HOMEWARD BOUND OF MARIN, INC.

Financial Report June 30, 2012 VICTORIA MWANGI, CPA DBA VM ACCOUNTING SERVICES

CONTENTS INDEPENDENT AUDITOR S REPORT 1-2 FINANCIAL STATEMENTS Statement of Financial Position 3-4 Statement of Activities 5 Statement of Functional Expenses 6 Statement of Cash Flows 7 Notes to Financial Statements 8-15 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 16 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 17 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND THER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 16-19 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 20-21 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 22 Page

Victoria W. Mwangi, CPA dba VM Accounting Services INDEPENDENT AUDITOR S REPORT March 27, 2013 Board of Directors Homeward Bound of Marin, Inc. Marin, California I have audited the accompanying Statement of Financial Position of Homeward Bound of Marin, Inc. (California not-for-profit corporation) as of June 30, 2012, and the related statements of Activities, Functional Expenses, and Cash Flows for the year then ended. These financial statements are the responsibility of the Agency s management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the United States Comptroller General. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Homeward Bound of Marin, Inc. as of June 30, 2012 and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with the Government Auditing Standards, I have also issued my report dated March 27, 2013 on my consideration of the Agency s internal control over financial reporting and on my 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 my 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 and should be considered in assessing the results of my audit. 1101 College Ave. Ste 240, Santa Rosa, CA 95404 Tel: (707) 542-4465 Fax: (707) 542-1278 E-mail: Vicky@vm-cpa.com

INDEPENDENT AUDITOR S REPORT March 27, 2013 Page Two My audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, 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 my opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Victoria Mwangi, Certified Public Accountant dba VM Accounting Services 1101 College Ave. Ste 240, Santa Rosa, CA 95404 Tel: (707) 542-4465 Fax: (707) 542-1278 E-mail: Vicky@vm-cpa.com

STATEMENT OF POSITION JUNE 30, 2012 Temporarily Unrestricted Restricted Total CURRENT ASSETS Cash and cash equivalents $ 1,055,057 $ 206,636 $ 1,261,693 Accounts receivable 38,715-38,715 Grants receivable 256,271 533,303 789,574 Deposits and prepaid expenses 118,986-118,986 Total current assets 1,469,029 739,939 2,208,968 PROPERTY AND EQUIPMENT Buildings, pledged 13,353,584-13,353,584 Vehicles 75,200-75,200 Leasehold improvements 418,049-418,049 Furniture and equipment 352,108-352,108 Artwork 122,025-122,025 14,320,966-14,320,966 Less accumulated depreciation (2,873,312) (2,873,312) 11,447,654-11,447,654 Land 783,216 783,216 12,230,870-12,230,870 TOTAL ASSETS $ 13,699,899 $ 739,939 $ 14,439,838 The accompanying notes are an integral part of these statements - 3 -

STATEMENT OF POSITION JUNE 30, 2012 Temporarily Unrestricted Restricted Total CURRENT LIABILITIES Accounts payable $ 49,749 $ - $ 49,749 Accrued wages and vacation 202,318-202,318 Current portion of long-term debt 15,345-15,345 Unemployment reserve 54,589-54,589 Other liabilities 27,542-27,542 Total current liabilities 349,543-349,543 LONG-TERM LIABILITIES, notes payable, net of current portion 2,829,772-2,829,772 NET ASSETS 10,520,584 739,939 11,260,523 TOTAL LIABILITIES AND NET ASSETS $ 13,699,899 $ 739,939 $ 14,439,838 The accompanying notes are an integral part of these statements - 4 -

STATEMENT OF ACTIVITIES Temporarily Unrestricted Restricted Total SUPPORT, REVENUE AND OTHER INCOME Government grants $ 644,234 $ 2,438,461 $ 3,082,695 Foundations and organization grants 77,976 825,000 902,976 Client fees 841,428-841,428 Contributions 593,378 187,825 781,203 In-kind contributions 120,157-120,157 Social Enterprises 545,834 545,834 Other income 157,871-157,871 Investment income 590-590 Net assets released from restrictions 3,449,792 (3,449,792) - 6,431,260 1,494 6,432,754 EXPENSES Program services: Adult Services 2,057,891-2,057,891 Mental Health Services 1,060,444-1,060,444 Family Services 1,034,013-1,034,013 Social Enterprises 1,133,725-1,133,725 Supporting services Development 230,284-230,284 Adminstration and general 437,038-437,038 5,953,395-5,953,395 CHANGE IN NET ASSETS 477,865 1,494 479,359 NET ASSETS, July 1, 2011 10,042,719 738,445 10,781,164 NET ASSETS, June 30, 2012 $ 10,520,584 $ 739,939 $ 11,260,523 The accompanying notes are an integral part of these statements - 5 -

