081 180,713 Total Expenses 515,939 520,267 Net Loss $ (10,887) $ (14,132) See Notes to Financial Statements 5
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 STATEMENTS OF CHANGES IN MEMBERS' EQUITY For the Years Ended December 31, 2016 and 2015 Membership Accumulated Certificates Deficit Total Members' Equity, December 31, 2014 $ 2,973,488 $ (50,545) $ 2,922,943 Net Loss (14,132) (14,132) Members' Equity, December 31, 2015 2,973,488 (64,677) $ 2,908,811 Net Loss (10,887) (10,887) Members' Equity, December 31, 2016 $ 2,973,488 $ (75,564) $ 2,897,924 See Notes to Financial Statements 6
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 STATEMENT OF CASH FLOWS For the Years Ended December 31, 2016 and 2015 2016 2015 Cash Flows From Operating Activities Cash received from (paid for): Member carrying charges $ 497,544 $ 498,400 Interest receipts 1,922 135 Other receipts 5,586 8,456 Administrative (20,212) (19,618) Management fee (11,288) (11,142) Utilities (24,849) (28,532) Salaries and wages (30,919) (37,433) Operating and maintenance (42,949) (36,495) Real estate taxes (58,470) (59,312) Property insurance (10,743) (11,362) Miscellaneous taxes and insurance (3,658) (4,471) Interest on mortgage (108,445) (110,255) Mortgage insurance premiums (22,350) (21,808) Deposits held in trust 7 Net Cash Provided By Operating Activities 171,169 166,570 Cash Flows From Investing Activities Payments from escrow deposits 336 1,770 Additions to reserve for replacements (10,932) (23,093) Additions to operational reserve (14,699) (26,764) Purchase of property and equipment (8,605) (7,915) Net Cash Used In Investing Activities (33,900) (56,002) Cash Flows From Financing Activities Principal payments on mortgage note (73,703) (71,893) Net Increase in Cash and Cash Equivalents 63,566 38,675 Cash and Cash Equivalents - Beginning of Year 142,735 104,060 Cash and Cash Equivalents - End of Year $ 206,301 $ 142,735 See Notes to Financial Statements 7
2016 2015 Reconciliation of Net Loss to Net Cash Provided By Operating Activities Net Loss $ (10,887) $ (14,132) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 179,391 179,023 Amortization 1,690 1,689 (Increase) decrease in: Deposits held in trust (2,500) 207 Prepaid expenses 466 (834) Increase (decrease) in: Accounts payable 550 250 Accrued liabilities 112 716 Accrued interest payable (153) (149) Deposits held in trust 2,500 (200) Net Cash Provided By Operating Activities $ 171,169 $ 166,570 8
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Nature of Business Willow Brook Cooperative of Winona, (the "Cooperative") was incorporated on November 5, 2009, as a cooperative under the laws of the State of Minnesota to operate a 38-unit housing project located in Winona, Minnesota for its members under Section 213 of Title II of the National Housing Act. The Section 213 program is a federally assisted program designed to provide federal insurance on the financing of housing projects including cooperative housing. The Cooperative has entered into a regulatory agreement with HUD/FHA to operate under the provisions of Section 213 of the National Housing Act. Accordingly, the operations of the Cooperative are subject to the administrative directives, rules and regulations of federal, state and 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 administrative burden to comply with a change. Basis of Accounting The financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Cash and Cash Equivalents The Cooperative has designated cash equivalents as demand deposits and all investments with an original maturity of three months or less. Use of Estimates The preparation of financial statements under 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from the estimates. Member s Accounts Receivable Management believes all receivables are collectible and has not recorded an allowance for doubtful accounts. While the ultimate uncollectible amounts may differ, management believes that any additional loss would not materially impact the Cooperative's financial position. However, it is at least reasonably possible management's estimate will change during the next year. 9
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (Continued) Member Carrying Charges Members of the Cooperative are charged a monthly carrying charge to cover the operating expenses of the property including mortgage interest, real estate taxes, insurance, heat, common area utilities, maintenance and management, mortgage insurance premiums, mortgage principal and reserve contributions. Under the regulatory agreement with HUD, the Cooperative may not increase member carrying charges without HUD approval. Concentration of Credit Risk Financial instruments which potentially subject the Cooperative to concentrations of credit risk consist principally of cash, cash equivalents and escrowed deposits. The Cooperative places its cash and escrowed deposits with