Delphia House Associates PHFA Project No. R E. Financial Statements and Supplementary Information December 31, 2014 and 2013

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1 Financial Statements and Supplementary Information December 31, 2014 and 2013

2 Table of Contents December 31, 2014 and 2013 Page INDEPENDENT AUDITOR S REPORT 1 and 2 FINANCIAL STATEMENTS Balance Sheet 3 Comparative Statement of Profit and Loss 4 and 5 Statement of Partners Equity 6 Statement of Cash Flows 7 and 8 Notes to Financial Statements 9 to 15 SUPPLEMENTARY INFORMATION Supporting Data Required by PHFA 16 to 21 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 22 and 23 Schedule of Prior Year Audit Findings and Responses 24 and 25 Contact Information of Lead Auditor 26 Certification of Management Agent 27 Certification of Officers 28

3 Independent Auditor s Report To the Partners Delphia House Associates York, Pennsylvania Report on the Financial Statements We have audited the accompanying financial statements of Delphia House Associates, (Partnership), which comprise the balance sheet as of December 31, 2014 and 2013, and the related statements of comparative profit and loss (on PHFA-Housing Management Division Form), partners' equity, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Delphia House Associates, as of December 31, 2014 and 2013, and the results of its operations, and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information as required by the Pennsylvania Housing Finance Agency 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 February 28, 2015, on our consideration of the Partnership'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 the Partnership s internal control over financial reporting and compliance. February 28, 2015 York, Pennsylvania 2

5 Balance Sheet December 31, Assets Current Assets Cash $ 175,903 $ 53,669 Tenant accounts receivable 2,580 1,639 Other accounts receivable 4,593 7,032 Prepaid expenses 73,999 79,943 Total Current Assets 257, ,283 Deposits Held in Trust Tenant security deposits 28,770 29,956 Restricted Deposits and Funded Reserves Tax escrow 81,492 76,557 Insurance escrow 10,681 10,125 Reserve for replacement 671, ,935 Reserve for painting 29,751 26,040 Development cost escrow 147, ,297 Total Restricted Deposits and Funded Reserves 940,916 1,087,954 Property and Equipment Land and improvements 216, ,933 Building 4,541,817 4,353,519 Furnishings 43,208 43,208 Project equipment 99,856 99,856 4,901,814 4,713,516 Less accumulated depreciation (3,783,717) (3,642,943) Net Property and Equipment 1,118,097 1,070,573 Other Assets Prepaid expenses 29,308 - Total Assets $ 2,374,166 $ 2,330,766 See accompanying notes.

6 December 31, Liabilities and Partners' Equity Current Liabilities Accounts payable $ 238,176 $ 62,068 Accrued expenses 27,857 3,875 Current maturities of mortgages payable 214, ,816 Current portion of obligation under capital lease 2,479 2,400 Total Current Liabilities 482, ,159 Deposits and Prepayment Liabilities Prepaid rent 1,004 1,265 Tenant security deposits 28,770 29,956 Total Deposits and Prepayment Liabilities 29,774 31,221 Long-Term Liabilities Mortgages payable 907,557 1,121,662 Obligation under capital lease 8,638 11,117 Total Long-Term Liabilities 916,195 1,132,779 Total Liabilities 1,428,586 1,429,159 Partners' Equity General partners (1,038,709) (1,039,149) Limited partner 1,984,289 1,940,756 Total Partners' Equity 945, ,607 Total Liabilities and Partners' Equity $ 2,374,166 $ 2,330,766 3