STATEMENT OF FUNCTIONAL EXPENSES PROGRAM EXPENSES SUPPORTING EXPENSES Adult Mental Health Family Social Total Services Services Services Enterprises Administration Development Expenses Salaries and wages $ 822,844 $ 424,341 $ 379,819 $ 627,237 $ 269,154 $ 104,750 $ 2,628,145 Employee benefits 185,530 87,907 62,380 110,842 25,173 22,119 493,951 Payroll taxes 62,330 31,250 27,812 45,938 21,683 6,738 195,751 Occupancy 320,210 162,927 193,899 33,059 10,683-720,778 Outside services 7,758-15,419 6,595 32,430 43,200 105,402 Office and operating 82,083 27,391 35,698 22,939 64,263 9,374 241,748 Miscellaneous - 600 4,866 613 (43) - 6,036 Program expenses 9,057 2,642 4,735 12,372 305-29,111 Clients expenses 81,340 15,989 27,265 294 - - 124,888 Maintenance and repairs 11,790 2,566 5,962 12,760 - - 33,078 Food and household supplies 122,111 85,925 16,232 231,260-207 455,735 HUD lease expenses - 196,506 237,689 - - - 434,195 Staff related costs 10,390 5,690 7,395 7,221 9,740 1,913 42,349 Appeals expenses - - - - 37 41,983 42,020 Depreciation 342,448 16,710 14,842 22,595 3,613-400,208 $ 2,057,891 $ 1,060,444 $ 1,034,013 $ 1,133,725 $ 437,038 $ 230,284 $ 5,953,395 The accompanying notes are an integral part of these statements - 6 -

STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 479,359 Adjustments to reconcile change in net assets to cash flows provided by operating activities, Depreciation 400,208 Change in current assets and liabilities Accounts receivable 24,014 Grants receivable 434,182 Prepaid expenses and deposits 3,047 Accounts payable 15,935 Accrued wages and vacation (31,148) Unemployment reserve 11,587 Other payables (860) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,336,324 CASH FLOWS FROM INVESTING ACTIVITIES, acquisition of fixed assets (907,825) CASH FLOWS FROM FINANCING ACTIVITIES, Proceeds from notes payable 200,000 Principal payments on notes payable (14,102) NET CASH PROVIDED BY FINANCING ACTIVITIES 185,898 INCREASE IN CASH AND CASH EQUIVALENTS 614,397 CASH AND CASH EQUIVALENTS, July 1, 2011 647,296 CASH AND CASH EQUIVALENTS, June 30, 2012 $ 1,261,693 SUPPLEMENTAL INFORMATION Interest paid $ 30,380 The accompanying notes are an integral part of these statements - 7 -

NOTES TO FINANCIAL STATEMENTS Note 1. Nature of business and significant accounting policies a. Homeward Bound of Marin is a not-for profit corporation organized in 1974 to provide housing, housing counseling and referral, crisis management and related social services to persons in need, and to promote and develop both temporary and permanent housing resources for such persons. Major sources of funding include grants from federal, state and local governments, foundation grants and contributions. b. Basis of Accounting - The financial statements of Homeward Bound of Marin, have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other accrued liabilities. c. Financial Statement Presentation - The Agency reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. At June 30, 2012 there were no permanently restricted net assets. d. Contributions - The Agency reports contributions of cash and other assets as restricted support if they are received with donor stipulations that limit the purpose or time of use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. e. Cash and Cash Equivalents - For purposes of the Statement of Cash Flows, the Agency considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. f. Fixed Assets - Fixed assets are carried at cost or at estimated fair market value when received as a donation. The Agency capitalizes items in excess of $1,000. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from five to seven years for office furniture and equipment, and up to fifty years for buildings and improvements. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Depreciation expense for the year ended June 30, 2012 was $400,208 and accumulated depreciation was $2,873,312. - 8 -

