BONHAM RHF HOUSING, INC. (A TEXAS NOT-FOR-PROFIT CORPORATION) dba PECAN PLACE HUD PROJECT NUMBER 112-EH109

Transcription

1 (A TEXAS NOTFORPROFIT CORPORATION) dba PECAN PLACE HUD PROJECT NUMBER 112EH109 REPORT ON AUDIT OF FINANCIAL STATEMENTS AND ACCOMPANYING INFORMATION AND COMPLIANCE AND INTERNAL CONTROL YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 Program: Section 202 of the National Housing Act accompanied with a Section 8 Housing Assistance Payments Contract

2 (A TEXAS NOTFORPROFIT CORPORATION) TABLE OF CONTENTS Page Independent auditor s report 12 Financial statements Statements of financial position 34 Statements of profit and loss changes in net assets 56 Statements of changes in net assets 7 Statements of cash flows 89 Notes to financial statements 1017 Accompanying information for the year ended February 29, 2016 Accompanying information required by HUD 18 Schedule of changes in property and equipment 19 Computation of surplus cash, distributions and residual receipts 20 Supplemental information 2131 Schedule of expenditures of federal awards 32 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 3334 Independent auditor's report on compliance for each major program and on internal control over compliance required by the Uniform Guidance 3536 Summary of auditor s results 3738 Auditor s comments on audit resolution matters 39 Management company certification 40 Certification of officers 41

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors of Bonham RHF Housing, Inc. (A Texas NotForProfit Corporation) Report on the Financial Statements We have audited the accompanying financial statements of Bonham RHF Housing, Inc., which comprise the statements of financial position as of February 29, 2016 and February 28, 2015, and the related statements of profit and loss changes in net assets, 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 Bonham RHF 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 Bonham RHF 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 we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Bonham RHF Housing, Inc. Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bonham RHF Housing, Inc. as of February 29, 2016 and February 28, 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. Emphasis of Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that Bonham RHF Housing, Inc. will continue as a going concern. As discussed in Note 6 to the financial statements, Bonham RHF Housing, Inc. has been adversely affected by recurring losses from operations as a result of high vacancies due to structural issues at the Property. These conditions raise substantial doubt about its ability to continue as a going concern. Management s plans regarding those matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter. Other Matters 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 18 to 31 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 the 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 May 13, 2016, on our consideration of Bonham RHF Housing, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Bonham RHF Housing, Inc. s internal control over financial reporting and compliance. May 13, 2016 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 2

5 (A TEXAS NOTFORPROFIT CORPORATION) STATEMENTS OF FINANCIAL POSITION FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 ASSETS Current assets Cash and cash equivalents $ 4,655 $ 6,535 Accounts receivable residents 1, Accounts receivable HUD 118 Accounts and notes receivable operations 1,304 Total current assets 7,152 6,800 Deposits held in trustfunded Resident security deposits 6,607 8,077 Restricted deposits and funded reserves Reserve for replacements 257, ,616 Property and equipment Land and land improvements 80,760 80,760 Buildings and improvements 1,374,789 1,374,789 Building equipment (portable) 8,859 8,859 Office furniture and equipment 3,033 3,033 1,467,441 1,467,441 Less accumulated depreciation (791,326) (756,025) Total property and equipment 676, ,416 Other assets Miscellaneous other assets utility deposit Miscellaneous other assets donations (temporarily restricted) Total other assets $ 947,862 $ 934,209 See notes to financial statements 3

6 (A TEXAS NOTFORPROFIT CORPORATION) STATEMENTS OF FINANCIAL POSITION (CONTINUED) FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 LIABILITIES AND NET ASSETS Current liabilities Accounts payable operations $ 257,619 $ 203,952 Accounts payable HUD 559 Accrued wages payable 7,774 8,414 Accrued payroll taxes payable Accrued management fee payable 124, ,534 Accrued interest mortgage note payable 5,370 5,544 Current portion of mortgage note payable 27,086 24,917 Prepaid revenue Total current liabilities 422, ,244 Deposits liabilities Resident security deposits 6,607 8,077 Long term liabilities Mortgage note payable 769, ,389 Less current portion (27,086) (24,917) Note payable residual receipts 130, ,000 Accrued interest note payable residual receipts 66,137 58,987 Total long term liabilities 938, ,459 Total liabilities 1,367,866 1,314,780 Net assets Net assets unrestricted (420,006) (380,721) Net assets temporarily restricted Total net assets (420,004) (380,571) $ 947,862 $ 934,209 See notes to financial statements 4

7 (A TEXAS NOTFORPROFIT CORPORATION) Rental revenue Vacancies Financial revenue Other revenue Admin. expenses Utilities expenses STATEMENTS OF PROFIT AND LOSS CHANGES IN NET ASSETS YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, Rent revenue gross potential 5120 $ 196,922 $ 155,323 Resident assistance payments , ,810 Rent revenue stores and commercial 5140 Garage and parking spaces 5170 Flexible subsidy revenue 5180 Miscellaneous rent revenue 5190 Excess rent 5191 Rent revenue/insurance 5192 Special claims revenue ,997 Retained excess income 5194 Lease revenue (nursing home or section 232B&C or AL) 5195 Total rental revenue potential at 100% occupancy 5100T $ 404,568 $ 400,130 Apartments 5220 ( 130,768 ) ( 81,724 ) Stores and commercial 5240 ( ) ( ) Rental concessions 5250 ( ) ( ) Garage and parking spaces 5270 ( ) ( ) Miscellaneous 5290 ( ) ( ) Total vacancies 5200T ( 130,768 ) ( 81,724 ) Net rental revenue rent revenue less vacancies 5152N $ 273,800 $ 318,406 Nursing homes and other elderly care revenues 5300 $ $ Financial revenue property operations 5410 Revenue from investments residual receipts 5430 Revenue from investments reserve for replacements Revenue from investments miscellaneous 5490 Total financial revenue 5400T $ 348 $ 300 Laundry and vending Resident charges Interest reduction payments revenue 5945 Expiration of gift donor restrictions 5960 Gifts Miscellaneous revenue , Total other revenue 5900T $ 2,819 $ 1,532 Total revenue 5000T $ 276,967 $ 320,238 Conventions and meetings 6203 Management consultants 6204 Advertising and marketing Other renting expenses ,510 Office salaries ,423 1,382 Office expenses ,274 8,469 Office or model apartment rent 6312 Management fee ,102 23,597 Manager or superintendent salaries ,214 31,359 Administrative rent free unit 6331 Legal expenses (property) 6340 Audit expenses ,850 4,850 Bookkeeping fees/accounting services ,933 5,760 Bad debts Miscellaneous administrative expenses ,933 2,941 Total administrative expenses 6263T $ 81,137 $ 80,281 Fuel oil/coal 6420 Electricity ,944 13,784 Water ,065 5,247 Gas 6452 Sewer ,583 2,946 Total utilities expense 6400T $ 20,592 $ 21,977 See notes to financial statements 5

