app1.lla.la.govapp1.lla.la.gov/PublicReports.nsf/32AAC21D57CA71CB862574100059…app1.lla.la.gov

RESOURCES FOR HUMAN DEVELOPMENT, INC.

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2007 AND 2006

Under provisions of state law, this report is a publicdocument. A copy of the report has been submitted tothe entity and other appropriate public officials. Thereport is available for public inspection at the BatonRouge office of the Legislative Auditor and, whereappropriate, at the office of the parish clerk of court.

Release Date .."j

SHECHTMAN MARKS DEVOR PCC e r t i f i e d P u b l i c A c c o u n t a n t s

RESOURCES FOR HUMAN DEVELOPMENT, INC.YEARS ENDED JUNE 30,2007 AND 2006

CONTENTSPage

Report of independent certified public accountants 5

Financial statements:

Consolidated statements of financial position 6

Consolidated statements of unrestricted revenues, expendituresand other changes in unrestricted net assets 7

Consolidated statements of changes in net assets 8

Statements of functional expenditures 9-14

Consolidated statements of cash flows 15-16

Notes to consolidated financial statements 17-32

Supplemental information:

Report of independent certified public accountants onother supplemental information 33

Consolidating statements of financial position 34-35

Consolidating statements of unrestricted revenues, expendituresand other changes in unrestricted net assets 36

Consolidating statements of changes in equity and net assets 37

City of Philadelphia Department of Public Health, Office of Behavioral Health& Mental Retardation:

Mental retardation program activity invoice summary 38

Schedule of adjustments on program activity invoice summary -contracts no. 05-20051-02, 02-20112-02, and 05-20060-02 39

Schedule of adjustments on program activity invoice summary -contract no. 05-20060-02, code no. 0260-1615 40


CONTENTS (Continued)

City of Philadelphia Department of Public Health, Office of Behavioral Health& Mental Retardation Services:

Behavioral health program activity invoice summary 41

Schedule of adjustments on program activity invoice summary -contract no. 05-20048-02 42

Schedule of adjustments on program activity invoice summary -contract no. 05-20048-02, code no. 01-00-1613 43

Schedule of adjustments on program activity invoice summary -contract no. 05-20048-02, code no. 01-00-1653 44

Schedule of adjustments on program activity invoice summary -contract no. 05-20048-02, code no. 01-24-1613 J5

Early intervention cost settlement report 46

City of Philadelphia Department of Human Services:

Report of functional expenditures 47

Report of revenue by functional program 48

City of Philadelphia Office of Housing and Community Development:

Schedule of source and status of funds - contract no. 07-20033 49

Schedule of program income - contract no. 07-20033 50

Schedule of program expenditures - contract no. 07-20033 51-52

Reconciliation schedule - contract no. 07-20033 53

City of Philadelphia Office of Supportive Housing:

Reconciliation of agency reported expenditures/revenues to auditedexpenditures/revenues - contract no. 06-20180-01 54





City of Philadelphia Coordinating Office for Drug and Alcohol Abuse Programs:

Schedule of functional expenditures by contract/programand revenues by funding source - contract no. 05-20006-01 57

Statement of units of service and program revenue -contract no. 05-20006-01 58

Carbon-Monroe-Pike Department of Mental Health and Retardation:

Schedule of revenue and expenses 59-60

Schedule of units of service (UOS) - provider No. Res 110 61

Lehigh County:

Schedule of revenue and expenses - MH Programs 62

Schedule of revenue and expenses - MR Programs 63-64

Montgomery County Funded Programs:

Schedule of revenue and expenses- Mental Health 65- Mental Retardation 66- Drug and Alcohol 67

Family House and Womanspace - Schedule of program units of service 68

Northampton County:

Schedule of revenue and expenses - mental health programs 69-70

Schedule of revenues and expenses - mental retardation programs-On Our Way 71-72

Schedule of revenues and expenses - mental retardation programs- On Our Own and Mainstay North 73-74



State of Rhode Island:

Schedule of revenue and expenses for all agency programs 75

Schedule of administrative wages 76

Schedule of professional services 77

Determination of excess (deficit) funding 78

Report of independent certified public accountants oninternal control over financial reporting and on complianceand other matters based on an audit of financial statementsperformed in accordance with Government Auditing Standards 79-80

Report of independent certified public accountants on compliancewith requirements applicable to each major program and on internalcontrol over compliance in accordance with OMB Circular A-133 81-82

Schedule of expenditures of federal, state and city awards 83-95

Notes to schedule of expenditures of federal, state and city awards 96

Schedule of findings and questioned costs 97-99

Correction action plan 100-101

Summary schedule of prior audit finding 102-104

Report of independent certified public accountants on compliancewith specified indirect cost allocation requirements 105

Report of independent certified public accountants on cost allocation(for the upcoming budget year) 106-107

S HECHTMAN MARKS D EVOR PCCer t i f i ed Pub l i c A c c o u n t a n t s

Report of independent certified public accountants

Board of Directors and OfficersResources for Human Development, Inc.

