arirang housing, inc. fha project no.: 122 … arirang housing inc. 122-eh518... · opinion in our...

ARIRANG HOUSING, INC.

FHA PROJECT NO.: 122-EH518-WAH-NP

FINANCIAL STATEMENTS

AS OF JUNE 30, 2017 AND 2016

1725 N. WHITLEY AVENUE LOS ANGELES, CA 90028

ROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATION CERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTS 6363 WILSHIRE BOULEVARD, SUITE 1256363 WILSHIRE BOULEVARD, SUITE 1256363 WILSHIRE BOULEVARD, SUITE 1256363 WILSHIRE BOULEVARD, SUITE 125 LOS ANGELES, CALIFORNIA 90048LOS ANGELES, CALIFORNIA 90048LOS ANGELES, CALIFORNIA 90048LOS ANGELES, CALIFORNIA 90048 TELEPHONE: (323) 951TELEPHONE: (323) 951TELEPHONE: (323) 951TELEPHONE: (323) 951----1300130013001300 FACSIMILE: (323) 951FACSIMILE: (323) 951FACSIMILE: (323) 951FACSIMILE: (323) 951----1303130313031303

INDEPENDENT AUDITORS' REPORT To the Board of Directors of Arirang Housing, Inc. 3460 S. Broadway Los Angeles, CA 90007 Report on Financial Statements We have audited the accompanying financial statements of Arirang Housing, Inc. (HUD Project No. 122-EH518-WAH-NP) which comprise the statement of financial position as of June 30, 2017 and 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. 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 risk 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 Arirang Housing, Inc.’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 Arirang Housing, Inc.’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 that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arirang Housing, Inc. as of June 30, 2017 and 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. Report on Supplemental Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information included in the report (see Index to the Financial Statements) is presented for purposes of additional analysis as required by 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 also 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 a report dated August 24, 2017, on our consideration of Arirang Housing, Inc.’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Arirang Housing, Inc.’s internal control over financial reporting and compliance.

Los Angeles, California 90048 August 24, 2017

2

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH518-WAH-NP INDEX TO THE FINANCIAL STATEMENTS

AS OF JUNE 30, 2017 AND 2016 Page Number EXHIBIT A - Statement of Financial Position 4-5

As of June 30, 2017 and 2016 EXHIBIT B - Statement of Activities 6

For the Year Ended June 30, 2017 and 2016 EXHIBIT C - Statement of Changes in Net Assets 7

For the Year Ended June 30, 2017 and 2016 EXHIBIT D - Statement of Cash Flows 8-9

For the Year Ended June 30, 2017 and 2016

Notes to the Financial Statements 10-14 As of June 30, 2017 and 2016

SUPPLEMENTARY INFORMATION REQUIRED BY HUD SCHEDULE 1 - Reserve for Replacements 15 SCHEDULE 2 - Residual Receipts Reserve 15 SCHEDULE 3 - Changes in Fixed Assets Account 16 SCHEDULE 4 - Expenditures of Federal Awards 17 SCHEDULE 5 - Computation of Surplus Cash, Distributions and 18 Residual Receipts

Independent Auditor’s Report on Internal Control over 19-20 Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards

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

Schedule of Findings and Questioned Costs 23

Certificate of Officers 24

3

EXHIBIT A Page 1 of 2

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH-518-WAH-NP

STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2017 AND 2016

ASSETS 2017 2016__ CURRENT ASSETS 1120 Cash - operations $ 12,207 $ 954 1130 Account receivable – tenants 4 337 1135 Account receivable – HUD - 38,786 1200 Prepaid expenses 15,760 15,399 1100T TOTAL CURRENT ASSETS$ $ 27,971 $ 55,476 DEPOSITS HELD IN TRUST – FUNDED 1191 Tenant security deposits $ 16,760 $ 16,767 RESTRICTED DEPOSITS AND FUNDED RESERVES 1320 Reserve for replacements $ 283,395 $ 253,640 1330 Other funded reserves 3,665 20,409 1340 Residual receipts reserve 5,634 5,631 1300T TOTAL FUNDED RESERVES $ 292,694 $ 279,680 PROPERTY AND EQUIPMENT (Note 2) 1410 Land $1,613,500 $1,613,500 1420 Buildings and improvements 6,869,882 6,810,254 1490 Equipment and furnishings 140,016 132,875 1400T TOTAL $8,623,398 $8,556,629 1495 Less: accumulated depreciation -3,622,612 -3,441,066 1400N TOTAL PROPERTY AND EQUIPMENT (NET) $5,000,786 $5,115,563 OTHER ASSETS 1520 Construction period taxes 6,078 6,398 1000T TOTAL ASSETS $5,344,289 $5,473,884

See Notes to Financial Statements 4

EXHIBIT A Page 2 of 2

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH518-WAH-NP STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2017 AND 2016

LIABILITIES AND NET ASSETS 2017 2016__ CURRENT LIABILITIES 2110 Accounts payable – operations $ 8,206 $ 18,154 2116 Accounts payable – Section 8 448 - 2120 Accrued wages - 2,738 2121 Accrued payroll taxes - 209 2123 Accrued management fee 5,025 5,025 2190 Contract payable – insurance 13,330 13,013 2210 Prepaid rent 133 - 2122T TOTAL CURRENT LIABILITIES $ 27,142 $ 39,139 DEPOSITS HELD IN TRUST (CONTRA) 2191 Tenant security deposits $ 16,672 $ 16,340 LONG-TERM LIABILITIES 2324 Note payable - CRA (Note 4) $ 2,488,381 $ 2,488,381 2326 Capital Advance (Note 5) 5,723,900 5,723,900 2330 Accrued interest payable – CRA 1,569,701 1,495,050 2340 Debt issuance cost -2,208 -2,453 2300T TOTAL LONG TERM LIABILITIES $ 9,779,774 $ 9,704,878 2000T TOTAL LIABILITIES $ 9,823,588 $ 9,760,357 NET ASSETS 3130 Net assets (Exhibit C) -4,479,299 -4,286,473 2033T TOTAL LIABILITIES AND NET ASSETS $ 5,344,289 $ 5,473,884


EXHIBIT B

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH518-WAH-NP

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 AND 2016

2017 2016__ RENTAL REVENUE 5120 Rent revenue $ 225,007 $ 230,775 5121 Tenant assistance payments 240,507 210,033 5100T Total rent revenue $ 465,514 $ 440,808 5220 Vacancies -4,371 -5,415 Net rental revenue $ 461,143 $ 435,393 5400T Financial revenue 689 896 5900T Other revenue 566 1,973 5000T Total revenue $ 462,398 $ 438,262 RENTAL EXPENSE 6250 Other renting expenses $ 4,721 $ 4,457 6310 Office salaries 6,300 6,300 6311 Office expenses 20,428 19,962 6320 Management fee (Note 8) 60,300 60,300 3630 Manager salaries 42,868 42,254 6340 Legal 207 - 6350 Audit expense 9,400 9,200 6351 Bookkeeping fees/accounting services 6,750 6,750 6370 Bad debts 159 - 6390 Miscellaneous administrative 13,110 8,385 6263T Total Administrative expenses $ 164,243 $ 157,608 6400T Utilities expense $ 74,036 $ 65,407 6510 Maintenance and operations salaries $ 24,219 $ 22,075 6515 Supplies 9,692 9,542 6520 Contracts 47,108 40,483 6525 Garbage and trash removal 6,542 5,881 6530 Security contract 12,725 13,148 6546 Heating/cooling, repairs and maintenance 3,556 3,303 6570 Vehicle and maintenance equipment operation and repairs - 56 6500T Total operating and maintenance expenses $ 103,842 $ 94,488 6710 Real estate taxes $ 12,003 $ 7,761 6711 Payroll taxes 5,569 5,386 6720 Property and liability insurance 17,584 17,249 6722 Workers’ compensation 9,917 10,193 6723 Health insurance and other employee benefits 5,310 5,882 6790 Miscellaneous taxes, licenses, permits and insurance 4,005 4,621 6700T Total taxes and insurance $ 54,388 $ 51,092 6830 Interest expense on note payable $ 74,896 $ 74,896 6000T Total cost of operations before depreciation $ 471,405 $ 443,491 5060T Loss before depreciation $ -9,007 $ -5,229 6600 Depreciation expense $ 181,546 $ 180,865 6610 Amortization 320 320 Total depreciation and amortization $-181,866 $-181,185 5060N Operating (loss) $-190,873 $-186,414 Net other Corporation income $ - $ - 100T Net other Corporation expense -1,953 -1,800 3250 CHANGE IN UNRESTRICTED NET ASSETS FROM OPERATIONS $-192,826 $-188,214