8 (A TEXAS NOTFORPROFIT CORPORATION) Operating and maint. expenses Taxes and insurance Financial expenses Entity income and expenses Change in net assets from STATEMENTS OF PROFIT AND LOSS CHANGES IN NET ASSETS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, Payroll ,149 26,363 Supplies ,374 15,371 Contracts ,078 30,002 Operating and maintenance rent free unit 6521 Garbage and trash removal ,206 2,261 Security payroll/contract ,224 3,951 Security rent free unit 6531 Heating/cooling repairs and maintenance ,676 16,371 Snow removal 6548 Vehicle and maint. equipment operation and repairs 6570 Lease expense 6580 Miscellaneous operating and maintenance expenses 6590 Total operating and maintenance expenses 6500T $ 36,707 $ 94,319 Real estate taxes 6710 Payroll taxes (property's share) ,607 4,621 Property and liability insurance (hazard) ,236 8,783 Fidelity bond insurance 6721 Workmen's compensation ,401 3,112 Health insurance and other employee benefits ,415 16,411 Miscellaneous taxes, licenses, permits and insurance Total taxes and insurance 6700T $ 30,604 $ 33,371 Interest on first mortgage (or bonds) payable ,414 67,423 Interest on other mortgages ,150 7,150 Interest on notes payable (longterm) 6830 Interest on notes payable (shortterm) 6840 Interest on capital recovery payment 6845 Mortgage insurance premium/service charge 6850 Miscellaneous financial expenses 6890 Total financial expenses 6800T $ 72,564 $ 74,573 Nursing homes and other elderly care expenses ,495 38,587 Total cost of operations before depreciation 6000T $ 281,099 $ 343,108 Profit (loss) before depreciation 5060T $ (4,132) $ (22,870) Depreciation expense ,301 35,354 Amortization expense 6610 Operating profit or (loss) 5060N $ (39,433) $ (58,224) Entity revenue 7105 Officer's salaries 7110 Incentive performance fee 7115 Legal expenses 7120 Federal, state, and other income taxes 7130 Interest on notes payable 7141 Interest on mortgage payable 7142 Other expenses 7190 Total entity net (income) expense 7100T $ $ Profit or loss (net income or loss) $ (39,433) $ (58,224) Change in unrestricted net assets from operations 3247 (39,285) (58,224) Change in temporarily restricted net assets from operations 3248 (148) Change in permanently restricted net assets from operations 3249 operations Change in total net assets from operations 3250 $ (39,433) $ (58,224) Part II 1. Total mortgage (or bond) principal payments required during the audit year [12 monthly payments]. This applies to all direct loans and HUDheld and fully insured mortgages. $ 24,916 $ 22, Total of 12 monthly deposits in the audit year into the Replacement Reserve account, as required by the Regulatory Agreement, even if payments may be temporarily suspended or reduced. $ 49,872 $ 49, Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss Statement. $ $ 28, Property Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ $ See notes to financial statements 6

9 (A TEXAS NOTFORPROFIT CORPORATION) STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 Temporarily Unrestricted Restricted Total Balance, March 1, 2014 $ (322,497) $ 150 $ (322,347) Change in net assets (58,224) (58,224) Balance, February 28, 2015 (380,721) 150 (380,571) Change in net assets (39,285) (148) (39,433) Balance, February 29, 2016 $ (420,006) $ 2 $ (420,004) See notes to financial statements 7

10 (A TEXAS NOTFORPROFIT CORPORATION) STATEMENTS OF CASH FLOWS YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, Cash flow from operating activities Revenue: Rental income $ 272,243 $ 321,702 Financial Gifts Other income 2,669 1, , ,534 Expenditures: Administrative (4,850) (11,395) Utilities and deposits (20,108) (24,464) Salaries and wages (31,497) (36,448) Operating and maintenance (24,929) (79,338) Property insurance (9,236) (8,783) Miscellaneous taxes and insurance (6,599) (14,810) Other operating expenses (39,495) (39,606) Interest on mortgage note payable (65,588) (67,583) (202,302) (282,427) Net cash provided by (used in) operating activities 73,108 41,107 Cash flow from investing activities Purchase of property and equipment (6,437) Net change in reserve for replacements (50,220) (15,475) Change in miscellaneous other assets donations (temporarily restricted) 148 Net cash provided by (used in) investing activities (50,072) (21,912) Cash flow from financing activities Principal payments on mortgage note payable (24,916) (22,922) Net change in cash and cash equivalents (1,880) (3,727) Cash and cash equivalents at beginning of year 6,535 10,262 Cash and cash equivalents at end of year $ 4,655 $ 6,535 See notes to financial statements 8

11 (A TEXAS NOTFORPROFIT CORPORATION) Reconciliation of change in net assets to net cash provided by (used in) operating activities Change in net assets $ (39,433) $ (58,224) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 Depreciation 35,301 35,354 Changes in: Accounts receivable residents (810) 877 Accounts receivable HUD (118) 2,430 Accounts and notes receivable operations (1,304) Resident security deposits 1, Accounts payable operations 53,667 29,239 Accounts payable HUD (559) 559 Accrued liabilities 19,410 24,452 Accrued interest mortgage note payable (174) (160) Accrued interest note payable residual receipts 7,150 7,150 Resident security deposits payable (1,470) (568) Prepaid revenue (22) (570) Total adjustments 112,541 99,331 Net cash provided by (used in) operating activities $ 73,108 $ 41,107 See notes to financial statements 9