We have audited the accompanying consolidated statements of financial position of Resources for HumanDevelopment, Inc. and subsidiaries (RHD) as of June 30, 2007 and 2006, and the related consolidatedstatements of unrestricted revenues, expenditures and other changes in unrestricted net assets, changes innet assets, functional expenditures and cash flows for the years then ended. These financial statementsare the responsibility of RHD's management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica 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 performthe audits to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles usedand the significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Resources for Human Development, Inc. and subsidiariesas of June 30,2007 and 2006, and the consolidated changes in their net assets and their cash flows for theyears then ended in conformity with accounting principles generally accepted in the United States ofAmerica.

In accordance with Government Auditing Standards, we have also issued our report dated November 29,2007, on our consideration of the Organization's internal control over financial reporting and on our testsof its compliance with certain provisions of laws, regulations, contracts, and grant agreements and othermatters. The purpose of that report is to describe the scope of our testing of internal control over financialreporting and compliance and the results of that testing and not to provide an opinion on the internalcontrol over financial reporting or on compliance. That report is an integral part of an audit performed inaccordance with Government Auditing Standards and important for assessing the results of our audits.

Philadelphia, PANovember 29,2007

2000 Market Street • Suite 500 . Philadelphia, PA 19103 • phone: 215.496.9200 • fax: 215.496.9604 • www.smd-pc.com

RESOURCES FOR HUMAN DEVELOPMENT, INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

JUNE 30,2007 AND 2006

2007 2006ASSETS

Current assets:Cash available for general useLimited use cash, contractual restrictions

Cash and cash equivalents

Limited use cash, representative payee cash funds

Grants and services receivable, net of allowance for doubtfulaccounts of $848,852 for 2007 and $704,539 for 2006

InventoryPrepaid expenses

Total current assets

Property and equipment, net

Other assets:Equity investments in companies, net of valuation allowances

of $165,750 for 2007 and 2006Advances and loans to investees, net of allowance for uncollectibleadvances and loans of $170,930 for 2007 and $75,022 for 2006

Other

3,521,129

914,822

27,232,1871,236,955

627,269

3f,532,362

17,201,885

971,443

684,253275,178

1,930,874

2,788,253

683,821

23,287,5201,704,653677,344

29,141,591

16,367,361

1,436,115

604,948257,227

2,298,290

Total assets $ 52,665,121 $ 47,807,242

LIABILITIES AND NET ASSETS

Current liabilities:Lines of credit and short-term borrowingsCurrent portion of long-term debtCurrent portion of obligations under capital leasesAccounts payable and accrued expensesDeferred revenueContract advances, currentDue to custodial clients

Total current liabilities

Long-term debt, net of current portionObligations under capital leases, net of current portionLong-term commitmentsContract advances, long-termDeferred credits

Total liabilities

Minority interests

Net assets:UnrestrictedTemporarily restricted

Total net assets

Total liabilities and net assets

2007

$ 6,344,000286,568

17,81917,233,4032,773,550

598,628914,822

28,168,790

821,514

8,108,2574,435,987

12,544,244

2006

$ 2,882,977215,513

37,30215,849,2183,506,980

88,265683,821

23,264,076

10,483,797609

363,952203,24478,971

39,299,363

10,710,40617,961744,397160,93094,243

34,992,013

725,159

7,505,7784,584,292

12,090,070

$ 52,665,121 $ 47,807,242

The accompanying notes are an integral part of these consolidated financial statements.6

RESOURCES FOR HUMAN DEVELOPMENT, INC.CONSOLIDATED STATEMENTS OF UNRESTRICTED REVENUES, EXPENDITURES

AND OTHER CHANGES IN UNRESTRICTED NET ASSETSYEARS ENDED JUNE 30,2007 AND 2006

2007 2006

Support, revenue and other:Support:FederalVarious statesCity of Philadelphia, PAMontgomery County, PAOther PA countiesMedical assistance/managed careGrants and donations

Total unrestricted support

Revenue:Patient/client feesOther fees and salesInterest and miscellaneous income

Total unrestricted revenue

Net assets released from temporary restrictions

Total unrestricted support, revenue and other

Expenditures:ProgramManagement and generalFundraisingOther operating

Total expenditures

Equity in net losses of investments

Changes in unrestricted net assets before minority interests

Minority interests in net losses of investments

Changes in unrestricted net assets

$ 3,939,68745,654,55845,403,565

9,897,17410,351,88812,560,3611,885,666

129,692,899

14,248,1586,574,340

345,282

21,167,780

905,798

128,339,74016,784,005

382,8145,177,964

150,684,523

(633,120)

448,834

153,645

$ 3,548,18531,459,86044,470,1119,376,4309,525,555

11,043,6231,204,720

110,628,484

13,299,3085,330,056

532,974

19,162,338

2,116,408

131.907,230

113,160,16815,128,290

369,5111,385,079

130,043,048

(294,888)

