notes to the financial statements-1 - govwiki.info district/il commonwealth apartments... · we are...

September 20, 2016

Mr. Shawn Way, Chief Executive OfficerWallace Place NFP4060 McFarland RoadRockford, IL 61111

Dear Mr. Way:

We are enclosing six copies of the Financial Statements of Commonwealth Apartments, HUD Project No. 071-HD169, as of June 30, 2016. We are also sending a copy of the electronic transfer made to the HUD Real Estate Assessment Center and form SF-SAC. These copiesshould be maintained by you at your office.

Sincerely,

Wipfli LLP

Richard J. Wells, CPAPartner

RJW:lkw

Enclosures

Commonwealth ApartmentsHud Project No. 071-Hd169

Financial Statements andSupplementary Information

Years Ended June 30, 2016 and 2015



Table of Contents

Independent Auditor’s Report 1 - 2

Financial StatementsStatements of financial position 3Statements of activities 4 - 5Statements of changes in net assets 6Statements of cash flows 7 - 8Notes to financial statements 9 - 14

Supplementary InformationComputation of surplus cash, distributions and residual receipts 15Replacement reserve 16Residual receipts reserve 16Property and equipment 17Schedule of expenditures of federal awards 18

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 19 - 20

Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by The Uniform Guidance 21 - 22

Findings and questioned costs 23

Auditee’s Comment on Audit Resolution Matters Relatedto The Hud Programs 24

Certification of Project Owner 25

Certification of Management Agent 26

Statement Regarding Auditing Firm/Personnel 27

Independent Accountant’s Report on ApplyingAgreed-Upon Procedure 28 - 30

1

Independent Auditor's Report

Board of DirectorsWallace Place NFPRockford, Illinois

Report on the Financial Statements

We have audited the accompanying financial statements of Commonwealth Apartments, HUD Project No. 071-HD169, which comprise the statements of financial position as of June 30, 2016and 2015, and the related statements of activities, changes in net assets, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the 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.

2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Apartments, HUD Project No. 071-HD169 as of June 30, 2016 and 2015 and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 15 – 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, 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 September 20, 2016 on our consideration of Commonwealth Apartments, HUD Project No. 071-HD169’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 Commonwealth Apartments, HUD Project No. 071-HD169’s internal control over financial reporting and compliance.