12 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Bonham RHF Housing, Inc. (the Corporation ) is a NotForProfit Corporation formed in accordance with the notforprofit statutes of the state of Texas. The Corporation was formed for the purpose of operating a 40 unit community known as Pecan Place (the Property ) located in Bonham, Texas, which provides housing for low income elderly persons pursuant to Section 202 of the National Housing Act, as amended. The Corporation entered into a Regulatory Agreement with the U.S. Department of Housing and Urban Development ( HUD ) which contains, among other things, restrictions on transferring any of the Corporation s property, assigning the rights to manage or receive the rents and profits of the property or assuming additional indebtedness. Pursuant to the Regulatory Agreement, the Property must maintain all units as affordable to low income elderly persons. The Property is obligated to recertify resident eligibility on an annual basis. The Property receives rent subsidies through a Housing Assistance Payments ("HAP") contract with HUD. The contract is for a period of 5 years expiring November 30, 2020, and provides subsidies to eligible residents to enable such residents to live in safe, adequate housing facilities they could not otherwise afford. Provisions of the contract establish maximum annual assistance payments by HUD to the Property. The Corporation can request from HUD an amount equal to 80% of contract rent during periods that the unit is vacant if certain conditions are met, but not to exceed 60 days. Claims must be submitted within 180 days of the date the unit was available for occupancy and should be submitted only after the claim period has ended. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation of the financial statements The primary intent of the financial statements is for the U.S. Office of Management and Budget. The financial statements will also be used by HUD; therefore, the presentation and account descriptions have been established to conform to their reporting guidelines. In addition, the financial statements are in conformity with the provisions required by the NotforProfit Entities Presentation of Financial Statements topic of the FASB Accounting Standards Codification ("ASC") This statement established standards for external financial reporting for NotforProfit Organizations. The NotforProfit Entities Presentation of Financial Statements topic of the FASB ASC primarily affects the display of the financial statements and requires that the amounts for each of three classes of net assets unrestricted, temporarily restricted and permanently restricted be displayed in an aggregate statement of financial position and the amounts of change in each of those classes of net assets be displayed in a statement of changes in net assets. 10

13 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of preparation of the financial statements (continued) The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Assets and liabilities and revenues, expenses, gains and losses are classified based on the existence or absence of donorimposed restrictions. Accordingly, assets of the Corporation and changes therein are classified and reported as follows: Unrestricted assets Assets that are not subject to donorimposed stipulations. These are available to support the Corporation s activities and operations at the discretion of the Board of Directors. Temporarily restricted assets Assets subject to donorimposed stipulations that will be met either by actions of the donor, the Corporation and/or the passage of time. Permanently restricted assets Assets subject to donorimposed stipulations that the corpus must be maintained permanently by the Corporation. The donors of these assets permit the Corporation to use all or part of the income or gains earned on related investments for general (unrestricted) or specific purposes (temporarily restricted). At February 29, 2016 and February 28, 2015, temporarily restricted net assets total $2 and $150, respectively. All other net assets held by the Corporation are classified as unrestricted. Cash and cash equivalents For the statements of cash flows, all unrestricted investments with original maturities of three months or less are cash equivalents. At February 29, 2016 and February 28, 2015, cash and cash equivalents consist of an unrestricted checking account and a petty cash fund. Resident receivable and bad debt policy Resident rent charges for the current month are due on the first of the month. Residents who are evicted or moveout are charged for damages, if applicable. Resident receivables consist of amounts due for rental income or the charges for damages. The Corporation does not accrue interest on the resident receivable balances. Resident receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct writeoff method is not material to the financial statements for the years ended February 29, 2016 and February 28, Bad debts expensed for the years ended February 29, 2016 and February 28, 2015 totaled $48 and $0, respectively. 11

14 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and equipment Property and equipment are recorded at cost and are depreciated using the straightline method over the estimated useful life, which ranges from 5 40 years. Deductions are made for retirements resulting from renewals or betterments. The Corporation is subject to the provisions of the Impairment or Disposal of LongLived Assets topic of the FASB ASC Impairment or Disposal of LongLived Assets has no retroactive impact on the Corporation's financial statements. The standard requires impairment losses to be recorded on longlived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets (excluding interest) are less than the carrying amount of the assets. In such cases, the carrying value of assets to be held and used are adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair value less selling expenses. No impairment losses were recognized during the years ended February 29, 2016 and February 28, Donated assets Donations of property and equipment and other assets are recorded as revenue at their estimated fair value at the date of donation. Such donations are reported as unrestricted revenue unless the donor has restricted the donated asset to a specific purpose. Assets with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment and other assets are reported as restricted revenue. Absent donor stipulations regarding how long these donated assets must be maintained, the Corporation reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Corporation reclassifies temporarily restricted net assets to unrestricted net assets at that time. During each of the years ended February 29, 2016 and February 28, 2015, $150 of funds were donated to the Corporation to be used for specific purposes. The funds are classified as temporarily restricted net assets until they are used in accordance with the donor's instructions. At February 29, 2016 and February 28, 2015, temporarily restricted net assets totaled $2 and $150, respectively. All other net assets held by the Corporation are classified as unrestricted. Revenue recognition The Corporation rents apartment units on a month to month basis and recognizes revenues when earned. Under the Regulatory Agreement, the Corporation may not increase rents charged to residents without prior HUD approval. Advertising costs Advertising costs are expensed as incurred and are included in advertising and marketing in the statements of profit and loss changes in net assets. 12