NOTES TO FINANCIAL STATEMENTS Note 1. Nature of business and significant accounting policies (Cont). g. Income Taxes - The Agency is a tax-exempt nonprofit corporation under Section 501c(3) of the Internal revenue Code and Section 23701d of the California Revenue and Taxation Code. Continuance of such exempt status is subject to compliance with laws and regulations of the taxing authorities. The Internal Revenue Service has determined that the Agency is not a private foundation. h. Unemployment Claims - In accordance with provisions of the California Unemployment Insurance Code concerning non-profit organizations, the Agency has elected to reimburse the cost of unemployment benefits paid by the State in lieu of making contributions normally required of tax rate employers. (See Note 5) i. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates. j. Functional Allocation of Expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the Statement of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services. k. Donated Services and Items - Many people have contributed significant amounts of time and supplies to the activities of the Agency without compensation. The financial statements do not reflect the value of all the contributed services and items, except as reported, because, although clearly substantial, no reliable basis exists for determining an appropriate valuation. Note 2. Grants receivable Grants receivable consisted of the following at June 30, 2012: Temporarily restricted for Programs $ 533,303 Unrestricted 256,271 Total $ 789,574 Over 97% of grants receivable are from government agencies. Grants receivable are all due within one year. Management believes that all receivables are collectible and therefore no provision for uncollectible accounts is included in the financial statements. - 9 -

NOTES TO FINANCIAL STATEMENTS Note 3. Accumulated vacation and sick leave Accumulated unpaid employee vacation benefits are recognized as liabilities of the Agency. The value of accumulated vacation for the year ended June 30, 2012 was $111,458. Sick leave benefits are accumulated for each employee. The employees do not gain a vested right to accumulated sick leave therefore these benefits are not recognized as liabilities of the Agency. Sick leave benefits are recorded as expenditure in the period taken. Note 4. Notes payable Note payable, City of Novato, part of a deferred fee agreement. Annual payments of $3,825 commenced January 2002 and will end January 2020. The note is non-interest bearing $ 34,425 Note payable, Marin Housing Authority for property improvement through the Marin County Residential Rehabilitation Loan Program. The note is payable upon sale of the property 25,000 Note payable, Circle Bank guaranteed by Federal Home Loan Bank (FHLB) Affordable Housing Program for construction of Next Key Center, zero interest rate. Principle payment is contingent upon compliance of certain laws and regulations. Forgiveness of loan amount will be on March 1, 2024 1,000,000 Note payable, bank, monthly payment of $3,609 including interest at 6% per annum. Collateralized by buildings, final maturity is January, 2035 535,692 Subtotal $ 1,595,117-10 -

NOTES TO FINANCIAL STATEMENTS Note 4. Notes payable (Cont) Subtotal $ 1,595,117 Note payable, Emergency Housing & Assistance Program (EHAP), secured by buildings. Interest is accrued at 3% per annum. Repayment of principle and interest shall be deferred as long as the Agency continues to use the buildings for the intended purpose. Principle and deferred interest will be forgiven on maturity date of January, 2020 Note payable, Marin Community Foundation, secured by a deed of trust for the property at Nave Drive, Novato, California, assigned rents and fixtures. Monthly payments include interest only, accrued at 4% per annum. Principal and any accrued interest are due May, 2014 1,000,000 200,000 Note payable, Citibank N.A. guaranteed by Federal Home Loan bank (FHLB) under the Access to Housing and Economic Assistance for Development Program. The note is zero interest bearing, due August 26, 2013 50,000 2,845,117 Less current portion 15,345 $ 2,829,772 Maturities subsequent to June 30, 2012 are as follows: 2013 $ 15,345 2014 216,055 2015 16,809 2016 17,610 2017 18,460 Thereafter 2,560,838 $ 2,845,117 Total interest expense incurred during the year ended June 30, 2012 was $30,380. - 11 -

NOTES TO FINANCIAL STATEMENTS Note 5. Unemployment reserve The Agency participates in the Joint Agencies Trust to self-insure the unemployment insurance. The trust manages and administers the account, however all monies kept on account by the Trust belong to the Agency. The balance at June 30, 2012 is $54,589. Note 6. Temporarily restricted net assets As discussed in Note 1, temporarily restricted net assets represent program-restricted grants which will be used in the future as program expenses are incurred. At June 30, 2012 temporarily restricted net assets were available for the following purposes: Note 7. Marin Community Foundation endowment Family Services $ 472,707 Adult Services 102,489 Mental Health Services 163,249 Total $ 738,445 The Agency is the beneficiary of interest earned on an endowment fund created at the Marin Community Foundation in 1996. During the year ended June 30, 2012 interest distributed out to the Agency amounted to $6,951. Note 8. Uncertain income tax positions The Agency has adopted the recognition requirements for uncertain income tax positions as required by generally accepted accounting principles. Income tax positions in a tax return are taken or expected to be taken only when it is determined that the income tax position will more-likely-than-not be sustained upon examination by taxing authorities. The Agency believes that it has not taken any tax positions that would not meet this requirement. The Agency is subject to routine audits by taxing authorities until the expiration of the related statutes of limitations. Generally, the federal income tax returns have a three year statute of limitations, and the California income tax returns have a four year statute of limitations. The Agency s policy is to classify any income tax related interest and penalties in interest expense and other expenses, respectively. - 12 -