financial institutions insured up to $250,000 by the Federal Deposit Insurance Corporation. Property and Depreciation Property and equipment are being depreciated using the straight-line method over the following estimated useful lives of 40 years for buildings and improvements and 15 years for equipment and furnishings. Loan Financing Costs Loan financing costs consists of costs incurred in the process of financing the Cooperative's mortgage. These costs have been capitalized and are being amortized using the straight-line method over 40 years. Income Taxes The Cooperative elected to file income tax return Form 1120 and includes only investment income and other nonexempt income as subject to tax. The Cooperative s federal income tax returns are subject to examination by the IRS, generally for three years after they were filed. 2. Tenant Deposits Held in Trust Tenant deposits held in trust are maintained in an interest bearing savings account separate from the operating account of the project. Withdrawals are restricted to reimbursements of tenants deposits. 10
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 NOTES TO FINANCIAL STATEMENTS 3. Notes Payable Notes Payable 2016 2015 Mortgage note payable due in monthly installments of $15,179 including interest at 2.49%, due October 1, 2052, secured by building $ 4,315,138 $ 4,388,841 Less: Current portion 75,560 73,703 Long-term portion $ 4,239,578 $ 4,315,138 Future maturities of long-term debt, excluding interest, are as follows: Debt Maturities (Excluding Interest) 2017 $ 75,560 2018 77,463 2019 79,414 2020 81,414 2021 83,464 Thereafter 3,917,823 Total $ 4,315,138 Restricted Deposits and Funded Reserves In accordance with provisions of the mortgage and regulatory agreements, the Cooperative maintains various restricted deposits to be used for replacement of property and payment of insurance and real estate taxes. These accounts are subject to the control of the Secretary of Housing and Urban Development. Funds held in the restricted deposit and funded reserve accounts are invested in depository accounts insured by the Federal Deposit Insurance Corporation and/or United States Government obligations. The cooperative must also maintain a general operating reserve under its regulatory agreement with HUD. The reserve is established by allocation and payment thereto monthly of a sum equivalent to not less than 3 percent of the monthly amount otherwise chargeable to the members pursuant to their occupancy agreements. Upon accrual of an amount equal to 15 percent of the current annual amount otherwise chargeable to members pursuant to their occupancy agreements, the rate may be reduced from 3 percent to 2 percent. Such monthly deposits may be discontinued when the amount in the general operating reserve reaches 25 percent of the current annual amount otherwise chargeable to members pursuant to their occupancy agreement. If the level falls below 25 percent, monthly deposits at the 3 percent rate shall again commence until the 25 percent level is attained. 11
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 NOTES TO FINANCIAL STATEMENTS 3. Notes Payable (Continued) Mortgage Covenants In connection with the Mortgage Agreement, the Cooperative has agreed to certain covenants including compliance with the HUD Regulatory Agreement. In addition to requiring the establishment of the funded reserves, this agreement requires prompt debt payment, restrictions on transferring any of the cooperative s property, controls distributions of cash and generally regulates the operations of the project according to HUD guidelines. The agreements also include certain penalty provisions related to prepayment of the mortgage. 4. Management Agreement The Cooperative has entered into a management agreement with Paramark Corp. Under the agreement, the Cooperative is to be compensated in an amount equal to $25 per member unit per month. The agreement also calls for the cooperative to reimburse the manager for any of the manager s employees on-site work including the cost of benefits as mutually agreed. Payments under this agreement totaled $11,400 and $11,610 for the years ended December 31, 2016 and 2015, respectively. 5. Functional Expense Allocation The costs of providing various programs and other activities for the years ended December 31, 2016 and 2015 are summarized on a functional basis as follows: 2016 2015 Program Services HUD-assisted cooperative project $ 490,027 $ 494,844 Support Services General and administrative 25,912 25,423 $ 515,939 $ 520,267 6. Subsequent Events In preparing these financial statements, the Cooperative has evaluated events and transactions for potential recognition of disclosure through March 29, 2017, the date the financial statements were available to be issued. 12
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SUPPORTING DATA