15 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property taxes The Corporation has received tax exemption relating to property taxes. Concentration of credit risk The Corporation maintains several cash accounts at various financial institutions which are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. If the financial institution failed, the Corporation could be at risk for the portion of the accounts which exceed the insured limit. Management regularly monitors the financial condition of the banking institutions, along with their balances in cash and assets whose use is limited, and tries to keep this potential risk to a minimum. The Property received approximately 76% of net rental revenue from HAP for the year ended February 29, The Corporation s operations are concentrated in the multifamily real estate market. In addition, the Corporation operates in a heavily regulated environment. The operations of the Corporation are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, if any, to comply with a change. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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 reporting period. Actual results could differ from those estimates. Fair value The Corporation is subject to the provisions of the Fair Value Measurement topic of the FASB ASC which provides guidance for assets and liabilities which are required to be measured at fair value and requires expanded disclosure for fair value measurement. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value and does not require any new fair value measurements. The Fair Value Measurement did not have a material impact on the Corporation s financial statements for the years ended February 29, 2016 and February 28,

16 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting for uncertainty in income taxes The Corporation is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and state income tax and has been classified as an other than private foundation. Accordingly, no provision for federal and state taxes on revenue and income has been recognized in the accompanying financial statements. Generally, the federal and state tax returns were subject to examinations from the three years after the later of the original or extended due date or the date filed with the applicable tax authority. Subsequent events Management performed an evaluation of the Corporation s activity through May 13, 2016, the audit report date, and has concluded that there are no significant subsequent events requiring disclosure through the date these financial statements were available to be issued. NOTE 2FINANCING The Corporation has entered into a mortgage loan agreement provided by the Federal Housing Administration ( FHA ) under Section 202 of the National Housing Act, as amended. The original amount of the mortgage is $1,042,300. The loan agreement provides, among other items, for the following: a. A term of 40 years maturing in January 2031; b. An interest rate of 8.375% per annum; c. Monthly principal and interest payments of $7,542; and d. Monthly deposits to a reserve fund for replacing assets of the Property. For the years ended February 29, 2016 and February 28, 2015, interest expense was $65,414 and $67,423, and interest paid totaled $65,588 and $67,583, all respectively. At February 29, 2016 and February 28, 2015, accrued interest was $5,370 and $5,544, respectively. The liability of the Corporation under the mortgage loan is limited to the underlying value of the property and equipment collateral in addition to other amounts on deposit. Annual principal payments for each of the next five years and thereafter are as follows: 2017 $ 27, , , , ,820 Thereafter 608,326 $ 769,473 14

17 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 3RESERVE FOR REPLACEMENTS, RESIDUAL RECEIPTS RESERVE, AND DISTRIBUTIONS Pursuant to the terms of the Regulatory Agreement, no cash distributions may be made to nonprofit owners, nor can they incur obligations on behalf of the Corporation, to themselves or any officers, directors, stockholders, trustees, partners, beneficiaries under a trust, or any of their nominees without prior written approval of HUD. Surplus Cash as defined by HUD, existing at the end of the fiscal year must be deposited in a residual receipts fund in the name of the Corporation. Withdrawals from the residual receipts fund may only be made with the approval of HUD. At February 29, 2016 and February 28, 2015, these funds amounted to $0. In accordance with the HAP contract, if HUD determines at any time that Property funds are more than the amount needed for Property operations, reserve requirements and permitted distributions, HUD may require excess to be placed in an account to be used to reduce HUD payments or for other Property purposes. Upon termination of the HAP contract, any excess funds must be remitted to HUD. Pursuant to the terms of the Regulatory Agreement, the Corporation is required to make monthly deposits to the reserve for replacements fund. This fund is under the control of HUD. Disbursements from such fund may only be made after receiving the written consent of the Secretary of HUD. At February 29, 2016 and February 28, 2015, these funds amounted to $257,836 and $207,616, respectively. NOTE 4RELATED PARTIES AND MANAGEMENT AGREEMENT The Corporation is managed by Foundation Property Management, Inc. (the Agent ), an affiliate to the Sponsor (Retirement Housing Foundation), for a fee based on an established rate of 7.60% of income collected as stated in the management agent's certification. Property management fees totaled $20,102 and $23,597 for the years ended February 29, 2016 and February 28, 2015, respectively. As of February 29, 2016 and February 28, 2015, accrued management fees totaled $124,636 and $104,534, respectively. In accordance with HUD regulations, the Agent is also entitled to be reimbursed for the actual costs incurred for frontline management activities performed at the central office (as these activities are defined by HUD). During the years ended February 29, 2016 and February 28, 2015, the Agent was reimbursed $7,356 and $7,142, respectively, for frontline management functions performed at the central office. These reimbursements are included in the following accounts on the statements of profit and loss changes in net assets: Office salaries Bookkeeping fees/accounting services 15

18 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 4RELATED PARTIES AND MANAGEMENT AGREEMENT (CONTINUED) Retirement Housing Foundation (RHF) is one of the members/owners of Caring Communities, a Reciprocal Risk Retention Group ( Caring Communities ), an insurance company based in the District of Columbia. Caring Communities, an A.M. Best A rated company, is a reciprocal interinsurance exchange existing as an association captive under the laws of the District of Columbia. Caring Communities is a reciprocal insurer owned by its member insureds and reinsureds. The members control all the voting interests of Caring Communities. Caring Communities provides professional, general liability, excess automobile and excess employers liability insurance for individual policies to each member. Caring Communities utilizes reinsurance to spread the risk of loss to reinsurers. The Corporation purchases its professional liability insurance through this affiliate and the premiums are supported by competitive bids. HUD has determined that the use of a Risk Retention Group is permissible under their program requirements. Liability insurance expense is included in property and liability insurance on the statements of profit and loss changes in net assets. Note payable residual receipts During the year ended February 28, 2007, the Sponsor advanced the Company $130,000 in the form of a residual receipt note payable with interest at 5.5% per annum which is due November 30, This advance was approved by HUD, and payment on this note requires the approval of HUD and can only occur if there are residual receipts, as defined. Principal and interest owed as of February 29, 2016 and February 28, 2015 are as follows: Notes payable residual receipts $ 130,000 $ 130,000 Interest prior years 58,987 51,837 Interest current year 7,150 7,150 Total accrued interest 66,137 58,987 Total accrued interest and principal balance $ 196,137 $ 188,987 Due from related party The Corporation pays expenses related to benefits for employees who split time between the Property and a related entity's property. At February 29, 2016 and February 28, 2015, $1,304 and $0 remained receivable, respectively, due to timing of expenses and reimbursements, and is included in accounts and notes receivable operations on the accompanying statements of financial position. NOTE 5MULTIFAMILY HOUSING SERVICE COORDINATOR The Corporation utilizes a multifamily housing service coordinator to provide assistance to residents. The social services coordinator was funded through the Corporation's operating budget. During the years ended February 29, 2016 and February 28, 2015, service coordinator expenses totaled $39,495 and $38,587, respectively. 16