7 Comparative Statement of Profit and Loss PHFA-Housing Management Division Property #: Property Name: For the Years Ended December 31, 2014 and 2013 PHFA #R E DELPHIA HOUSE ASSOCIATES Part I Description of Account Acct # Rental Income 5120 $ 372,608 $ 368,748 Tenant Assistance Payments , ,146 Rental Income Stores and Commercial Rent Other Rental Income ,014 20,402 Rent Concessions Total Rental Income $ 1,043,750 $ 1,026,296 Vacancies Interest Income Other Income Administrative Expenses Utility Expenses Vacancies-Apartments 5220 $ (22,047) $ (22,881) Vacancies-Commercial Total Vacancy Loss $ (22,047) $ (22,881) Net Rental Income $ 1,021,703 $ 1,003,415 Interest Income-Operations 5410 $ 110 $ 131 Interest Income-Residual Receipts Interest Income-Reserve for Replacement ,901 1,491 Interest Income-Painting and Decorating Total Interest Income $ 5,082 $ 1,650 Supportive Service Income 5300 $ 5,564 $ 3,813 Grant Income Service Income ,288 11,320 NSF and Late Fees Miscellaneous Income ,788 1,184 Total Other Income $ 24,041 $ 16,367 Total Property Income $ 1,050,826 $ 1,021,432 Advertising and Renting Expense 6210 $ 4,136 $ 3,214 Office and Telephone Expense ,364 14,009 Model Apartment Expense Management Fee (5.646%) ,107 61,633 Legal Expense , Audit Expense ,434 18,530 Administrative Fee (Section 8 only) ,200 7,200 Bad Debts , Miscellaneous Administrative Expenses ,493 2,522 Total Administrative Expenses $ 117,055 $ 107,309 Fuel 6420 $ 250 $ 757 Electricity ,184 56,465 Water ,264 10,266 Gas ,672 10,401 Sewer ,459 21,649 Total Utility Expenses $ 113,829 $ 99,538 See accompanying notes. 4

8 Comparative Statement of Profit and Loss (continued) PHFA-Housing Management Division Property #: Property Name: For the Years Ended December 31, 2014 and 2013 PHFA #R E DELPHIA HOUSE ASSOCIATES Part I (continued) Description of Account Acct # Janitor/ Maintenance Supplies 6515 $ 3,099 $ 1,232 Operating/ Maintenance Contracts ,261 39,248 Rubbish Removal ,098 13,918 Security Payroll/ Contract Repairs Materials ,120 14,464 Operating and Elevator Maintenance ,585 8,315 Maintenance Expenses Heating and Air Conditioning Maintenance ,433 8,695 Grounds Maintenance/ Snow Removal ,272 6,498 Painting and Decorating ,590 25,857 Vehicle Operation and Repairs ,316 Miscellaneous Operating and Maintenance Exp , Total Operating and Maintenance Expenses $ 142,779 $ 120,303 Office Salaries 6310 $ 20,305 $ 19,149 Manager Salaries ,186 37,451 Administrative Rent Free Unit ,834 9,664 Payroll Expenses Janitor/ Maintenance Payroll ,494 57,319 Payroll Taxes ,548 9,341 Workmen's Compensation ,806 12,376 Health Insurance and Employee Benefits ,112 40,531 Total Payroll Expenses $ 191,285 $ 185,831 Real Estate Taxes 6710 $ 165,564 $ 165,926 Property and Liability Insurance ,762 27,895 Taxes and Insurance Fidelity Bond Insurance Misc Taxes and Insurance, Licenses/Permits ,315 11,446 Total Taxes and Insurance Expenses $ 201,641 $ 205,781 Mortgage Interest 6820 $ 80,689 $ 96,583 PHFA Late Fees Other Interest Payments HUD Mortgage Insurance Premiums Financial Expenses PHFA Service Fees PHFA Self Insurance Fees Other Service Fee Investor Service Fee Miscellaneous Financial Expense Total Financial Expense $ 81,093 $ 96,679 Supportive Service Expenses Entity Expenses Supportive Service Payroll Supportive Service Supplies Total Supportive Service Expenses Total Cost of Operations Before Depreciation Profit (Loss) Before Depreciation Depreciation (Total) Specify Amortization Operating Profit (Loss) Interest Income-(Entity) Legal Expenses (Entity) Taxes (Federal-State-Entity) Other Expenses (Entity) Total Entity Expenses Net Profit (Loss) 6910 $ 10,352 $ 10, $ 10,352 $ 10,074 $ 858,034 $ 825,515 $ 192,792 $ 195, $ 146,116 $ 149, ,703 2,788 $ 43,973 $ 43, $ - $ $ - $ 38 $ 43,973 $ 44,027 Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage. 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 196,816 25,524 $ 180,921 25,110 All amounts must be rounded to the nearest dollar, $.50 and over, round up - $.49 and below, round down. See accompanying notes. 5

