STRENGTH MATTERS ™

1. STRENGTH MATTERS™ Wednesday June 9th, 2010 www.strengthmatters.net

2. STRENGTH MATTERS™ A national collaborative sponsored by  NeighborWorks America, Housing Partnership Network (HPN), and Stewards of Affordable Housing for the Future (SAHF), with ongoing support from The John D. and Catherine T. MacArthur Foundation.  Our partners also include: Local Initiatives Support Corporation Enterprise Community Loan Fund Low Income Investment Fund Calvert Foundation Housing Partnership Fund NeighborWorks Capital

3. Introductions D Valentine, Chief Financial Officer, Bridge Housing, Inc. Joanne Wilson, Financial Management Consultant, SJAssociates

5. Today’s Topic • Consolidation Issues – Steps for a Successful Consolidation • www.strengthmatters.net • Topic paper 3B

6. Steps to a Successful Consolidation • First – This presentation is a guideline • Review your own circumstances • Take what you need and leave the rest

7. Step 1 – Review Operating Level Documents to Determine Control (or lack there of) of Entities • Considerations: • Limited Partnership Agreements • EITF 04-5 – look at provisions

8. Down from ‘On-High..’ EITF 04-05: Determining When a General Partner, or General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners have Certain Rights

9. Implementation Date June 29, 2005 for new LP’s and existing partnership for which the partnership agreements are modified. No later than the beginning of the first reporting period of the fiscal year beginning after December 15, 2005 for all other LP’s.

10. Step 1 – Review Operating Level Documents to Determine Control (or lack there of) of Entities • Considerations: • Are there Anti-kickout provisions? • General Partner’s options • First right of refusal to purchase? • Right to purchase LP’s interest at fair value? • Is a GP’s buyout feasible? • Balance Sheet – Assets appear / disappear • Joint venture partners

11. Step 2 – Use Accounting Software to Perform the Consolidation • Considerations: • Enter all entities into accounting software • Use a single accounting software package if possible • Use a single audit firm

12. Step 2 – Use Accounting Software to Perform the Consolidation • Considerations: • Convert all entities to the same FYE • Comparative statements in Year 1? • Net Assets will need attention in year one • For year 2 • Roll forward beginning retained earnings prior to eliminations

13. Step 2 – Use Accounting Software to Perform the Consolidation • Considerations: • Create a single chart of accounts • Establish Intercompany Accounts • Establish “elimination” entries • Consider creating an eliminations ”company” • Perform eliminations at GL level • Modify property bookkeeper’s responsibilities

14. Step 3 – Third Party Property Managers • Considerations: • Process third-party JEs monthly • Ask for a month-end trial balance (not cumulative) • Create a template in the accounting system / import from spreadsheet

15. Step 4 – Use Auditing Firm’s Software • Considerations: • For smaller Companies – consider using auditor’s software for consolidation • Lessens the control of management • Works well for smaller firms • May be considered an internal control weakness

16. Step 5 – Perform Quarterly Eliminations • Considerations: • Quarterly consolidations for external use • Determine value for internal use

17. Step 6 – Keep in Mind What Auditors Look for • Considerations: • Internal consistency across all accounts • Equity classifications (restricted vs. unrestricted) • Overall development fees at consolidation level • Proper material eliminations completed

18. Disclaimer This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the affordable housing field, co-sponsored by NeighborWorksAmerica,Housing Partnership Network and Stewards of Affordable Housing for the Future.