NOTES TO FINANCIAL STATEMENTS Note 9. Commitments under operating leases The Agency leases space under lease agreements to operate its programs. Some of the leases are on a month-to-month basis while others are for longer periods. Below are lease agreements with initial lease terms of more than one year. Location Monthly rent Lease end date Other terms 830 B Street $ 8,316 10/15/2015 Annual increase based on local CPI Fourth Street $ 8,333 11/20/2027 None 737 E. Francisco Blvd $ 10,500 6/30/2013 Cancelable if no funding is available Total rent paid for the year ended June 30, 2012 was $720,027, of which $395,806 was covered by HUD funds. Minimum lease payments for the years subsequent to June 30, 2012 are as follows: 2013 $ 325,792 2014 325,792 2015 199,792 2016 133,264 2017 100,000 Thereafter 1,041,666. Total $ 2,126,306-13 -

NOTES TO FINANCIAL STATEMENTS Note 10. Contingencies Funding Sources - The Agency receives a substantial amount of its support from Marin Community Foundation, federal, state, and local governments. A significant reduction in the level of this support, if this were to occur, may have an effect on the Agency s programs. Real Property Liens - The Agency has received numerous Community Development Block Grants (CDBG) for the acquisition and improvement of land and buildings. With CDBG, the Marin County Planning Department records a lien on the property that has been purchased or improved with the CDBG funds. The amount of the lien is based on the percentage of the amount of the CDBG grants to the estimated value of the property at the time of the grants. In the event the Agency should sell the property or alter its use, the County could enforce the liens and would be entitled to its percentage of the sales proceeds from any sale, conveyance, encumbrance, grant or lease, less closings costs of the property at that time. At June 30, 2012, the following liens existed: 64 percent of the value of 430 Mission Avenue 3.3 percent of the value of 430 Mission Avenue 17.1 percent of the value of 190 Mill Street 31 percent of the value of 190 Mill Street 8.2 percent of the value of 1385 North Hamilton Parkway (The Next Key) 4.5 percent of the value of 430 Mission Avenue The Agency received additional CDBG funds during the year ended June 30, 2012. The lien amounts relating to these funds had not been determined at June 30, 2012. Note 11. Concentrations of Credit Risk The Agency has cash deposits with various banks. The deposits at each bank are insured by the Federal Deposit Insurance Corporation up to $250,000. At June 30, 2012, funds in one bank account exceeded the federally insured amount by $242,580. The Agency has not experienced any losses and believes it is not exposed to any significant credit risk on cash. - 14 -

NOTES TO FINANCIAL STATEMENTS Note 12. Related party transactions The Agency receives contributions from Board members in the normal course of business. While important, the total contributions received during the year ended June 30, 2012, were not material to the financial statements taken as a whole. Note 13. Subsequent events Subsequent events have been evaluated through March 27, 2013, which is the date the consolidated financial statements were available to be issued. - 15 -

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Federal CFDA Federal Program Name Number Expenditures U.S. Department of Housing and Urban Development Community Development Block Grants 14.218 $ 43,742 Supportive Housing Program *** 14.235 558,176 Federal Emergency Shelter Grant 14.231 40,000 $ 641,918 U.S. Department of Veterans Affairs Grant and per diem program 64.024 $ 101,612 Loan Guarantee - Federal Housing Loan Bank The Next Key, Transitional Housing *** 99.000 $ 1,000,000 Fresh Starts Culinary Academy and Social Enterprises 99.000 $ 50,000 1,050,000 *** Audited as major programs See accompanying notes to schedule of expenditures of federal awards - 16 -

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note1. Basis of Presentation - The Schedule of Expenditures of Federal Awards (the Schedule) includes the federal grant activity of the Agency under programs of the federal government for the year ended June 30, 2012. The information in this Schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the Schedule presents only a selected portion of the operations of the Agency, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Agency. Note 2. Summary of significant accounting policies Expenditures on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles of Non-Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. - 17 -