9 Statement of Partners' Equity Years Ended December 31, 2014 and 2013 Total General Partners Limited Partner Partners' Equity Partners' Equity (Deficit) at December 31, 2012 $ (1,037,468) $ 1,899,289 $ 861,821 Distribution to partners - return on equity (2,121) (2,120) (4,241) Net profit ,587 44,027 Partners' Equity (Deficit) at December 31, 2013 (1,039,149) 1,940, ,607 Distribution to partners - return on equity Net profit ,533 43,973 Partners' Equity (Deficit) at December 31, 2014 $ (1,038,709) $ 1,984,289 $ 945,580 See accompanying notes. 6

10 Statement of Cash Flows Years Ended December 31, Cash Flows from Operating Activities Cash received Rental receipts $ 1,010,667 $ 993,522 Interest receipts 5,082 1,650 Other receipts 26,480 9,361 Total Cash Received 1,042,229 1,004,533 Cash paid Payroll taxes (9,330) (8,389) Supportive services payroll (9,872) (9,201) Miscellaneous taxes, licenses, and permits (10,315) (11,960) Administrative salaries (19,275) (17,733) Property insurance (25,762) (27,895) Manager salaries (37,120) (34,670) Administrative expenses (54,262) (42,700) Operating and maintenance payroll (55,551) (52,781) Miscellaneous insurance (55,888) (47,942) Management fee (65,133) (49,777) Interest (81,093) (96,679) Utilities (90,817) (102,842) Operating and maintenance expenses (143,583) (100,992) Real estate taxes (165,969) (165,926) Total Cash Paid (823,970) (769,487) Net Cash Provided by Operating Activities 218, ,046 Cash Flows from Investing Activities Capital expenditures (14,539) (9,917) Deposits to tax escrow (170,904) (174,000) Withdrawals from tax escrow 165, ,927 Deposits to insurance escrow (29,250) (26,805) Withdrawals from insurance escrow 28,694 26,514 Deposits to reserve for replacement, including interest (30,425) (26,601) Withdrawals from reserve for replacement 186,665 1,372 Deposits to reserve for painting, including interest (3,711) (3,771) Net Cash Provided by (Used in) Investing Activities 132,499 (47,281) See accompanying notes. 7

11 Statement of Cash Flows (continued) Years Ended December 31, Cash Flows from Financing Activities Principal repayments of long-term debt (196,816) (180,921) Principal repayments of capital lease (2,400) (2,796) Distributions to partners - (4,241) Financing costs (29,308) - Proceeds from long-term debt - 25,000 Net Cash Used in Financing Activities (228,524) (162,958) Net Increase in Cash 122,234 24,807 Cash at Beginning of Year 53,669 28,862 Cash at End of Year $ 175,903 $ 53,669 Reconciliation of Net Profit to Net Cash Provided by Operating Activities Net profit $ 43,973 $ 44,027 Adjustments to reconcile net profit to net cash provided by operating activities Depreciation and amortization 148, ,928 Gain on disposal of property and equipment - (38) (Increase) decrease in assets Tenant accounts receivable (941) (750) Other accounts receivable 2,439 (7,006) Prepaid expenses 5,944 5,213 Tenant security deposits 1,186 (1,273) Increase (decrease) in liabilities Accounts payable (5,696) 46,718 Accrued expenses 23,982 (5,567) Prepaid rent (261) 521 Tenant security deposits (1,186) 1,273 Net Cash Provided by Operating Activities $ 218,259 $ 235,046 Supplementary Schedule of Noncash Investing and Financing Activities In 2014 Accounts payable includes $181,804 in capital expenditures. In 2013 The Partnership purchased $13,517 of new equipment under capital lease to replace equipment also under a capital lease. The remaining balance of the replaced equipment under capital lease and obligation under capital lease in the amount of $1,432 was written off. The equipment had a remaining net book value of $1,394, resulting in a realized gain on disposal of $38. See accompanying notes. 8