EXHIBIT C

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH518-WAH-NP STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEAR ENDED JUNE 30, 2017 AND 2016 2017 2016__ 1100-050 NET ASSETS, BEGINNING OF YEAR $-4,286,473 $-4,098,259 3250 CHANGE IN UNRESTRICTED NET ASSETS FOR THE YEAR (EXHIBIT B) –192,826 –188,214 3130 NET ASSETS, ENDING OF YEAR $-4,479,299 $-4,286,473


EXHIBIT D Page 1 of 2


STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 AND 2016

2017 2016__ CASH FLOWS FROM OPERATING ACTIVITIES Revenues: Rental receipts $ 500,684 $ 399,789 Interest receipts 689 896 Other operating receipts 566 1,973 Total Revenue $ 501,939 $ 402,658 Expenses: Administrative $ 55,215 $ 49,228 Management fee 60,300 60,300 Utilities 77,724 64,615 Salaries and wages 76,124 67,891 Operating and maintenance 83,958 66,957 Real estate taxes 12,003 `7,761 Property insurance 17,580 17,279 Miscellaneous taxes and insurance 30,465 25,410 Tenant security deposits -338 260 Total Expenses $-413,031 $-359,701 Net cash provided by operating activities $ 88,908 $ 42,957 CASH FLOWS FROM INVESTING ACTIVITIES Net deposits to the reserve for replacement account $ -29,755 $ -29,963 Net withdrawals from the other reserve accounts 16,744 -17,539 Net deposits to the residual receipts account -3 -2 Net purchase of fixed assets -64,641 -1,893 Decrease in deposit - others - 3,547 Net cash used by investing activities $ -77,655 $ -45,850 CASH FLOWS FROM FINANCIAL ACTIVITIES None - - Net increase in cash and cash equivalents $ 11,253 $ -2,893 CASH – BEGINNING OF YEAR 954 3,847 CASH – END OF YEAR $ 12,207 $ 954


EXHIBIT D Page 2 of 2


STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 AND 2016

RECONCILIATION OF CHANGES IN NET ASSETS PER STATEMENT OF ACTIVITIES TO CASH PROVIDED BY OPERATING ACTIVITIES 2017 2016__ Change in net assets (Exhibit B) $-192,826 $-188,214 Item not requiring outlay of cash – depreciation 181,546 180,865 - debt issuance cost 245 245 - amortization 320 320 $ -10,715 $ -6,784 (Increase) decrease in assets: Accounts receivable – tenants 333 -286 Accounts receivable – others 38,786 -35,318 Prepaid expenses -361 -18 Tenant security deposits – held in trust 7 206 Increase (decrease) in liabilities: Accounts payable -11,627 8,138 Accrued liabilities -2,947 2,947 Accrued interest payable 74,651 74,651 Tenant security deposit 331 -466 Prepaid income 133 - Other liabilities 317 -113 CASH PROVIDED BY OPERATING ACTIVITIES $ 88,908 $ 42,957 Non-Cash Transactions No cash payments were made for interest expense during the years ended June 30, 2017 and 2016. Interest expense of $74,651 and $74,651 was added to the accrued interest payable in 2017 and 2016 respectively.