Rockford, IllinoisSeptember 20, 2016

Assets

2016 2015

Current Assets

1120 Cash - operations $4,454 $5,011

1100T Total current assets 4,454 5,011

Deposits Held in Trust-Funded

1191 Tenant deposits held in trust 2,444 2,443

Restricted Deposits

1310 Escrow deposits 2,661 2,660

1320 Replacement reserve 21,157 15,628

1330 Other reserve 6,995 6,994

1340 Residual receipts reserve 200 200

1300T Total deposits 31,013 25,482

Property and Equipment

1410 Land 407,598 407,598

1420 Buildings 1,245,886 1,245,886

1440 Building equipment (portable) 14,101 14,101

1450 Furniture for project/tenant use 11,527 11,527

1460 Furnishings 26,400 26,400

1465 Office furniture and equipment 5,306 5,306

1400T Total fixed assets 1,710,818 1,710,818

1495 Accumulated depreciation 111,233 80,548

1400N Net fixed assets 1,599,585 1,630,270

1000T Total assets $1,637,496 $1,663,206

Commonwealth ApartmentsHUD Project No. 071-HD169

Statements of Financial PositionJune 30, 2016 and 2015

Liabilities and Net Assets

2016 2015

Current Liabilities

2110 Accounts payable - operation $508 $45

2110 Due to Milestone, Inc., a related party 26,398 19,418

2116 Accounts payable - section 8 & other 13,342 6,846

2190 Prepaid revenue 0 2,066

2122T Total current liabilities 40,248 28,375

Deposit Liabilities

2191 Tenant deposits held in trust 2,444 2,443

Long Term Liabilities

2323 Other loans and notes payable - surplus cash 297,930 297,930

2390 Miscellaneous long term liabilities - minimum capital investment 0 6,980

2300T Total long term liabilities 297,930 304,910

2000T Total liabilities 340,622 335,728

Net Assets

3131 Unrestricted net assets (99,026) (68,422)

3131 Unrestricted net assets - capital advance 1,395,900 1,395,900

1,296,874 1,327,478

2033T Total liabilities and net assets $1,637,496 $1,663,206

See Accompanying Notes to Financial Statements. 3

2016 2015

Rent Revenue

5120 Rent revenue - gross potential $25,224 $24,852

5121 Tenant assistant payments 16,344 16,696

5100T Total rent revenue 41,568 41,548

Vacancies

5220 Apartments 0 0

5200T Total vacancies 0 0

5152N Net rental revenue 41,568 41,548

Financial Revenue

5410 Financial revenue - project operations 3 6

5440 Revenue from investments - replacement reserve 9 6

5400T Total financial revenue 12 12

5000T Total revenue 41,580 41,560

Administrative Expenses

6311 Office expense 14 16

6320 Management fee 6,048 6,048

6340 Legal expense - project 110 110

6350 Audit expense 6,900 6,695

6351 Bookkeeping fees 1,728 1,728

6263T Total administrative expenses 14,800 14,597

Utilities Expenses

6450 Electricity 4,809 3,865

6451 Water 2,130 652

6452 Gas 1,538 2,216

6453 Sewer 571 0

6400T Total utilities expenses 9,048 6,733



Statements of ActivitiesYears Ended June 30, 2016 and 2015

2016 2015

Operating & Maintenance Expense

6520 Contracts $9,600 $9,600

6525 Garbage and trash removal 503 525

6500T Total operating and maintenance expenses 10,103 10,125

Taxes & Insurance

6720 Property and liability insurance 7,548 7,548

6700T Total taxes and insurance 7,548 7,548

6000T Total cost of operations before depreciation 41,499 39,003

5060T Change in net assets before depreciation 81 2,557

6600 Depreciation expense 30,685 30,685

3250 Change in net assets ($30,604) ($28,128)

S1000 - 010 Total mortgage principal payments $0 $0

S1000 - 020 Total replacement reserve deposits $5,520 $5,520

S1000 - 030 Replacement reserve release included as expense $0 $0

S1000 - 040 Flexible subsidy program release included as expense $0 $0



Statements of Activities (Continued)Years Ended June 30, 2016 and 2015

Balance, unrestricted net assets, September 29, 2014 $1,355,606

Change in net assets (28,128)

Balance, unrestricted net assets, June 30, 2015 1,327,478

Change in net assets (30,604)

Balance, unrestricted net assets, June 30, 2016 $1,296,874


Commonwealth Apartments


Statements of Changes in Net Assets

HUD Project No. 071-HD169

2016 2015

Cash Flow from Operating Activities

S1200-010 Rental receipts $39,502 $41,548

S1200-020 Interest receipts 12 12

S1200-040 Total receipts 39,514 41,560

S1200-050 Administrative (8,752) (8,549)

S1200-070 Management fee (6,048) (6,048)

S1200-090 Utilities (8,585) (6,733)

S1200-110 Operating and maintenance 3,373 (10,877)

S1200-140 Property insurance (7,548) (7,548)

S1200-230 Total disbursements (27,560) (39,755)

S1200-240 Net cash provided by operating activities 11,954 1,805

Cash Flow from Investing Activities

S1200-250 Net deposits to replacement reserve account (5,529) (5,526)

S1200-255 Net (deposits to) withdrawals from other reserves (2) 2,795

S1200-350 Net cash used in investing activities (5,531) (2,731)

Cash Flow from Financing Activities

S1200-450 Other financing activities - minimum capital investment (6,980) 0

S1200-460 Net cash provided by financing activities (6,980) 0

S1200-470 Net decrease in cash and cash equivalents (557) (926)

Cash & Cash Equivalents

S1200-480 Beginning of year cash 5,011 5,937

S1200T End of year cash $4,454 $5,011



Statements of Cash FlowsYears Ended June 30, 2016 and 2015

2016 2015

Reconciliation of Change in Net Assets to Net Cash Provided by

Operating Activities

3250 Change in net assets ($30,604) ($28,128)

Adjustments to Reconcile Change in Net Assets to Net Cash

Provided by Operating Activities

6600 Depreciation expense 30,685 30,685

Change in assets and liabilities:

S1200-530 Cash restricted for tenant security deposits (1) (1)

S1200-540 Accounts payable 13,939 (752)

S1200-580 Tenant security deposits held in trust 1 1

S1200-590 Prepaid revenue (2,066) 0

S1200-610 Net cash provided by operating activities $11,954 $1,805



Statements of Cash Flows (Continued)Years Ended June 30, 2016 and 2015


Notes to Financial Statements

9

Note 1 Nature of Project and Summary of Significant Accounting Policies

Nature of project:

Commonwealth Apartments, HUD Project No. 071-HD169 (the “Project”) was built as a housing unit owned and operated by Wallace Place NFP, a not-for-profit corporation incorporated in the State of Illinois. The real property is located in Rockford, Illinois. The nine-unit apartment complex was constructed with funds received under Section 811 of the National Housing Act and is regulated by the U.S. Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The Project also is subject to Project Rental Assistance agreements with HUD.

Significant accounting policies:

Cash and cash equivalents:

For purposes of reporting the statement of cash flows, the Project includes all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying statement of financial position.

Tenant accounts receivable:

The Project considers possible losses from uncollectible tenant accounts receivable. The Project determined that an allowance for doubtful accounts was not considered necessary as of June 30, 2016 and 2015.

Property and equipment:

All property and equipment is recorded at cost. Adjustments to the assets and the related accumulated depreciation are made for retirements and disposals with the resulting gain or loss included in income.

Depreciation is computed using the straight-line method over the estimated useful lives as follows:

Life

Building 50Equipment and furnishings 15

Expenditures for maintenance and repairs are charged to operating expenses as incurred. Depreciation expense for the years ended June 30, 2016 and 2015 was $30,685.

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.



10

Note 1 Nature of Project and Summary of Significant Accounting Policies (Continued)

Accounting 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 which affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates.

Financial statement presentation:

Under current accounting standards, the Project is required to report information regarding its financial position and activities according to three classes of net assets; unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Project currently has only unrestricted net assets.

Revenue recognition:

The Project utilized the accrual basis of accounting, whereby revenue is recognized as earned and expenses are recognized as obligations as incurred in accordance with accounting principles generally accepted in the United States of America.

Functional expenses:

The costs of providing various programs and other activities are summarized on a functional basis as follows:

2016 2015

Program Services

HUD-assisted housing project $57,384 $55,091

Supporting Services

General and administrative:

Office expense 16 14

Management fee 6,048 6,048

Legal expense – project 110 110

Audit expense 6,900 6,695

Bookkeeping fees 1,728 1,728

14,800 14,597

Fundraising 0 0

Total expenses $72,184 $69,688



11

Note 1 Nature of Project and Summary of Significant Accounting Policies (Continued)

Subsequent events:

The Project has evaluated subsequent events through September 20, 2016 which is the date these financial statements were available to be issued. All subsequent events requiring recognition as of June 30, 2016 have been incorporated herein. There are no subsequent events that require disclosure.

Note 2 Restricted Deposits and Funded Reserves

The U.S. Department of Housing and Urban Development (HUD) requires the establishment of certain restricted deposits.

Tenant security deposits – This fund is required to be established in an amount equal to tenant security deposits. Tenant security deposits are held in a separate interest-bearing bank account in the name of the project.

Residual receipts reserve – This fund is to be used for future Project needs. HUD requires all surplus cash be deposited in this fund at the end of each fiscal year. Disbursements from the fund may be made only with the prior written consent of HUD.

Replacement reserve – This fund is for Project replacements. Disbursements from the fund may be made only with the prior written consent of HUD.

Escrow deposits – This fund is for the payment of insurance when due.

Other reserve – This fund is the initial capital investment of the owner. The balance is to be held for three years and then refunded with consent from HUD.

Restricted cash and funded reserves at June 30 consist of the following:

2016 2015

Tenant security deposits:

Cash $2,444 $2,443

Restricted deposits and funded reserves:

Cash $31,013 $25,482



12

Note 3 Management Agreement

The current management agreement was entered into January 11, 2013 between the Project and Milestone, Inc., the agent. The agreement is required by a regulatory agreement to providefor the satisfactory management of the Project. The agent oversees all aspects of the operation of the Project and receives as its current fee 14.20% of residential income collected, limited to $69 per unit per month. The total fee paid was $6,048 for the years ended June 30, 2016 and 2015.