12 Notes to Financial Statements December 31, 2014 and 2013 Note 1 - Nature of Operations Delphia House Associates (a Pennsylvania limited partnership) (Partnership) was organized on November 14, 1977 for the purpose of developing and operating a 104-unit apartment building located in York, Pennsylvania, under Section 221 of the National Housing Act. Such projects are regulated by the Pennsylvania Housing Financing Agency (PHFA) as to rent charges and operating methods. The Regulatory Agreement, including amendment, limits annual distributions of the Partnership to the amount of return of equity and residual receipts to the owners (75%) and to PHFA (25%). The Partnership s principal sources of revenue are from rental income. Note 2 - Summary of Significant Accounting Policies A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Tenant and Other Accounts Receivable Tenant and other accounts receivable are stated at outstanding balances. The Partnership considers tenant and other accounts receivable to be fully collectible. If collection becomes doubtful, an allowance for doubtful accounts will be established, or the accounts will be charged to income when that determination is made by management. Unpaid balances remaining after the stated payment terms are considered past due. Recoveries of previously charged off accounts are recorded when received. Property and Equipment Property and equipment are stated at cost. The building and improvements are being depreciated using the straight-line method over the estimated useful lives of five to forty years depending on the nature of asset capitalized. Other property and equipment are depreciated using the straight-line method of depreciation over the estimated average useful lives of the assets as follows: land improvements, ten to twenty years; furnishings, five to ten years; and project equipment, five to ten years. 9

13 Notes to Financial Statements December 31, 2014 and 2013 Note 2 - Summary of Significant Accounting Policies (continued) Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. An asset is considered to be impaired when the undiscounted estimated net cash flows to be generated by the asset are less than the carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair value amount. Fair value estimates are based on assumptions concerning the amount and timing of the estimated future cash flows and the discount rates reflecting varying degrees of perceived risk. The management of the Partnership concluded that no impairment adjustments were required during the years ended December 31, 2014 and Advertising Costs Advertising costs are expensed as incurred. Subsequent Events The Partnership has evaluated subsequent events through February 28, 2015, which is the date the financial statements were available to be issued. No material events subsequent to December 31, 2014 were noted. Note 3 - Income Taxes Items of income, expense, credits, and gains and losses are passed through to the partners who bear personal responsibility for the tax consequences of those items. Accordingly, no provision for income taxes is recorded in the accompanying financial statements. Partnership income or loss is allocated 1% to the general partners and 99% to the limited partner. Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Partnership, including whether the entity is exempt from income taxes. Management evaluated the tax positions taken and concluded that the Partnership had taken no uncertain tax positions that require recognition or disclosure in the financial statements. Therefore, no provision or liability for income taxes has been included in the financial statements. With few exceptions, the Partnership is no longer subject to income tax examinations by the U.S. Federal, state, or local tax authorities for years before December 31,

14 Notes to Financial Statements December 31, 2014 and 2013 Note 4 - Tenant Security Deposits Tenant security deposits are held in a federally insured bank account in the name of the Partnership. As of December 31, 2014 and 2013, cash in this account amounted to $28,770 and $29,956, respectively, which was restricted for the repayment of tenant security deposits and is not available for operations. Note 5 - Mortgages Payable Mortgages payable consist of the following as of December 31: % mortgage payable to Pennsylvania Housing Finance Agency; monthly installments of $23,125, including principal and interest through January 2018; collateralized by property and equipment $ 721,662 $ 918, % mortgage payable to Pennsylvania Housing Finance Agency; principal payments due from surplus cash as defined by the regulatory agreement; mortgage due upon default, sale, refinancing, or termination of the project 350, , % mortgage payable to Pennsylvania Housing Finance Agency; upon full payment of the 8.785% mortgage payable to Pennsylvania Housing Finance Agency this note will be forgiven unless any of the following occur first: mortgage due upon default, sale, refinancing, or termination of the project; if any of these should occur before the 8.785% mortgage is repaid in full, this note will become due on demand 50,000 50,000 1,121,662 1,318,478 Current maturities (214,105) (196,816) $ 907,557 $ 1,121,662 11