of 5

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH518-WAH-NP NOTES TO THE FINANCIAL STATEMENTS

AS OF JUNE 30, 2017 AND 2016 NOTE 1 – ORGANIZATION Arirang Housing, Inc. (a California non-profit public benefit corporation) was organized on September 18, 1990, for the purpose of developing and operating a 75-unit rental housing project for elderly persons or persons with disabilities. The Project is located in at 1725 N. Whitley, Los Angeles, California and is operated under Section 202 of the Housing Act of 1959 (elderly project) or Section 811 of the National Affordable Housing Act of 1990 (disabled project) and is regulated by the U.S. Department of Housing and Urban Development (HUD) with respect to rental charges, operating methods and financial reporting. The Project’s major program are its Capital Grant and the Section 8 Housing Assistance Payments provided by HUD. The Project’s units are subject to Section 8 Housing Assistance Payments in agreement with HUD. 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. Under the Regulatory Agreement, the Project may not increase rents charged to tenants without HUD approval. The responsibility for management of the affairs of the Corporation and the ongoing management of Arirang Housing, Inc. (A California Nonprofit Public Benefit Corporation) is vested with the directors. The directors utilize a managing agent to manage the rental operation. The Corporation has received tax-exempt status from the Internal Revenue Service and the California Franchise Tax Board under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code, respectively. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Use of Estimates in Preparing Financial Statements In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents Cash and cash equivalents are comprised of cash in operating bank accounts, money market funds, and marketable securities with maturity dates of three months or less whose cost approximates market value.

10

of 5


AS OF JUNE 30, 2017 AND 2016 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentration of Credit Risk Financial instruments that potentially subject the Corporation to concentration of credit risk consist principally of cash balances. The Corporation maintains cash accounts at various banks. From time to time, daily cash balances in these accounts may exceed the $250,000 FDIC insured limit. At June 30, 2017 and 2016, cash in banks did not exceed the FDIC insured limit. Allowance for Doubtful Accounts The Corporation expenses uncollectible receivables to bad debts only after exhausting all efforts to collect the amount due. Management believes tenant receivables at June 30, 2017 and 2016 are all collectible. Therefore, no allowance for doubtful account is provided. Replacement Reserves Under the terms of the Regulatory Agreement, the Corporation is required to set aside specified amounts for the replacement of property and other project expenditures as approved by HUD. The Corporation is currently required to deposit $2,423 monthly into the reserve account. Property and Depreciation Property and equipment are stated at cost. Building, and other assets are depreciated using the straight-line method over estimated useful lives ranging from 5 to 40 years. Improvements, furnishings and equipment are capitalized. Maintenance and repairs are charged to expense in the period incurred. Total depreciation for the year 2017 and 2016 were $181,546 and $180,865 respectively. Deferred Charges and Loan Cost Construction period taxes and loan costs (debt issuance cost) are being amortized over forty and thirty year periods respectively. Amortization of construction period taxes for the years ended June 30, 2017 and 2016 were $320 and $320 respectively. Loan cost amortization for the years ended June 30, 2017 and 2016 in the amount of $245 were included in interest expense. Unamortized debt issuance costs of $2,208 and $2,453 for 2017 and 2016 respectively are included with the long term liabilities as a reduction to the Note Payable. Operating Revenues Operating revenues consist primarily of rent from residents for housing, Section 8 housing subsidy payments and related services. Revenues are recognized as services are provided. Under the Regulatory Agreement, the Corporation may not increase rents charged to tenants without HUD approval. Income Taxes The Corporation is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code and under Section 23710(d) of the State of California Revenue and Taxation Code. Accordingly, no provision for income taxes is included in the financial statements.