19 (A TEXAS NOTFORPROFIT CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 NOTE 6GOING CONCERN The liquidity of the Corporation has been adversely affected by recurring losses from operations as a result of high vacancies due to offline units resulting from structural issues. At February 29, 2016 and February 28, 2015, 15 and 12 units were offline, respectively. The operating deficits have prevented the Corporation from meeting its current obligations as they become due. Further, the Corporation does not have the funding and may not be able to identify sources of funding to make the needed structural repairs so that all units are revenue generating. The Corporation s ability to continue its operations is dependent upon the Corporation being able to repair and place in service the offline units. The Sponsor intends to continue deferring collection of related party payables as necessary, and is working on a plan to repair the structural issues. The Sponsor has been in contact with HUD regarding the structural issues, and both parties are currently working together to determine the most viable resolution. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 17

20 (A TEXAS NOTFORPROFIT CORPORATION) Reserve for replacements ACCOMPANYING INFORMATION REQUIRED BY HUD YEAR ENDED FEBRUARY 29, 2016 In accordance with the provisions of the Regulatory Agreement, cash is held to be used with the approval of HUD for replacing assets of the Corporation. Balance, March 1, 2015 $ 207,616 Monthly deposits ($4,156 x 12) 49,872 Interest 348 Withdrawals Balance, February 29, 2016 $ 257,836 18

21 (A TEXAS NOTFORPROFIT CORPORATION) SCHEDULE OF CHANGES IN PROPERTY AND EQUIPMENT YEAR ENDED FEBRUARY 29, 2016 ASSETS Balance Balance 3/1/2015 Additions Deletions 2/29/2016 Land and land improvements $ 80,760 $ $ $ 80,760 Buildings and improvements 1,374,789 1,374,789 Building equipment (portable) 8,859 8,859 Office furniture and equipment 3,033 3,033 $ 1,467,441 $ $ $ 1,467,441 Accumulated depreciation $ 756,025 $ 35,301 $ $ 791,326 Net book value $ 676,115 19

22 (A TEXAS NOTFORPROFIT CORPORATION) COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS YEAR ENDED FEBRUARY 29, 2016 Part A Compute Surplus Cash 1. Cash $ 4, Cash Short Term Investments $ 1. Cash Resident Security Deposits $ 6, Cash Total $ 11, Accounts receivable HUD $ Other Receivable from other property $ 1,304 (a) Total Cash (Add Lines 1, 2, and 3) $ 12,684 Current Obligations 4. Accrued Mortgage (or Bond) Interest Payable $ 5, Delinquent Mortgage (or Bond) Principal Payments $ 6. Delinquent Deposits to Reserve for Replacements $ 7. Accounts Payable (due Within 30 days) $ 257, Loans and Notes Payable (due Within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 10. Accrued Expenses (not Escrowed) $ 132, Prepaid Revenue $ Resident/Patient Deposits Held in Trust $ 6, Other Current Obligations $ (b) Less Total Current Obligations (Add Lines 4 Through 13) $ 402,256 (c) Surplus Cash (Deficiency) (Line (a) Minus Line (b)) $ (389,572) PART B Compute Distributions to Owners and Required Deposit to Residual Receipts 1. Surplus Cash Deposit Due Residual Receipts $ 0 20

23 BALANCE SHEET DATA SUPPLEMENTAL INFORMATION Organization Name BONHAM RHF HOUSING, INC. For Year Ending February 29, 2016 ASSETS FHA/Contract Number See cover page Acct No. Description of Account 1120 Cash Operations 4, Construction Cash Account 1125 Cash Entity 1130 Tenant/Member Accounts Receivable (Coops) 1, Allowance for Doubtful Accounts 1130N Net Tenant Accounts Receivable 1, Accounts Receivable HUD Medicare/Medicaid/Other Insurance Receivable 1138 Allowance for Doubtful Accounts (Medicare/Medicaid/Other Insurance Receivable) 1137N Net Medicare/Medicaid/Other Insurance Receivable 1140 Accounts and Notes Receivable Operations 1, Accounts and Notes Receivable Entity 1160 Accounts Receivable Interest 1165 Interest Reduction Payment Receivable 1170 Short Term Investments Operations 1175 Short Term Investments Entity 1180 Inventory 1190 Miscellaneous Current Assets 1200 Prepaid Expenses 1100T Total Current Assets 7, Tenant/Patient Deposits Held in Trust 6, Escrow Deposits 1320 Replacement Reserve 257, Other Reserves 1340 Residual Receipts Reserve 1355 Bond Reserves 1367 Sinking Fund 1381 Management Improvement and Operating Plan 1300T Total Deposits 257, Land 80, Buildings 1,374, Building Equipment (Portable) 8, Furniture for Project/Tenant Use 1460 Furnishings 1465 Office Furniture and Equipment 3, Maintenance Equipment 1480 Motor Vehicles 1490 Miscellaneous Fixed Assets 1400T Total Fixed Assets 1,467, Accumulated Depreciation 791, N Net Fixed Assets 676, Investments Operations 1515 Investments Entity 1520 Deferred Financing Costs 1525 Cash Restricted for Longterm Investment 1590 Miscellaneous Other Assets T Total Other Assets T Total Assets $ 947,862 21