15 Notes to Financial Statements December 31, 2014 and 2013 Note 5 - Mortgages Payable (continued) Aggregate maturities of mortgages payable, assuming no change in current terms, consist of the following for the remaining four years ending December 31, 2018: 2015 $ 214, , , ,258 $ 1,121,662 Interest expense amounted to $81,093 and $96,679 for the years ended December 31, 2014 and 2013, respectively. Note 6 - Obligation under Capital Lease Future minimum lease payments under capital lease, together with the present value of the net minimum lease payments, consist of the following for the remaining five years ending December 31: 2015 $ 2, , , , ,917 Amount representing interest (800) $ 11,117 Current portion $ 2,479 Noncurrent portion 8,638 $ 11,117 The following is leased equipment under a capital lease as of December 31: Copier $ 13,517 $ 13,517 Accumulated amortization (2,703) - $ 10,814 $ 13,517 12

16 Notes to Financial Statements December 31, 2014 and 2013 Note 6 - Obligation under Capital Lease (continued) Amortization expense amounted to $2,703 and $2,788 for the years ended December 31, 2014 and 2013, respectively. The amortization expense of capital lease assets is included as amortization expense on the comparative statement of profit and loss. Note 7 - Rental Income The Partnership leases a portion of their property for cellular phone tower usage with a term through November 2018, with annual increases in rent. The lease agreement also allows for two additional five-year terms and one four-year term. Rental income relating to this lease amounted to $21,014 and $20,402 for the years ended December 31, 2014 and 2013, respectively. Future minimum rental lease payments, assuming no change in the current terms, consist of the following for the remaining four years ending December 31: 2015 $ 21, , , ,630 $ 88,421 Note 8 - Commitments During the year ended December 31, 2014, the Partnership entered into a long-term contract related to the building improvements amounting to $329,832. The Partnership had incurred $181,804 of this total as of December 31, On March 5, 2014, the Partnership signed an assignment and assumption agreement. In that agreement, the current limited partner has agreed to assign all of its limited partnership interests in the Partnership to a party to be designated by the general partner. The agreement calls for a purchase price in the range of $700,000 to $1,000,000. The actual purchase price is yet to be determined, and is contingent on a number of factors including, but not limited to, approval from various funding sources/regulatory agencies. If closing does not occur by April 30, 2015, the assignment and assumption agreement will automatically be terminated, unless an extension of time is granted by the Limited Partner. 13

17 Notes to Financial Statements December 31, 2014 and 2013 Note 9 - Related Party Transactions The Partnership has a contractual agreement with a related party, Delphia Management Corporation, for management services relating to the Project. Under the terms of the contract, Delphia Management Corporation is paid a management fee equal to 5.146% of total gross collections from the Project. The Partnership also pays Delphia Management Corporation a management fee of 0.5% of total gross collections for participation in the Supportive Services Program, as well as 30% of rental income receipts from an antenna lease (refer to Note 7). In addition, the Partnership pays Delphia Management Corporation for personnel services provided directly to the Project. Related party transactions consist of the following for the years ended December 31: Office salary $ 20,305 $ 19, Management fees 63,107 61, Manager salary 39,186 37, Administrative fee 7,200 7, Operating and maintenance payroll 58,494 57, Travel/mileage reimbursements 557 1, Payroll taxes 9,548 9, Workers Compensation Insurance 12,806 12, Employee benefits 41,112 40, Housekeeping 10,352 10,074 $ 262,667 $ 256,390 As of December 31, 2014 and 2013, $45,053 and $37,857, respectively, was due to Delphia Management Corporation for services provided. As of both December 31, 2014 and 2013, $4,593 was due from Delphia Management Corporation. Note 10 - Concentrations of Cash and Credit Risk The Partnership s cash account balances may have exceeded the federally insured limit of $250,000 at times during the years ended December 31, 2014 and The Partnership also has restricted deposits and funded reserves accounts held at a non-financial institution. None of the balances in these accounts are insured deposits. During both the years ended December 31, 2014 and 2013, the Partnership received 62% of all revenue from the Pennsylvania Housing Finance Agency (PHFA) in the form of housing assistance payments and grant income. Without this rental revenue, the Partnership s ability to carry out its program services would be significantly reduced. 14