Note 4 Related Party Transactions

The Project also pays Milestone, Inc. a maintenance fee for maintenance services. Total maintenance fees paid totaled $9,600 for the years ended June 30, 2016 and 2015.

The Project also pays Milestone, Inc. a bookkeeping and computer fee for bookkeeping and computer services. Total bookkeeping and computer fees paid by the Project totaled $1,728 for the years ended June 30, 2016 and 2015

The Project reimburses the management company for out-of-pocket administrative and other expenses incurred for benefit of the Project. Reimbursed administrative and other expenses totaled $14,448 and $14,243 for the year and period ended June 30, 2016 and 2015, respectively. The Project owed Milestone, Inc. $26,398 for the years ended June 30, 2016 and 2015.

Note 5 Contingent Liability

The Project received a capital advance from HUD. The agreement is subject to a mortgage note in the amount of $1,395,900 secured by land and project costs. The agreement is subject to numerous provisions. The mortgage note bears no interest and shall be payable only if the Project does not remain available for very low-income persons with disabilities as approved by HUD for no less than 40 years. In no event may the capital advance be repaid without the permission of HUD. If the Project does not meet the requirements the principal plus accrued interest must be repaid. Management of the organization believes the Project will likely meet the time requirement since the organization was established to own and operate such a housing facility.



13

Note 5 Contingent Liability (Continued)

The following additional provisions, among others, exist under the terms of the regulatory agreement entered into in consideration of the capital advance.

a. Family income of tenants is limited.b. Occupancy is limited to individuals in accordance with the Project Rental

Assistance Contract.c. Maximum monthly rentals are established and HUD approval is required for any

rental increases.d. A replacement reserve account is to be maintained for future replacement of

structures or equipment. Monthly payments to this reserve are established by HUD, and any withdrawals for replacements must be approved.

e. A residual receipts reserve account is to be maintained for the accumulation of excess funds. HUD authorization is required for any disbursement of these funds.

Note 6 Note Payable

Wallace Place NFP (the Corporation) executed a note payable with Milestone, Inc. on March 13, 2013 for the purchase of land and costs incurred during construction of the Project in the amount of $297,930. The note does not require monthly payments and has an interest rate of zero percent per annum. All property and equipment has been pledged as collateral. As of June 30, 2016, the note had a balance of $297,930.

The following additional provisions, among others, exist under the terms of the agreement.

a. The note is the strict subordinate of the above stated contingent liability, with the U.S. Department of Housing and Urban Development.

b. The note may not mature and does not bear a maturity date prior to the date of the above stated contingent liability, which is August 1, 2052.

c. Payments on the note shall be applied to the balance of principal and can only come from surplus cash of the Project as defined in the Regulatory Agreement dated November 1, 2011.

d. This note may be extended if there is no surplus cash and the contingent liability is still outstanding or if HUD grants a deferment or forbearance.

Note 7 Miscellaneous Long Term Liability

The sponsor of the Project was required to make a minimum capital advance of $6,980. The funds are to be held for three years from the date of completion.



14

Note 8 Income Taxes

The Project is owned by Wallace Place NFP which qualified for tax exempt status under Section 501(c)(3) of the Internal Revenue Code as a corporation organized not for profit.

The Project follows the authoritative guidance issued by the FASB which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has not been met. This guidance also addresses de-recognition, classification, interest and penalties, and disclosure. The Project files income tax returns for the United States and state of Illinois. In the normal course of business the Project is subject to examination by taxing authorities. The Project’s tax returns subsequent to 2012 are open, by statute, for review by authorities. However, at present, there are no ongoing income tax audits or unresolved disputes with whom the Project currently files or has filed. The Project has determined that it does not have any significant risks related to income tax expense and therefore no amounts were reserved for uncertain tax positions as of June 30, 2016 and 2015.

Note 9 Net Assets

Unrestricted net assets represent funds available for the daily operations of the Project. Management has reported separately that portion resulting from the capital advance.