24 LIABILITIES 2105 Bank Overdraft Operations 2110 Accounts Payable Operations 257, Accounts Payable Construction/Development 2112 Accounts Payable Project Improvement Items 2113 Accounts Payable Entity 2114 Incentive Performance Fee Payable 2115 Accounts Payable 236 Excess Income due HUD 2116 Accounts Payable Section 8 & Other 2120 Accrued Wages Payable 7, Accrued Payroll Taxes Payable Accrued Management Fee Payable 124, Accrued Lease Payments Payable 2130 Accrued Interest Payable Section Accrued Interest Payable First Mortgage (or Bonds) 5, Accrued Interest Payable Other Mortgages 2133 Accrued Interest Payable Other Loans and Notes (Surplus Cash) 2134 Accrued Interest Payable Other Loans and Notes 2135 Accrued Interest Payable Flexible Subsidy Loan 2136 Accrued Interest Payable Capital Improvements Loan 2137 Accrued Interest Payable Operating Loss Loan 2139 Accrued Interest Payable Capital Recovery Payment (M2M) 2150 Accrued Property Taxes 2160 Notes Payable (Shortterm) 2170 Mortgage (or Bonds) Payable First Mortgage (Bonds) (Short Term) 27, Other Mortgages Payable (Short Term) 2173 Other Loans and Notes Payable Surplus Cash (Short Term) 2174 Other Loans and Notes (Short Term) 2175 Flexible Subsidy Loan Payable (Short Term) 2176 Capital Improvement Loan Payable (Short Term) 2177 Operating Loss Loan Payable (Short Term) 2179 Capital Recovery Payment Payable (Short Term M2M) 2180 Utility Allowances 2190 Miscellaneous Current Liabilities 2210 Prepaid Revenue T Total Current Liabilities 422, Tenant/Patient Deposits Held In Trust (Contra) 6, Accounts Payable Entity (Long Term) 2306 Accrued Lease Payments Payable Long Term 2310 Notes Payable (LongTerm) 2311 Notes Payable Surplus Cash 130, Mortgage (or Bonds) Payable First Mortgage (or Bonds) 742, Other Mortgages Payable (Long Term) 2323 Other Loans and Notes Payable Surplus Cash 2324 Other Loans and Notes Payable 2325 Flexible Subsidy Loan Payable 2326 Capital Improvement Loan Payable 2327 Operating Loss Loan Payable 2329 Capital Recovery Payment (M2M) 2330 Interest on Loans or Notes Payable (Long Term) 2331 Accrued Interest Other Mortgages Payable (Long Term) 2332 Accrued Interest Notes Payable (Surplus Cash) (Long Term) 66, Miscellaneous Long Term Liabilities 2300T Total Long Term Liabilities 938, T Total Liabilities $ 1,367,866 NET ASSETS 3131 Unrestricted Net Assets (420,006) 3132 Temporarily Restricted Net Assets Permanently Restricted Net Assets 3130 Total Net Assets (420,004) 2033T Total Liabilities and Equity/Net Assets $ 947,862 22

25 PROFIT AND LOSS DATA SUPPLEMENTAL INFORMATION Organization Name BONHAM RHF HOUSING, INC. For Year Ending February 29, 2016 FHA/Contract Number See cover page Acct No. Description of Account Rent Revenue 5120 Rent Revenue Gross Potential 196, Tenant Assistance Payments 207, Rent Revenue Stores and Commercial 5170 Garage and Parking Spaces 5180 Flexible Subsidy Revenue 5190 Miscellaneous Rent Revenue 5191 Excess Rent 5192 Rent Revenue/Insurance 5193 Special Claims Revenue 5194 Retained Excess Income 5195 Lease Revenue (Nursing Home or Section 232 B&C or AL) 5100T Total Rent Revenue 404,568 Vacancies 5220 Apartments 130, Stores and Commercial 5250 Rental Concessions 5270 Garage and Parking Space 5290 Miscellaneous 5200T Total Vacancies 130, N Net Rental Revenue (Rent Revenue Less Vacancies) 273, Revenue 5300 Nursing Homes/ Assisted Living/Board & Care/Other Elderly Care/Coop/ and Other Revenues Financial Revenue 5410 Financial Revenue Project Operation 5430 Revenue from Investments Residual Receipts 5440 Revenue from Investments Replacement Reserve Revenue from Investments Miscellaneous 5400T Total Financial Revenue 348 Other Revenue 5910 Laundry and Vending Revenue Tenant Charges Interest Reduction Payments Revenue 5560 Expiration of Gift Donor Restrictions 5970 Gifts Miscellaneous Revenue 1, T Total Other Revenue 2, T Total Revenue 276,967 Administrative Expenses 6203 Conventions and Meetings 6204 Management Consultants 6210 Advertising and Marketing Other Renting Expenses Office Salaries 1, Office Expenses 8, Office or Model Apartment Rent 6320 Management Fee 20, Manager or Superintendent Salaries 35, Administrative Rent Free Unit 6340 Legal Expense Project 6350 Audit Expense 4, Bookkeeping Fees/Accounting Services 5, Bad Debts Miscellaneous Administrative Expenses 4, T Total Administrative Expenses 81,137 Utilities Expenses 6420 Fuel Oil/Coal 6450 Electricity 12, Water 5, Gas 6453 Sewer 2, T Total Utilities Expense 20,592 23