18 Notes to Financial Statements December 31, 2014 and 2013 Note 11 - Development Cost Escrow Fund Pursuant to the amended Development Cost Escrow and Trust Agreements signed in 1982, $147,297 of this escrow was to be held by PHFA until the balance of the fund equals the outstanding principal amount of the mortgage at which time the fund will be used to satisfy the mortgage. All interest earned on this escrow was to accrue to PHFA and may, at PHFA s sole discretion, be disbursed for the benefit of the project. A review of this escrow revealed that $547,119 of interest has been recorded as income to the Partnership and posted to this escrow from instead of accruing to PHFA. In 2010, PHFA transferred $547,119 from this escrow to the Reserve for Replacement account to be used towards future project improvements. The interest earned in 2014 and 2013 on this escrow was accrued to PHFA. 15

19 Supporting Data Required by PHFA December 31, 2014 and 2013 Delinquent Tenant Accounts Receivable A schedule of delinquent tenant accounts receivable, as required by PHFA, consists of the following as of December 31: Due Number of Tenants Amount Past Number of Amount Past Due Tenants Due Delinquent 30 days 33 $ 1,670 4 $ 1,006 Delinquent days Delinquent days Delinquent over 90 days $ 2,580 7 $ 1,639 Other Accounts Receivable The Partnership s other accounts receivable consist of the following as of December 31: Other receivable - vendor credit $ - $ 1,759 Other receivable - due from related party 4,593 4,593 Other receivable - PHFA subsidy $ 4,593 $ 7,032 Other Entity Expenses The Partnership s other entity expenses consist of the following for the years ended December 31: Gain on disposal of property and equipment $ - $ 38 16

20 Supporting Data Required by PHFA (continued) Restricted Deposits and Funded Reserves As of and for the Years Ended December 31, 2014 and 2013 Tax Insurance Reserve for Reserve for Development Escrow Escrow Replacement Painting Cost Escrow Balances at December 31, 2012 $ 68,484 $ 9,834 $ 802,706 $ 22,269 $ 147,297 Deposits 174,000 26,805 25,110 3,743 - Withdrawals (165,927) (26,514) (1,372) - - Transfers Interest - - 1, Balances at December 31, ,557 10, ,935 26, ,297 Deposits 170,904 29,250 25,524 3,640 - Withdrawals (165,969) (28,694) (186,665) - - Transfers Interest - - 4, Balances at December 31, 2014 $ 81,492 $ 10,681 $ 671,695 $ 29,751 $ 147,297 17

21 Supporting Data Required by PHFA (continued) Changes in Property and Equipment Assets December 31, 2014 Accumulated Depreciation Balance Balance Balance Current Balance Net Book Value 12/31/13 Additions Deductions Transfers 12/31/14 12/31/13 Provisions Deductions 12/31/14 12/31/14 Land and improvements $ 216,933 $ - $ - $ - $ 216,933 $ 121,532 $ 6,578 $ - $ 128,110 $ 88,823 Furnishings 43, ,208 24,301 3,540-27,841 15,367 Project equipment 99, ,856 35,503 9,542-45,045 54,811 Building 4,353, ,343 (a) 8,045 (d) - 4,541,817 3,461, ,159 8,045 3,582, ,096 $ 4,713,516 $ 196,343 $ 8,045 $ - $ 4,901,814 $ 3,642,943 $ 148,819 $ 8,045 $ 3,783,717 $ 1,118,097 Additions - Building Deductions Interior/exterior building Carpets $ 8,045 (d) renovations $ 189,900 Sub slab depressurization system 6,443 $ 196,343 (a) 18

22 Supporting Data Required by PHFA (continued) Changes in Property and Equipment (continued) Assets December 31, 2013 Accumulated Depreciation Balance Balance Balance Current Balance Net Book Value 12/31/12 Additions Deductions Transfer 12/31/13 12/31/12 Provisions Deductions 12/31/13 12/31/13 Land and improvements $ 216,933 $ - $ - $ - $ 216,933 $ 114,955 $ 6,577 $ - $ 121,532 $ 95,401 Furnishings 43,631 13,517 (c) 13,940 (d) - 43,208 33,222 3,625 12,546 24,301 18,907 Project equipment 94,655 5,201 (b) ,856 26,039 9,464-35,503 64,353 Building 4,348,803 4,716 (a) - - 4,353,519 3,329, ,262-3,461, ,912 $ 4,704,022 $ 23,434 $ 13,940 $ - $ 4,713,516 $ 3,503,561 $ 151,928 $ 12,546 $ 3,642,943 $ 1,070,573 Additions Deductions Carpet $ 1,333 Copier $ 13,940 (d) Gyro tech 2,010 Smoke detector 1,373 $ 4,716 (a) Dumpster dolly $ 5,201 (b) Copier $ 13,517 (c) 19