11

of 5

ARIRANG HOUSING, INC.

FHA PROJECT NO.: 122-Eh518-WAH-NP NOTES TO THE FINANCIAL STATEMENTS

AS OF JUNE 30, 2017 AND 2016 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Distributions The Corporation’s regulatory agreement with HUD stipulates, that the Project will not distribute assets or income to any of its officers or directors or for any non-rental operations purpose. NOTE 3 – OTHER FUNDED RESERVE The Corporation has established a tax and insurance impound account. Payments of property taxes and insurance premiums are made from the account. The reserve balance at June 30, 2017 and 2016 were $3,665 and $20,409 respectively. NOTE 4 – NOTE PAYABLE – COMMUNITY REDEVELOPMENT AGENCY (CRA) OF THE CITY OF LOS ANGELES On September 27, 1993, and amended as of August 1, 1996, the Corporation obtained a loan from the Community Redevelopment Agency of the City of Los Angeles in the amount of $2,488,381. The note bears interest at the rate of three percent (3%) per annum with all unpaid principal and interest due and payable on September 27, 2034. The total amount due at June 30, 2017 and 2016 of $4,058,082 and $3,983,431 include accrued interest payable of $1,569,701 and $1,495,050 respectively. The note is secured by a deed of trust on the Property. Under the terms of this note, the Corporation may repay CRA out of residual receipts after obtaining written approval from HUD. No payments of principal or interest were made in the years June 30, 2017 and 2016. NOTE 5 – CAPITAL ADVANCE On September 28, 1993, the Corporation received a capital advance commitment in the amount of $5,723,900, as amended, from the U.S. Department of Housing and Urban Development. The capital advance bears no interest and need not be repaid so long as the Housing Project remains available to eligible low-income elderly or disabled persons for a period of forty years. The note payable is secured by a deed of trust on the property. Failure to maintain housing for the elderly or disabled persons would result in default, and HUD may demand repayment of the entire capital advance outstanding plus interest since the date of the initial advance. NOTE 6 – SECTION 8 PROJECT RENTAL ASSISTANCE CONTRACT The Corporation entered into a Project Rental Assistance Contract (PRAC) with the U.S. Department of Housing and Urban Development. The contract term was for twenty years commencing on May 1, 1995, with a maximum annual commitment of $234,432. Commencing May 1, 2015, the contract has been renewed for one year terms. The current contract expires April 30, 2018.

12

of 5


AS OF JUNE 30, 2017 AND 2016 NOTE 7 – RENT INCOME In September 2016, approval was received from HUD for an increase in annual rent from $440,808 to $462,060 retroactive to May 1, 2016. Included in current year’s rent income was the retroactive increase in rent for the period May 1, 2016 through June 30, 2016 in the amount of $3,454. NOTE 8 – CONTINGENCIES AND COMMITMENTS The Corporation entered into a management contract with HDSI Management, Inc. (HDSI) to manage the apartment complex. The management contract term ended on June 30, 2016. A renewal agreement extending the contract for an additional five year term was executed by HDSI and the Corporation and has been submitted to HUD for approval. As of the date of the financial statements, final approval of the contract has not been received from HUD. Under the term of the contract, HDSI receives the lesser of $5,025 per month, or 14.40% of residential income collected, as a management fee. Management fee earned by HDSI during the years 2017 and 2016 was $60,300 and $60,300 respectively. Management fee payable at June 30, 2017 and 2016 was $5,025 and $5,025 respectively. The Corporation entered into a contract to paint the exterior of the property for $125,000. As of June 30, 2017, a partial payment of $57,500 was made for the work completed under the contract. The Corporation is contractually liable for the $67,500 balance as the work is completed. NOTE 9 – RELATED ENTITY ACTIVITIES HDSI Management, Inc., (HDSI) the managing agent, also provided bookkeeping, and occupancy services. Payments for these services totaled $6,750 and $6,300 respectively. The cost of the occupancy services is included in office salaries on the Statement of Activities (Exhibit B). The manager, maintenance and tenant social service personnel are employees of HDSI. The Corporation reimburses HDSI for their costs. At June 30, 2017 and 2016, $0 and $2,947 respectively were payable to HDSI. NOTE 10 – CURRENT VULNERABILITY DUE TO CONCENTRATIONS The Corporation’s sole operating asset is its multifamily rental property. The operations of the rental property are subject to the rules and regulations of its regulatory agreement with HUD and other such requirements as imposed by HUD and the U.S. Government. These rules and regulations are subject to change to acts of Congress or HUD and may reduce funding of Section 8 Housing Assistance for tenants required by the Corporation to continue operating at current levels.