Note 10 Tenant Assistance Payments

The Project entered into a Project Rental Assistance Contract which expires September 28, 2032. Tenant assistance payments represent payment from HUD under the housing assistance payment program. The payment amount is determined to be the difference between the HUDapproved operating costs per unit (operating rent) and rent paid by the tenant for occupied units.

The Project received approximately 39% and 40% of its revenue from the Department of Housing and Urban Development for the years ended June 30, 2016 and 2015, respectively. A significant reduction in the level of this support, if this were to occur, may have a significant effect on the Project's operation.

Note 11 Contingency

The Project's assets consist of a nine-unit apartment complex. Operations are concentrated in the disabled real estate market and are highly regulated. The Project is subject to administrative directives, rules and regulations of federal, state and local regulatory agencies, including HUD. These administrative directives, rules and regulations are subject to change by an act of congress or HUD. Such changes may occur with little notice or inadequate funding to pay for any related costs, including the additional administrative burden, to comply with a change.

Supplementary Information

PROJECT NAME PROJECT NUMBER

071-HD169

1. Cash (Accounts 1110, 1120, 1191, 1192) $ 6,898

2. Tenant subsidy vouchers due for period covered by financial statement $

3. Other (Describe)

$

$ 6,898

4. Accrued mortgage interest payable $

5. Delinquent mortgage principal payments $

6. Delinquent deposits to reserve for replacements $

7. Accounts payable (Due within 30 days) $ 40,248

8. Loans and notes payable --

(Due within 30 days) $

9. Deficient Tax Insurance or MIP Escrow Deposits $

10. Accrued expense (Not escrowed) $

11. Prepaid Rents 24 (Account 2210) $ -

12. Tenant security deposits liability (Account 2191) $ 2,444

13. Other (Describe) $

$ 42,692

$ (35,794)

1. Surplus Cash $ -

2a. Annual Distribution Earned During Fiscal Period

Covered by the Statement $

2b. Distribution Accrued and Unpaid as of the

End of the Prior Fiscal Period $

2c. Distributions Paid During Fiscal Period Covered by

Statement $

3. Amount to be Carried on Balance Sheet as distribution

Earned but Unpaid (Line 2a plus 2b minus 2c) $

4. Amount Available for Distribution During Next Fiscal Period $

5. Deposit Due Residual Receipts $ 0

PREPARED BY REVIEWED BY

LOAN TECHNICIAN LOAN SERVICER

DATE DATE

15

(b) Less Total Current Obligations (Add Lines 4 through 13)

(c) Surplus (Deficiency) (Line (a) minus Line (b))

(Must be deposited with Mortgages within 60 days after Fiscal Period ends)

CASH

CURRENT

OBLIGA- TION

LIMITED

DIVIDEND

PROJECTS

PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HOUSING - FEDERAL HOUSING COMMISSIONER

COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND

RESIDUAL RECEIPTS

FISCAL PERIOD ENDED:

Commonwealth Apartments 06/30/2016



16

Replacement Reserve

In accordance with the provisions of the regulatory agreement, restricted cash is held in a separate cash account to be used for replacement of property with the approval of HUD, as follows:

Balance, June, 30, 2015 $15,628

Interest earned 9

Required deposits 5,520

Balance, June 30, 2016 $21,157

Residual Receipts Reserve

In accordance with provisions of the regulatory agreement, restricted cash is held in a separate cash account to be used for future project needs, as follows:

Balance, June 30, 2015 $200

Interest earned 0

Balance, June 30, 2016 $200



17

Property and Equipment

Net CarryingBalance Balance AmountJune 30,

2015Additions Disposals June 30,

2016June 30,

2016

Cost:

Land and improvements $ 407,598 $0 $0 $ 407,598 $ 382,777

Building 1,245,886 0 0 1,245,886 1,163,274

Building equipment -portable

14,101 0 0 14,101 13,166

Furniture for project/tenant use

11,527 0 0 11,527 10,762

Furnishings 26,400 0 0 26,400 24,648

Office furniture and equipment

5,306 0 0 5,306 4,958

$1,710,818 $0 $0 $1,710,818 $1,599,585

Accumulated depreciation:

Land improvements $17,510 $ 7,311 $0 $ 24,821

Building 60,266 22,346 0 82,612

Building equipment -portable

682 253 0 935

Furniture for project/tenant use

558 207 0 765

Furnishings 1,278 474 0 1,752

Office furniture andequipment

254 94 0 348

$80,548 $30,685 $0 $111,233



18

Schedule of Expenditures of Federal Awards

Federal Grantor/ FederalPass-through Grantor/ CFDA Federal

Program Title Number Expenditures

U.S. Department of Housing and

Urban Development

Direct Programs:

Major - Capital advance

Supportive Housing for personswith disabilities 14.181 $1,395,900

Cash

Project Rental Assistance

Contract 14.181 16,344

$1,412,244

Note 1 Basis of Presentation

The schedule of expenditures of federal awards includes the federal grant activity of Commonwealth Apartments, HUD Project No. 071-HD169, and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirement of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. 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 Capital Advance

The capital advance amount represents the total amount received in the prior year. If the Project does not meet certain compliance requirement for a period of 40 years the balance plus accrued interest must be repaid.

19

Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed inAccordance with Government Auditing Standards


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 Commonwealth Apartments, HUD Project No. 071-HD169, which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, changes in net assets, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated September 20, 2016.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered Commonwealth Apartments, HUD Project No. 071-HD169’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 Commonwealth Apartments, HUD Project No. 071-HD169’s internal control. Accordingly, we do not express an opinion on the effectiveness of Commonwealth Apartments, HUD Project No. 071-HD169’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.

20

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Commonwealth Apartments, HUD Project No. 071-HD169’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.


21

Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by The Uniform Guidance


Report on Compliance for Each Major Federal Program

We have audited Commonwealth Apartments, HUD Project No. 071-HD169's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on Commonwealth Apartments, HUD Project No. 071-HD169's major federal program for the year ended June 30, 2016. Commonwealth Apartments, HUD Project No. 071-HD169's major federal program is identified in the summary of auditor’s result 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 Commonwealth Apartments, HUD Project No. 071-HD169’s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations (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 Commonwealth Apartments, HUD Project No. 071-HD169’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

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We believe that our audit provides a reasonable basis for our opinion on compliance for itsmajor federal program. However, our audit does not provide a legal determination of Commonwealth Apartments, HUD Project No. 071-HD169’s compliance.

Opinion on Major Federal Program

In our opinion, Commonwealth Apartments, HUD Project No. 071-HD169 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 Commonwealth Apartments, HUD Project No. 071-HD169 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 Commonwealth Apartments, HUD Project No. 071-HD169's internal control over compliance with the types of requirements that could have a direct and material effect on its major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Commonwealth Apartments, HUD Project No. 071-HD169'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 compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.



Schedule of Findings and Questioned Costs

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Summary of Auditor’s Results

1. The auditors express an unmodified opinion on the financial statements of Commonwealth Apartments.

2. No material weaknesses were identified during the audit of the financial statements.

3. No instances of noncompliance material to the financial statements of Commonwealth Apartments were disclosed during the audit.

4. No material weaknesses were identified during the audit of the major federal award programs.

5. The auditor’s report on compliance for the major federal award programs Commonwealth Apartments expresses an unmodified opinion.

6. Audit findings relative to the major federal award programs for Commonwealth Apartments are reported in this schedule.

7. The program tested as a major program included: Supportive Housing for persons with disabilities, CFDA No. 14.181.

8. The threshold for distinguishing type A and B programs was $750,000

9. Commonwealth Apartments qualifies as a low-risk auditee.

Findings – Financial Statement Audit

None

Findings and Questioned Costs - Major Federal Program Audit

None


Auditee’s Comments on Audit Resolution Matters Related to The Hud Programs

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Physical inspection report –

REAC performed a physical inspection on July 13, 2015. The Project received a score of 96b.

Management and occupancy review –

The Project did not have a management and occupancy review during the fiscal year.


Certification of Project Owner

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We hereby certify that we have examined the accompanying financial statements and supplementary information of Commonwealth Apartments, HUD Project No. 071-HD169, and, to the best of our knowledge and belief, the same is complete and accurate.

M. Shawn Way, President

9/20/2016Date

Peggy L. Hanson, Secretary/Treasurer

9/20/2016Date

Corporate Employee IdentificationNumber: 27-3746927


Certification of Management Agent

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We hereby certify that we have examined the accompanying financial statements and supplementary information of Commonwealth Apartments, HUD Project No. 071-HD169, and, to the best of our knowledge and belief, the same is complete and accurate.