26 Operating & Maintenance Expenses 6510 Payroll 11, Supplies 4, Contracts 11, Operating and Maintenance Rent Free Unit 6525 Garbage and Trash Removal 2, Security Payroll/Contract 4, Security Rent Free Unit 6546 Heating/Cooling Repairs and Maintenance 3, Snow Removal 6570 Vehicle and Maintenance Equipment Operation and Repairs 6580 Lease Expense 6590 Miscellaneous Operating and Maintenance Expenses 6500T Total Operating and Maintenance Expense 36,707 Taxes & Insurance 6710 Real Estate Taxes 6711 Payroll Taxes (Project's Share) 3, Property & Liability Insurance (Hazard) 9, Fidelity Bond Insurance 6722 Workmen's Compensation 3, Health Insurance and Other Employee Benefits 13, Miscellaneous Taxes, Licenses, Permits and Insurance T Total Taxes and Insurance 30,604 Financial Expenses 6820 Interest on First Mortgage (or Bonds) Payable 65, Interest on Other Mortgages 7, Interest on Notes Payable (Long Term) 6840 Interest on Notes Payable (Short Term) 6845 Interest on Capital Recovery Payment (M2M) 6850 Mortgage Insurance Premium/ Service Charge 6890 Miscellaneous Financial Expenses 6800T Total Financial Expenses 72, Expenses 6900 Nursing Homes/Assisted Living/ Board & Care/Other Elderly Care Expenses 39,495 Operating Results 6000T Total Cost of Operations before Depreciation 281, T Profit (Loss) before Depreciation (4,132) 6600 Depreciation Expenses 35, Amortization Expense 5060N Operating Profit or (Loss) (39,433) Corporate or Mortgagor Revenue/Expenses 7105 Entity Revenue 7110 Officer's Salaries 7115 Incentive Performance Fee 7120 Legal Expenses 7130 Federal, State, and Other Income Taxes 7141 Interest on Notes Payable 7142 Interest on Mortgage Payable 7190 Other Expenses 7100T Net Entity Expenses Change in Net Assets from Operations 3247 Change in Unrestricted Net Assets from Operations (39,285) 3248 Change in Temporarily Restricted Net Assets from Operations (148) 3249 Change in Permanently Restricted Net Assets from Operations 3250 Profit or Loss (Net Income or Loss) $ (39,433) Part II Total first mortgage (or bond) principal payments required during the audit period (usually 12 months). This applies to all S direct loans, HUDheld and HUDinsured first mortgages. $ 24,916 The total of all monthly reserve for replacement deposits (usually 12 months) required during the audit period even if S deposits have been temporarily waived or suspended. $ 49,872 Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss S statement. $ Project Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on this S Profit and Loss statement. $ 24

27 EQUITY DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number BONHAM RHF HOUSING, INC. See cover page For Year Ending February 29, 2016 Acct No. Description of Account S Previous Year Unrestricted Net Assets (380,721) 3247 Change in Unrestricted Net Assets from Operations (39,285) S Other Changes in Unrestricted Net Assets 3131 Unrestricted Net Assets (420,006) S Previous Year Temporarily Restricted Net Assets Change in Temporarily Restricted Net Assets from Operations (148) S Other Changes in Temporarily Restricted Net Assets 3132 Temporarily Restricted Net Assets 2 S Previous Year Permanently Restricted Net Assets 3249 Change in Permanently Restricted Net Assets from Operations S Other Changes in Permanently Restricted Net Assets 3133 Permanently Restricted Net Assets S Previous Year Total Net Assets (380,571) 3250 Change in Total Net Assets from Operations (39,433) S Other Changes in Total Net Assets 3130 Total Net Assets $ (420,004) 25

28 CASH FLOW DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number BONHAM RHF HOUSING, INC. See cover page For Year Ending February 29, 2016 Acct No. Description of Account Cash Flow from Operating Activities S Rental Receipts 272,243 S Interest Receipts 348 S Gifts 150 S Other Operating Receipts 2,669 S Entity/Construction Receipts S Total Receipts 275,410 S Administrative (4,850) S Management Fee S Utilities (20,108) S Salaries and Wages (31,497) S Operating and Maintenance (24,929) S Lease Payments S Real Estate Taxes S Property Insurance (9,236) S Miscellaneous Taxes and Insurance (6,599) S Tenant Security Deposits S Other Operating Expenses (39,495) S Interest on Mortgages (65,588) S Interest Payments Second Mortgage S Interest Payments Third Mortgage S Interest on Notes Payable S Interest on Capital Recovery Payment S Mortgage Insurance Premium (MIP) S Miscellaneous Financial S Entity Incentive Performance Fee S Entity/Construction Disbursements S Total Disbursements (202,302) S Net Cash provided by (used in) Operating Activities 73,108 Cash Flow from Investing Activities S Net Deposits to the Mortgage Escrow account S Net Deposits to the Reserve for Replacement account (50,220) S Net Deposits to Other Reserves S Net Deposits to the Residual Receipts account S Net Deposits to the Management Improvement and Operating Plan account S Net Deposits to the Long Term Investment account S Net Purchase of Fixed Assets S Other Investing Activities 148 S Entity/Construction Investing Activities S Net Cash provided by (used in) Investing Activities (50,072) 26

29 Cash Flow from Financing Activities S Principal Payments First Mortgage (or Bonds) (24,916) S Principal Payments Second Mortgage S Principal Payments Third Mortgage S Proceeds from Mortgages, Loans or Notes Payable S Principal Payments on Loans or Notes Payable S Proceeds from Flexible Subsidy Loans S Flexible Subsidy Loan principal payments S Proceeds from Capital Improvement Loans S Principal payments on Capital Improvement Loan Payable S Proceeds from Operating Loss Loans S Principal payments on Operating Loss Loan Payable S Proceeds from Capital Recovery Payment S Principal Payments on Capital Recovery Payment S Distributions S Contributions S Other Financing Activities S Entity/Construction Financing Activities S Net Cash provided by (used in) Financing Activities (24,916) S Net increase (decrease) in Cash and Cash Equivalents (1,880) Cash and Cash Equivalents S Beginning of Period Cash 6,535 S Gifts of Investment S Endowment Gifts Received S1200T End of Period Cash $ 4,655 Reconciliation of Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 3250 Change in Total Net Assets from Operations (39,433) Adjustments to Reconcile Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 6600 Depreciation Expenses 35, Amortization Expense S Decrease (increase) in Tenant/Member Accounts Receivable (810) S Decrease (increase) in Accounts Receivable Other (1,422) S Increase in Gifts Receivable S Decrease (increase) in Accrued Receivable S Decrease (increase) in Prepaid Expenses S Decrease (increase) in Cash Restricted for Tenant Security Deposits 1,470 S Decrease (increase) in Entity/Construction Asset Accounts S Increase (decrease) in Accounts Payable 53,108 S Increase (decrease) in Accounts Payable HUD Excess Rents S Increase (decrease) in Accrued Liabilities 19,410 S Increase (decrease) in Accrued Interest Payable 6,976 S Increase (decrease) in Tenant Security Deposits held in trust (1,470) S Increase (decrease) in Prepaid Revenue (22) S Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Increase (decrease) in Entity/Construction Liability accounts Net Cash provided by (used in) Operating Activities S Net Cash provided by (used in) Operating Activities $ 73,108 S Comments 27