13

of 5


AS OF JUNE 30, 2017 AND 2016

NOTE 11 – UNRESTRICTED NET ASSETS None of the Corporation’s net assets are subject to restrictions, except as to HUD imposed restrictions in operating methods, and sale or transfer of rental property. Accordingly, all net assets are accounted for as unrestricted net assets under SFAS No. 117. NOTE 12 – MISCELLANEOUS ADMINISTRATIVE EXPENSE Miscellaneous administrative expense includes the costs for social activities and supportive services for the elderly tenants in the amount of $12,260. NOTE 13 – CONTRACT PAYABLE Property insurance premium for the policy periods May 1, 2017 through May 1, 2018 and May 1, 2016 through May 1, 2017 in the amount of $17,762 and $17,351 respectively were payable in four monthly installments. The unpaid balances at June 30, 2017 and 2016 were $13,330 and $13,013 respectively. NOTE 14 – SUBSEQUENT EVENTS Arirang Housing, Inc. has evaluated subsequent events through August 24, 2017 which is the date through which the financial statements were available to be issued.

14


SUPPLEMENTARY INFORMATION REQUIRED BY HUD AS OF JUNE 30, 2017 AND 2016

SCHEDULE 1 – Reserve for Replacements 2017 2016__ Balance, Beginning of year $253,640 $223,677 Deposits: Monthly deposits (12 x $2,423) 29,076 29,076 Interest income 679 887 Withdrawals –- Authorized reimbursements - - Balance, Ending of year $283,395 $253,640 The balance is invested with the following institutions: Market Market Value_ Value_ Hamni Bank – savings account $ 46,825 $ 46,731 Searle & Co.: Money market account 61,805 56,669 Safra National Bank, NY certificate of deposits, at 1.00% due February 14, 2018 174,765 150,240 Balance (as above) $283,395 $253,640 Replacement reserve deposit required by HUD: $ 29,076 $ 29,076 Replacement or painting reserve releases which are included as expense items on profit and loss statement: $0. There was no reserve for replacement reimbursement request pending at June 30, 2017 and 2016. SCHEDULE 2 – Residual Receipts In accordance with provision of the regulatory agreement, the project is required to maintain a residual receipts fund. The residual receipts reserve is funded with the annual surplus cash. The reserve is for the benefit of the project and can be withdrawn only with the prior approval of HUD. 2017 2016__ Balance, Beginning of year $ 5,631 $ 5,629 Deposits: Surplus cash at June 30, 2016 and 2015 - - Interest income 3 2 Withdrawals - - Balance, Ending of year $ 5,634 $ 5,631

15

ARIRANG HOUSING, INC. FHA PROJECT NO.: 122-EH518-WAH-10P


SCHEDULE 3 – Changes in Fixed Assets Account

Balance Balance June 30, June 30, 2016 Additions Deductions 2017_

FIXED ASSETS Land $1,613,500 $1,613,500 Building and improvements 6,810,254 $ 59,628 6,869,882 Building equipment – portable 17,638 - 17,638 Furnishings 1,532 2,293 3,825 Furniture for Project/ tenant use 113,705 __4,848 ________ 118,553 TOTALS $8,556,629 $ 66,769 - $8,623,398 ACCUMULATED DEPRECIATION -3,441,066 -181,546 - -3,622,612 NET FIXED ASSETS $5,115,563 $5,000,786