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 SCHEDULES OF RESERVES For the Years Ended December 31, 2016 and 2015 Replacement Reserve General Operating Reserve Balance, December 31, 2014 $ 50,017 $ 33,674 Monthly deposits 23,081 14,645 Interest 12 70 Balance, December 31, 2015 73,110 48,389 Monthly deposits 23,081 14,645 Interest 219 54 Withdrawals (12,368) Balance, December 31, 2016 $ 84,042 $ 63,088
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WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 SCHEDULES OF CHANGES IN FIXED ASSET ACCOUNTS For the Years Ended December 31, 2016 and 2015 PROPERTY Balance Balance December 31, December 31, 2015 Additions Deductions 2016 Land and Improvements $ 500,000 $ $ $ 500,000 Buildings 6,966,617 6,966,617 Furnishings and Equipment 69,907 8,605 78,512 Total $ 7,536,524 $ 8,605 $ $ 7,545,129 Balance Balance December 31, December 31, 2014 Additions Deductions 2015 Land and Improvements $ 500,000 $ $ $ 500,000 Buildings 6,958,702 7,915 6,966,617 Furnishings and Equipment 69,907 69,907 Total $ 7,528,609 $ 7,915 $ $ 7,536,524 14
ACCUMULATED DEPRECIATION Balance Balance Book Value December 31, December 31, December 31, 2015 Additions Deductions 2016 2016 $ $ $ $ $ 500,000 565,789 174,588 740,377 6,226,240 15,147 4,803 19,950 58,562 $ 580,936 $ 179,391 $ $ 760,327 $ 6,784,802 Balance Balance Book Value December 31, December 31, December 31, 2014 Additions Deductions 2015 2015 $ $ $ $ $ 500,000 391,427 174,362 565,789 6,400,828 10,486 4,661 15,147 54,760 $ 401,913 $ 179,023 $ $ 580,936 $ 6,955,588. 15
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 STATEMENTS OF PROFIT AND LOSS For the Years Ended December 31, 2016 and 2015 2016 2015 Member Carrying Charges Revenue 5120 Member carrying charges - gross potential $ 497,184 $ 497,184 5170 Garage and parking spaces 360 360 Total Maintenance Revenue 497,544 497,544 Financial Revenue 5410 Financial revenue - project operations 1,649 52 5440 Revenue from investments - replacement reserve 219 12 5490 Revenue from investments - miscellaneous 54 71 Total Financial Revenue 1,922 135 Other Revenue 5990 Miscellaneous 5,586 8,456 TOTAL REVENUES $ 505,052 $ 506,135 Administrative Expenses 6210 Advertising $ 432 $ 242 6311 Office expenses 10,305 10,276 6320 Management fee 11,400 11,610 6330 Manager salaries 24,187 22,523 6350 Audit expense 5,500 5,250 6390 Miscellaneous 3,975 3,850 Total Administrative Expenses 55,799 53,751 Utilities Expenses 6450 Electricity 10,302 9,924 6451 Water 9,399 10,131 6452 Gas 5,148 8,477 Total Utilities Expenses $ 24,849 $ 28,532 16
2016 2015 Operating and Maintenance Expenses 6510 Payroll $ 6,732 $ 14,910 6515 Supplies 13,239 7,191 6520 Contracts 19,499 19,162 6525 Garbage and trash removal 880 933 6546 Heating/cooling repairs and maintenance 2,075 1,584 6548 Snow removal 1,825 1,580 6590 Miscellaneous 5,981 6,295 Total Operating and Maintenance Expenses 50,231 51,655 Taxes and Insurance 6710 Real estate taxes 58,470 58,704 6711 Payroll taxes 2,902 3,665 6720 Property and liability insurance (hazard) 11,209 10,528 6722 Workmen's compensation 756 806 Total Taxes and Insurance 73,337 73,703 Financial Expenses 6820 Interest on mortgage payable 108,292 110,106 6850 Mortgage insurance premium/service charge 22,350 21,807 Total Financial Expenses 130,642 131,913 Total Expenses Before Depreciation and Amortization 334,858 339,554 Income Before Depreciation and Amortization 170,194 166,581 6600 Depreciation 179,391 179,023 6610 Amortization 1,690 1,690 Total Depreciation and Amortization 181,081 180,713 NET LOSS $ (10,887) $ (14,132) Total mortgage principal payments required during the year. $ 73,703 $ 71,893 Total of 12 monthly deposits during the year into the replacement reserve account, as required by the regulatory agreement. Replacement reserves or residual receipts releases which are included as expense items on this profit and loss statement. $ 23,081 $ 23,081 $ 3,763 $ 17
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COMPLIANCE REPORT
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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 To the Members Willow Brook Cooperative of Winona Winona, Minnesota 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 Willow Brook Cooperative of Winona, HUD Project No.092-23174, which comprise the statement of financial position as of and for the year ended December 31, 2016, and the related statements of activities, changes in members equity, and cash flows for the year then ended, and the related notes to financial statements, and have issued our report thereon dated March 29, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Willow Brook Cooperative of Winona'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 Willow Brook Cooperative of Winona's internal control. Accordingly, we do not express an opinion on the effectiveness of Willow Brook Cooperative of Winona'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.