23 Supporting Data Required by PHFA (continued) Itemization of Operating Accounts Payable and Accrued Expenses December 31, 2014 Name Purpose Amount Advantage Financial Services Administrative expenses $ 248 Bortner Bros, Inc. Operating and maintenance expenses 269 Capital Tristate Operating and maintenance expenses 29 Cga Law Firm, PC Administrative expenses (69) City of York - Sewer & Refuse Utilities 2,350 City of York - Sewer & Refuse Operating and maintenance expenses 413 Delphia Management Corp Administrative expenses 2,710 Delphia Management Corp Miscellanoues taxes, licenses, and permits 11,156 Delphia Management Corp Administrative salaries 2,320 Delphia Management Corp Manager salary 4,489 Delphia Management Corp Operating and maintenance payroll 6,865 Delphia Management Corp Payroll taxes 1,109 Delphia Management Corp Supportive services payroll 1,286 Delphia Management Corp Operating and maintenance expenses 74 Delphia Management Corp Management fees 9,830 Desco Operating and maintenance expenses 210 Ehrlich Operating and maintenance expenses 916 Frenchie's Painting Operating and maintenance expenses 730 GDF Suez Energy Resources NA Utilities 4,178 HD Supply Facilities Maintenance Operating and maintenance expenses 365 Imagineered Signs, Inc. Operating and maintenance expenses 64 Kleppers Key Shop Operating and maintenance expenses 1,813 Lowes Business Account Operating and maintenance expenses 171 Met-Ed Utilities 670 P&H Distributors Operating and maintenance expenses 22 Janice Smith Operating and maintenance expenses 68 Janice Smith Administrative expenses 25 Realpage Administrative expenses 207 Stambaugh Landscapes Operating and maintenance expenses 130 The Sherwin Williams Co Operating and maintenance expenses 870 Trans Union LLC Administrative expenses 66 Wagman Building improvements 181,804 York Roofing Co Operating and maintenance expenses 1,780 York Water Co Utilities 1,008 Total Accounts Payable $ 238,176 Delphia Management Corp Administrative salaries $ 672 Delphia Management Corp Manager salary 1,342 Delphia Management Corp Operating and maintenance payroll 2,031 Delphia Management Corp Payroll taxes 329 Delphia Management Corp Supportive services payroll 388 Delphia Management Corp Operating and maintenance expenses 6 Delphia Management Corp Miscellanoues taxes, licenses, and permits 446 South Jersey Energy Utilities 22,643 Total Accrued Expenses $ 27,857 20

24 Supporting Data Required by PHFA (continued) PHFA's Computation of Surplus Cash and Return on Equity As of and for the Years Ended December 31, Surplus Cash Computation Cash $ 175,903 $ 53,669 Tenant security deposits 28,770 29,956 Tenant accounts receivable 2,580 1,639 Other accounts receivable 4,593 7,032 Total Cash 211,846 92,296 Accounts payable 238,176 62,068 Accrued expenses 27,857 3,875 Prepaid rent 1,004 1,265 Tenant security deposits 28,770 29,956 Total Current Obligations 295,807 97,164 Cash Deficiency at Year End $ (83,961) $ (4,868) Return on Equity Calculation Distributions unpaid as of the end of the prior year $ 109,908 $ 87,038 Annual distribution earned during the year 27,111 27,111 Distributions paid during fiscal year - (4,241) Cumulative Unpaid Distributions as of the Balance Sheet Date $ 137,019 $ 109,908 21