Balance Balance June 30, June 30, 2015 Additions Deductions 2016 _

FIXED ASSETS Land $1,613,500 $1,613,500 Building and improvements 6,809,389 $ 865 6,810,254 Building equipment – portable 17,638 - 17,638 Furnishings 504 1,028 1,532 Furniture for Project/ tenant use 113,705 ______ ________ 113,705 TOTALS $8,554,736 $ 1,893 - $8,556,629 ACCUMULATED DEPRECIATION -3,260,201 -180,865 - -3,441,066 NET FIXED ASSETS $5,294,535 $5,115,563

16



SCHEDULE 4 – Schedule of Expenditures of Federal Awards CDFA 2017 2016__ 1. Capital advance under Section 202 of the National Housing Act 14.157 $5,723,900 $5,723,900 2. Housing Assistance Payments Program under Section 8 14.195 240,507 210,033 TOTAL $5,964,407 $5,933,933 Note A – Basis of Presentation This accompanying schedule of Expenditures of Federal Awards includes the federal grant activity of Arirang Housing, Inc. 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). Because the Schedule presents only a selected portion of the operations of Arirang Housing, Inc., it is not intended to and does not present the financial position, changes in net assets, or cash flow of Arirang Housing, Inc. Note B – U.S. Department of Housing and Urban Development Loan Program Arirang Housing, Inc. has received a U.S. Department of Housing and Urban Development Capital Advance under Section 202 of the National Housing Act. The Capital Advance received as of June 30, 2016 and 2015 were included in Federal Expenditures presented in the schedule above. The Corporation received no additional Capital Advance during the years 2017 and 2016.

17



SCHEDULE 5 – Computation of Surplus Cash, Distributions and Residual Receipts Compute Surplus Cash 2017 2016__ Cash $ 28,967 $17,721 Tenant subsidy voucher due for period covered by financial statements - 38,786 Other __ ___- __ ____- Total Cash $ 28,967 $ 56,507 Accrued mortgage interest payable $ - $ - Delinquent mortgage principal payments - - Delinquent deposits to reserve for replacement - - Accounts payable (due within 30 days) 8,654 18,154 Loans and notes payable (due within 30 days) - - Deficient Tax Insurance or MIP Escrow deposits - - Accrued expenses (not escrowed) 5,025 7,972 Prepaid rents 133 - Tenant security deposits liability 16,672 16,340 Other – insurance contract payable (due within 30 days) 4,467 4,338 – Tenant subsidy vouchers due for period covered by Financial Statements (not received within 30 days) - 38,786 Less: total Current Obligations $-34,951 $-85,590 Surplus Cash (Deficiency) $ -5,984 $-29,083 Required deposit to residual receipts $ 0 $ 0

18

ROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATION CERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTS 6363 WILSHIRE BOULEVARD, SUITE 1256363 WILSHIRE BOULEVARD, SUITE 1256363 WILSHIRE BOULEVARD, SUITE 1256363 WILSHIRE BOULEVARD, SUITE 125 LOS ANGELES, LOS ANGELES, LOS ANGELES, LOS ANGELES, CALIFORNIA 90048CALIFORNIA 90048CALIFORNIA 90048CALIFORNIA 90048 TELEPHONE: (323) 951TELEPHONE: (323) 951TELEPHONE: (323) 951TELEPHONE: (323) 951----1300130013001300 FACSIMILE: (323) 951FACSIMILE: (323) 951FACSIMILE: (323) 951FACSIMILE: (323) 951----1303130313031303

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 Board of Directors of Arirang Housing, Inc. 3460 S. Broadway Los Angeles, CA 90007 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 Arirang Housing, Inc. (HUD Project No. 122-EE166-WAH-NP), which comprise the statement of financial position as of June 30, 2017 and 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 August 24, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we consider Arirang 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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Arirang Housing, Inc.’s internal control. Accordingly, we do not express an opinion on the effectiveness of Arirang 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Arirang Housing, Inc.’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 the 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.