To the Members Willow Brook Cooperative of Winona Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether Willow Brook Cooperative of Winona'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. Rochester, Minnesota March 29, 2017
Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance To the Members Willow Brook Cooperative of Winona Winona, Minnesota Report on Compliance for Each Major Federal Program We have audited Willow Brook Cooperative of Winona, HUD Project No.092-23174 s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on Willow Brook Cooperative of Winona s major federal program for the year ended December 31, 2016. Willow Brook Cooperative of Winona s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Willow Brook Cooperative of Winona, HUD Project No.092-23174 s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Willow Brook Cooperative of Winona, HUD Project No.092-23174 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 each major federal program. However, our audit does not provide a legal determination of Willow Brook Cooperative of Winona, HUD Project No.092-23174 s compliance. Opinion on Each Major Federal Program In our opinion, Willow Brook Cooperative of Winona, HUD Project No.092-23174 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 December 31, 2016. Report on Internal Control Over Compliance Management of Willow Brook Cooperative of Winona, HUD Project No.092-23174 is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit of compliance, we considered Willow Brook Cooperative of Winona s internal
To the Members Willow Brook Cooperative of Winona Page Two Report on Internal Control Over Compliance (Continued) control over compliance with the 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 Willow Brook Cooperative of Winona, HUD Project No.092-23174 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. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of Willow Brook Cooperative of Winona, HUD Project No.092-23174, as of and for the year ended December 31, 2016, and issued our report thereon dated March 29, 2017, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. 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. Rochester, Minnesota March 29, 2017
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended December 31, 2016 Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identification Grantor/Program Title Number Number Federal Expenditures U.S. Department of Housing and Urban Development Mortgage Insurance_Cooperative Projects 14.126 N/A $ 4,315,138 * * Represents loan balance outstanding at December 31, 2015 Note to Schedule of Expenditures of Federal Awards The accompanying Schedule of Federal Awards includes the Federal grant activity of Willow Brook Cooperative of Winona and is presented on the accrual basis of accounting. 22
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 2016 Summary of Independent Auditor s Results 1. The Auditor s report expresses an unmodified opinion on the financial statements of Willow Brook Cooperative of Winona. 2. No significant deficiencies were disclosed during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements of the Willow Brook Cooperative of Winona, which would be required to be reported in accordance with Government Auditing Standards, were disclosed during the audit. 4. No significant deficiencies were disclosed during the audit of internal control over major federal award programs. 5. The auditor s report on compliance for the major federal award program for the Willow Brook Cooperative of Winona expresses an unmodified opinion on its major federal program. 6. No audit findings relative to its major federal award program for the Willow Brook Cooperative of Winona are reported in this schedule. 7. The program tested as a major program was: Name of Program CFDA Mortgage Insurance Cooperative Projects 14.126 8. The threshold for distinguishing Type A and B programs was $750,000. 9. The Willow Brook Cooperative of Winona does qualify as a low-risk auditee. Findings Financial Statement Audit No findings were noted during the financial statement audit for the year ended December 31, 2016. Findings and Questioned Costs Major Federal Award Programs Audit No findings were noted during the federal program audit for the year ended December 31, 2016. 23
WILLOW BROOK COOPERATIVE OF WINONA HUD PROJECT NO.092-23174 INDEPENDENT AUDITOR S COMMENTS ON PRIOR AUDIT FINDINGS Year Ended December 31, 2016 There are no prior year audit findings. 24