M. Shawn Way, Management Agent's Representative

M. Shawn WayProperty Manager

Milestone, Inc.Management Agent

9/20/2016Date

Corporate Employer IdentificationNumber: 36-2769801


Statement Regarding Auditing Firm/Personnel

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FIRM NAME: Wipfli LLP

FIRM ADDRESS: 4949 Harrison Avenue, P.O. Box 5407, Rockford, Illinois 61125-0407

I.D. NO.: 39-0758449

CONTACT PERSON: Richard J. Wells, CPA

LICENSE NO.: IL: 65-026684

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Independent Auditor's Report on Applying Agreed-Upon Procedure


We have performed the procedure described in the second paragraph of this report, which was agreed to by Commonwealth Apartments, HUD Project No. 071-HD169 and the U.S. Department of Housing and Urban Development, Public Indian Housing - Real Estate Assessment Center (PIH-REAC), solely to assist them in determining whether the electronic submission of certain information agrees with the related hard copy documents included within the OMB Uniform Guidance reporting package. Commonwealth Apartments, HUD Project No. 071-HD169 is responsible for accuracy and completeness of the electronic submission. This agreed-upon procedure engagement was conducted in accordance with the attestation standards established by the American Institute of Certified Public Accountants and the standards applicable to attestation engagements contained in Government Auditing Standardsissued by the Comptroller General of the United States. The sufficiency of the procedure is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedure described below either for the purpose for which this report has been requested or for any other purpose.

We compared the electronic submission of the items listed in the “UFRS Rule Information” column with the corresponding printed documents listed in the “Hard Copy Documents” column. The results of the performance of our agreed-upon procedure indicate agreement or non-agreement of the electronically submitted information and hard copy documents as shown in the attached chart.

We were engaged to perform an audit in accordance with the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, CostPrinciples, and Audit Requirements for Federal Awards (Uniform Guidance), by Commonwealth Apartments, HUD Project No. 071-HD169 as of and for the year ended June 30, 2016, and have issued our reports thereon dated September 20, 2016. The information in the “Hard Copy Documents” column was included within the scope, or was a by-product of that audit. Further, our opinion on the fair presentation of the supplemental information dated September 20, 2016, was expressed in relation to the basic financial statements of Commonwealth Apartments, HUD Project No. 071-HD169 taken as a whole.

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A copy of the financial statement package required by the Uniform Guidance, which includes the auditor’s reports, is available in its entirety from Commonwealth Apartments, HUD Project No. 071-HD169. We have not performed any additional auditing procedures since the date of the aforementioned audit reports. Further, we take no responsibility for the security of the information transmitted electronically to the U.S. Department of Housing and Urban Development, PIH-REAC.

This report is intended solely for the information and use of Commonwealth Apartments, HUD Project No. 071-HD169 and the U.S. Department of Housing and Urban Development, PIH-REAC, and is not intended to be and should not be used by anyone other than these specified parties.



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Attachment to Independent Accountant’sReport on Applying Agreed-Upon Procedure

UFRS Rule Information Hard Copy Documents FindingsBalance Sheet, Revenue and Expense and Cash Flow Data (account numbers 1120 to 7100T and the S1200 series)

Supplementary Informationwith Financial Statement Data

Agrees

Surplus Cash (S1300 series of accounts)

Computation of Surplus Cash, Distributions and Residual Receipts (Annual)

Agrees

Footnotes (S3100 series of accounts)

Notes to the Audited Financial Statements

Agrees

Type of Opinion on the Financial Statements and Auditor Reports (S3400, S3500 and S3600 series of accounts)

Auditor’s Reports on the Financial Statements, Compliance, and Internal Control

Agrees

Type of Opinion on Supplemental Data (account S3400-100)

Auditor’s Report on Supplementary Information

Agrees

Audit Findings Narrative (S3800 series of accounts)

Schedule of Findings and Questioned Costs

Agrees

General information (S3300, S3700 and S3800 series of accounts)

Schedule of Findings and Questioned Costs and OMB Data Collection Form

Agrees