19

Compliance and Other Matters As part of obtaining reasonable assurance about whether Arirang Housing, Inc.’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the determination of financial statements 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 Arirang Housing, Inc.’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Arirang Housing, Inc.’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Los Angeles, California August 24, 2017

20

ROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATIONROBERT M. NAMBA ACCOUNTANCY CORPORATION CERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTSCERTIFIED PUBLIC ACCOUNTANTS 6363 WILSHIRE BOULEVARD, SUITE 6363 WILSHIRE BOULEVARD, SUITE 6363 WILSHIRE BOULEVARD, SUITE 6363 WILSHIRE BOULEVARD, SUITE 125125125125 LOS ANGELES, CALIFORNIA 90048LOS ANGELES, CALIFORNIA 90048LOS ANGELES, CALIFORNIA 90048LOS ANGELES, CALIFORNIA 90048 TELEPHONE: (323) 951TELEPHONE: (323) 951TELEPHONE: (323) 951TELEPHONE: (323) 951----1300130013001300 FACSIMILE: (323) 951FACSIMILE: (323) 951FACSIMILE: (323) 951FACSIMILE: (323) 951----1303130313031303

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE

REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors of Arirang Housing, Inc. 3460 S. Broadway Los Angeles, CA 90007 Report on Compliance for Each Major Program We have audited Arirang Housing, Inc.'s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Arirang Housing, Inc.'s major federal programs for the year ended June 30, 2017 and 2016. Arirang Housing, Inc.'s major federal programs are identified in the summary of auditor’s result section of the accompanying schedule of findings and questioned costs. Management 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 Arirang 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 Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. 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 material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Arirang Housing, Inc.'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 Arirang Housing, Inc.'s compliance. Opinion on Each Major Federal Program In our opinion, Arirang 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 each of its major federal programs for the year ended JUNE 30, 2017 AND 2016.

21

Other matters The results of our auditing procedures did not disclose any instances of noncompliance which are required to be reported to management in accordance with The Uniform Guidance. Report on Internal Control over Compliance Management of Arirang 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 consider Arirang Housing, Inc.’s internal control over compliance with the types of requirements that could have a direct and material effect on each major program to determine the 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 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 Arirang 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 requirements 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 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 the 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, as defined above. 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 our testing based on the requirements of The Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Los Angeles, California August 24, 2017

22


SCHEDULE OF FINDINGS AND QUESTIONED COSTS AS OF JUNE 30, 2017 AND 2016

A. SUMMARY OF AUDIT RESULTS

1. The independent auditors’ report expresses an unmodified opinion on the financial statements of Arirang 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 Arirang Housing, Inc. were disclosed during the audit.

4. No material weakness was identified during the audit of the major

federal award program.

5. The auditors’ report on compliance for the major federal award programs for Arirang Housing, Inc. expresses an unmodified opinion.

6. Audit findings relative to the major federal award program for Arirang

Housing, Inc. were noted in Part C of this schedule.

7. The programs tested as a major program included: U.S. Department of Housing and Urban Development -

Section 202 Capital Advance, CFDA No. 14.157 Section 8 Housing Assistance Payments Program, CFDA No. 14.195 8. The threshold for distinguishing Types A and B programs was $750,000. 9. Arirang Housing, Inc. qualified as a low-risk auditee. B. FINDINGS – FINANCIAL STATEMENT AUDIT

None.

C. FINDINGS AND QUESTIONED COSTS – MAJOR FEDERAL AWARD PROGRAM AUDIT. None. D. PRIOR AUDIT FINDINGS E. STATUS

23

arirang housing, inc. fha project no.: 122 … arirang housing inc. 122-eh518... · opinion in our...

Documents