30 DETAIL OF ACCOUNTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number BONHAM RHF HOUSING, INC. See cover page For Year Ending February 29, 2016 Acct No. Detail Description Balance Sheet Data 1140 Accounts and Notes Receivable Operations Capital advance receivable Commercial rents receivable Grant receivable Insurance refund Insurance settlement Intercompany receivable Laundry revenue receivable Leasee receivable Management fee overpayment receivable Mortgage insurance premium refund Mortgage proceeds receivable Other tenant receivables Overpaid/prepaid distributions Partner/officer/sponsor receivable Property tax refund Receivable from other project or business 1,304 Related party receivable Sales tax refund Reserve withdrawals receivable Service coordinator receivable Syndication proceeds receivable Vendor rebate Vendor refund Other (must detail) 1140 Total Accounts and Notes Receivable Operations 1, Accounts and Notes Receivable Entity Asset management fee receivable Capital contributions receivable Income taxes receivable Entity interest receivable Leasee receivable Partner/officer/sponsor receivable Related party receivable Syndication proceeds receivable Other (must detail) 1145 Total Accounts and Notes Receivable Entity 1190 Miscellaneous Current Assets Payroll deposits Utility deposits Other (must detail) 1190 Total Miscellaneous Current Assets 28

31 1590 Miscellaneous Other Assets Construction in progress Notes receivable related parties Offering costs Utility deposits 150 Donations (temporarily restricted) Total Miscellaneous Other Assets Accrued Interest Payable Other Mortgages Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2132 Total Accrued Interest Payable Other Mortgages 2172 Other Mortgages Payable (Short Term) Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2172 Total Other Mortgages Payable (Short Term) 2190 Miscellaneous Current Liabilities 2190 Total Miscellaneous Current Liabilities 2322 Other Mortgages Payable (Long Term) Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2322 Total Other Mortgages Payable (Long Term) 2331 Accrued interest Other Mortgages Payable (Long Term) First Mortgage Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2331 Total Accrued interest Other Mortgages Payable (Long Term) 2390 Miscellaneous Longterm Liabilities 2390 Total Miscellaneous Longterm Liabilities Profit and Loss Data 5190 Miscellaneous Rent Revenue 5190 Total Miscellaneous Rent Revenue 5290 Miscellaneous 5290 Total Miscellaneous 29

32 5490 Revenue from Investments Miscellaneous 5490 Total Revenue from Investments Miscellaneous 5990 Miscellaneous Revenue Sales tax refund 1, Total Miscellaneous Revenue 1, Miscellaneous Administrative Expenses Dues and subscriptions 2,648 Transportation expense 675 Bank charges 562 Accommodation expense 539 Recreation and rehabilitation 298 Meals expense 120 Auto expense Total Miscellaneous Administrative Expenses 4, Miscellaneous Operating and Maintenance Expenses 6590 Total Miscellaneous Operating and Maintenance Expenses 6790 Miscellaneous Taxes, Licenses, Permits and Insurance 6790 Total Miscellaneous Taxes, Licenses, Permits and Insurance 6890 Miscellaneous Financial Expenses 6890 Total Miscellaneous Financial Expenses 7190 Other Expenses 7190 Total Other Expenses Equity Data S Other Changes in Total Net Assets S Total Other Changes in Total Net Assets Cash Flow Data S Entity/Construction Receipts S Total Entity/Construction Receipts 30

33 S Entity/Construction Disbursements S Total Entity/Construction Disbursements S Other Investing Activities Net change in miscellaneous other assets donations (temporarily restricted) 148 S Total Other Investing Activities 148 S Entity/Construction Investing Activities S Total Entity/Construction Investing Activities S Other Financing Activities S Total Other Financing Activities S Entity/Construction Financing Activities S Total Entity/Construction Financing Activities S Decrease (increase) in Entity/ Construction Asset accounts S Total Decrease (increase) in Entity/ Construction Asset accounts S Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Total Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Increase (decrease) in Entity/Construction Liability accounts S Total Increase (decrease) in Entity/Construction Liability accounts 31

34 (A TEXAS NOTFORPROFIT CORPORATION) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED FEBRUARY 29, 2016 U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (CFDA No ) Balance of mortgage note payable as of March 1, 2015 under Section 202 of the National Housing Act $ 794,389 Section 8 Housing Assistance Payments Program (CFDA No ) 207,646 $ 1,002,035 Note: The schedule of expenditures of federal awards is prepared on the accrual basis of accounting and the Corporation elected to not use the 10% de minimis cost rate. 32

35 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 Bonham RHF Housing, Inc. (A Texas NotForProfit Corporation) 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 Bonham RHF Housing, Inc., which comprise the statement of financial position as of February 29, 2016, and the related statements of profit and loss changes in net assets, 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 May 13, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Bonham RHF Housing, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Bonham RHF Housing, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Bonham RHF Housing, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Bonham RHF 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 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. 33

36 Bonham RHF Housing, Inc. Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether Bonham RHF Housing, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Bonham RHF 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 Bonham RHF Housing, Inc. s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. May 13, 2016 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 34

37 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors of Bonham RHF Housing, Inc. (A Texas NotForProfit Corporation) Report on Compliance for Each Major Federal Program We have audited Bonham RHF 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 Bonham RHF Housing, Inc. s major federal programs for the year ended February 29, Bonham RHF Housing, Inc. s major federal programs are identified in the summary of auditor s results section of the accompanying summary of auditor s results. Management s Responsibility Management is responsible for compliance with the 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 Bonham RHF 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 (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 Bonham RHF 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 Bonham RHF Housing, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Bonham RHF 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 February 29,