25 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 Partners Delphia House Associates York, Pennsylvania 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 Delphia House Associates, (Partnership), which comprise the balance sheet as of December 31, 2014, and the related statement of profit and loss, partners equity and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated February 28, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Partnership 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 the Partnership s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 22

26 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Partnership s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. February 28, 2015 York, Pennsylvania 23

27 Schedule of Prior Year Audit Findings and Responses Year Ended December 31, 2014 Prior Financial Statement Findings Finding Oversight of the Financial Reporting Process Criteria Management is responsible for establishing and maintaining internal controls and for the fair presentation of the financial statements and footnote disclosures in the financial statements, in conformity with accounting principles generally accepted in the United States of America (GAAP). Condition The Partnership does not currently have a system of internal controls that would enable management to conclude that the financial statements and related footnote disclosures are complete and presented in accordance with GAAP. Effect There is the potential that management may report materially misstated financial statements due to this internal control not being in place. Cause Management is able to review the statements for accuracy in relation to its internal records and can update the note disclosures based on a prior year template. The outsourcing of the financial statement presentation services is a result of management s cost benefit decision to rely on accounting expertise outside the Partnership rather than incurring this internal resource cost. Recommendation Management should continue to evaluate the cost benefit of implementing an internal control process to determine the proper presentation and completeness of the financial statements and related note disclosures in accordance with GAAP, compared to continuing to outsource the financial statement presentation process. Management s Response The Partnership prepares financial statements and supporting schedules internally on a monthly basis. These statements and supporting schedules are provided to the auditor as a basis for the audited financial statement report. The majority of the financial data in the audit report is calculated and provided by the Partnership s management. Based on the available resources and the cost benefit, the Partnership will continue to rely on the auditors for the formal preparation of the year-end financial statement along with footnote disclosures and supporting schedules, as well as word processing and printing of the audit reports. The Partnership s management will continue to request draft audit reports to review for accuracy prior to printing. Management is comfortable with the existing system of internal controls and interim financial reporting. Management does not consider this a material weakness to managing the day to day operations, or longer term strategic planning for this entity. 24

28 Schedule of Prior Year Audit Findings and Responses (continued) Year Ended December 31, 2014 Prior Financial Statement Findings (continued) Current Status This recommendation was implemented during the year ended December 31, This comment will not be repeated in Finding General Accounting Procedures Criteria Management is responsible for establishing and maintaining internal controls over general accounting procedures to ensure accurate monthly reconciliations of general ledger accounts to supporting documentation. Reconciliation differences between supporting documentation and the general ledger balance per the accounting software should be investigated timely and corrected. Condition During the course of the audit, audit adjustments were proposed in order to adjust the balance sheet and comparative statement of profit and loss so that they are both fairly stated in accordance with GAAP and were in agreement with the supporting reconciliation. Effect There is the potential that management may report materially misstated financial statements due to monthly reconciliations differences not being investigated and corrected timely. Cause Monthly reconciliations of some key general ledger accounts are now being performed on a timely basis, but the completeness and accuracy of those reconciliations continues to be an issue at times. Recommendation We recommend monthly reviews and reconciliations of general ledger activity and accounts to ensure general ledger balances per the accounting software agree to supporting documentation. Management s Response Management will continue to develop procedures to ensure the accuracy of the monthly reconciliations continues to improve, and differences between the general ledger balance and the reconciliations are investigated and corrected timely. Current Status This recommendation was implemented during the year ended December 31, This comment will not be repeated in

29 Contact Information of Lead Auditor Years Ended December 31, 2014 and 2013 Douglas L. Berman, CPA Partner Reinsel Kuntz Lesher LLP 3501 Concord Road PO Box York, PA

30 Certification of Management Agent December 31, 2014 and 2013 I hereby certify that I have examined the accompanying financial statements and supplementary data and, to the best of my knowledge and belief, the financial statements and supplementary data are complete and accurate. Delphia Management Corporation Date 27

31 Certification of Officers December 31, 2014 and 2013 We, as general partners of Delphia House Associates, hereby certify that we have examined the accompanying financial statements and supplementary data of Delphia House Associates and, to the best of our knowledge and belief, these financial statements and supplementary data are complete and accurate. York Housing Development Corporation General Partner Date Delphia House Corporation General Partner Date 28