Victoria W. Mwangi, CPA dba VM Accounting Services AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND THER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS March 27, 2013 To the Board of Directors Homeward Bound of Marin, Inc. San Rafael, California I have audited the financial statements of Homeward Bound of Marin, Inc. (a nonprofit organization) as of and for the year ended June 30, 2012, and have issued my report thereon dated March 27, 2013. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing my audit, I considered the Agency s internal control over financial reporting as a basis for designing my auditing procedures for the purpose of expressing my opinion on financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency s internal control over financial reporting. Accordingly, I do not express an opinion on the effectiveness of the Agency s internal control over financial reporting. 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 functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. My consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. I did not identify any deficiencies in internal control over financial reporting that I consider to be material weaknesses, as defined above. 1101 College Ave. Ste 240, Santa Rosa, CA 95404 Tel: (707) 542-4465 Fax: (707) 542-1278 E-mail: vicky@vm-cpa.com - 18 -

AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND THER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS (Cont.) COMPLIANCE AND OTHER MATTERS As a part of obtaining reasonable assurance about whether the Agency s financial statements are free of material misstatement, I 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 my audit, and accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report in intended solely for the information and use of the board of directors, finance committee, management and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Victoria Mwangi, Certified Public Accountant dba VM Accounting Services 1101 College Ave. Ste 240, Santa Rosa, CA 95404 Tel: (707) 542-4465 Fax: (707) 542-1278 E-mail: vicky@vm-cpa.com - 19 -

Victoria W. Mwangi, CPA dba VM Accounting Services REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 March 27, 2013 Board of Directors Homeward Bound of Marin, Inc. Santa Rosa, California Compliance I have audited the compliance of Homeward Bound of Marin, Inc. (a nonprofit organization) with the types of compliance requirements described in U.S. Office of Management and Budget (OMB) Circlar A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2012. The Agency s major federal programs are identified in the summary of the auditor s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of the laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the Agency s management. My responsibility is to express an opinion on the Agency s compliance based on my audit. I conducted my 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 United States; and OMB Circular A-133, Audits of States and Local Governments and Non-profit Organizations. Those standards and OMB Circular A-133 require that I 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 program occurred. An audit includes examining, on a test basis, evidence about the Agency s compliance with those requirements and performing such other procedures as I considered necessary in the circumstances. I believe that my audit provides a reasonable basis for my opinion. My audit does not provide legal determination of the Agency s compliance with those requirements. In my opinion, Homeward Bound of Marin, Inc., complied, in all material respects, with the requirements referred to above that are applicable to each of the major federal programs for the year ended June 30, 2012. 1101 College Ave. Ste 240, Santa Rosa, CA 95404 Tel: (707) 542-4465 Fax: (707) 542-1278 E-mail: vicky@vm-cpa.com - 20 -

REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 (CONT). Internal control over compliance The Agency s management is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing my audit, I considered the Agency s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine my auditing procedures for the purpose of expressing my opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, I do not express an opinion on the effectiveness of the Agency s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their functions, to prevent or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that a material noncompliance with the type of compliance requirement of a federal program, will not be prevented, or detected and corrected on a timely basis. My consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. I did not identify any deficiencies in internal control over compliance that I consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the board of directors, finance committee, management, federal awarding agencies and pass-through entities and is not intended to be used and should not be used by anyone other than those specified parties. Victoria Mwangi, Certified Public Accountant dba VM Accounting Services 1101 College Ave. Ste 240, Santa Rosa, CA 95404 Tel: (707) 542-4465 Fax: (707) 542-1278 E-mail: vicky@vm-cpa.com - 21 -

SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE PART I SUMMARY OF AUDIT RESULTS 1. The auditor s report expresses an unqualified opinion on the Agency s financial statements. 2. Relating to the audit of the financial statements no deficiencies considered to be material weaknesses are reported in the Report on Compliance and Controls in Accordance with Governmental Auditing Standards. 3. No instances of noncompliance material to the Agency s financial statements were disclosed during the audit. 4. Relating to the audit of major federal award programs no deficiencies considered to be material weaknesses are reported in the Report on Compliance and Controls in Accordance with OMB Circular A-133. 5. The Report on Compliance and Controls in Accordance with OMB Circular A-133 expressed an unqualified opinion on compliance for all the Agency s major federal award programs. 6. The programs tested as major program were - (1) Loan Guarantee by Federal Housing Loan Bank, - The Next Key Project, Transitional Housing (2) Supportive Housing Program 7. The threshold for distinquishing Type A and Type B programs was $300,000. 8. The Agency did not qualify as a low-risk auditee as defined in OMB Circular A-133. PART II FINANCIAL STATEMENT FINDINGS No financial statement findings were noted. PART III FINANCIAL STATEMENT FINDINGS No findings or questioned costs for major federal award programs were noted. - 22 -