1,569,294

104,706

$ 602,479 $ 1,674,000


RESOURCES FOR HUMAN DEVELOPMENT, INC.CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED JUNE 30,2007 AND 2006

2007 2006

Unrestricted net assets:Total unrestricted support and revenueNet assets released from restrictionsTotal expendituresEquity in net losses of investmentsMinority interests in net losses of investments

Changes in unrestricted net assets

Temporarily restricted net assets:ContributionsNet assets released from restrictions

Changes in temporarily restricted net assets

Change in total net assets

Total net assets at beginning of year

Total net assets at end of year

$ 150,860,679905,798

(150,684,523)(633,120)153,645

602,479

757,493(905,798)

(148,305)

454,174

12,090,070

$ 129,790,8222,116,408

(130,043,048)(294,888)104,706

1,674,000

688,407(2,116,408)

(1,428,001)

245,999

11,844,071

$ 12,544,244 $ 12,090,070


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RESOURCES FOR HUMAN DEVELOPMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


Cash flows from operating activities:Change in total net assetsAdjustments to reconcile change in total net assetsto net cash provided by operating activities:

Minority interests in net losses of investmentsLoss on disposition of property and equipmentIncrease (decrease) in allowances for doubtful accounts

and uncollectible advances and loansDepreciation and amortizationEquity in net losses of investmentsDeferred credit forgivenessDebt forgiveness

Changes in operating assets and liabilities:(Increase) decrease in:

Grants and services receivableInventoryPrepaid expensesOther assets

Increase (decrease) in:Accounts payable and accrued expensesDeferred revenueContract advancesDeferred credits

Net cash provided by operating activities

Cash flows from investing activities:Increase in investments in companiesAcquisitions of property and equipmentProceeds from sale of property and equipmentNet issuances of advances and loans to investees

Net cash used in investing activities

Cash flows from financing activities:Net proceeds (payments) on lines of credit and short-termborrowings

Principal payments on long-term debtPrincipal borrowings of long-term debtPrincipal payments on capital lease obligationsCapital contributions

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning

Cash and cash equivalents, ending

2007

(153,645)19,841

240,2212,705,082

694,566(15,272)(61,446)

1.497,795

(548,893)(3,615,106)

55,659(175,213)

(4,283,553)

3,461,023(170,554)

15,000(36,835)250,000

3,518,634

732,876

2,788,253

2006

$ 454,174 $ 245,999

(104,706)233,686

(875)2,554,292

294,888(105,272)

(4,088,980)467,698

50,075(17,951)

1,384,185(733,430)552,677

-

(667,602)2,232,345(354,401)139,149

4,240,708(1,040,140)

249,195(37,500)

7,879,766

(480,040)(3,664,769)

(124,296)

(4,269,105)

(2,553,665)(420,556)

(107,033)

(3,081,254)

529,407

2,258,846

$ 3,521,129 $ 2,788,253


RESOURCES FOR HUMAN DEVELOPMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


2007 2006

Supplemental disclosure of cash flow information:Cash paid for interest $ 609,650 $ 718,345

Taxes paid $ 16,129 $

Supplemental disclosure of noncash investing and financing activities:Change in long-term commitment and related investment $ 380,445 $ 304,412

Write off of advances and accounts receivable directlyagainst allowances $ - $ 59,981


RESOURCES FOR HUMAN DEVELOPMENT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of significant accounting policies

Nature of activities

Resources for Human Development, Inc. (the Organization) is a not-for-profit organization whichoperates programs nationwide, but primarily throughout the eastern United States. Theseprograms include mental health, mental retardation, homeless, drug and alcohol, communityliving arrangement, affordable housing and probation and parole services. In addition, through itsfor-profit subsidiaries, the Organization operates programs primarily designed to lend and investcapital in businesses which are located in and employ people from economically challengedareas.

Basis of presentation

The accompanying consolidated financial statements include the accounts of the Organization, itsfor-profit subsidiaries, Murex Corporation (Murex) 100% owned by the Organization, MurexInvestments, Inc. (Murex Investments) 93% owned by the Organization, and a related not-for-profit organization, The Non-profit Housing Corporation of Pennsylvania (NPHO). In addition,effective for the fiscal year ended June 30, 2007, The SQ Foundation is included in theconsolidated financial statements. The SQ Foundation reflects the activities of SQA Pharmacy, alimited liability company. The consolidated financial statements have been prepared inaccordance with the audit guide published by the American Institute of Certified PublicAccountants, Audit and Accounting Guide for Not-for-Profit Organizations, as required forVoluntary Health and Welfare Organizations. Inter-company investments, advances andtransactions have been eliminated.

Other operating expenditures included in the statements of changes in unrestricted net assetsrelate to the operating expenses of the for-profit subsidiaries and a for-profit consolidatedsubsidiary of The SQ Foundation.

Accounting principles generally accepted in the United States require not-for-profit organizationsto distinguish between contributions received that increase permanently restricted net assets,temporarily restricted net assets and unrestricted net assets.

Donated services, mostly consulting services for various programs, are required to be reported attheir fair market value in the year that the services are contributed. The Organization records in-kind income and expenses for reporting to its funding sources in accordance with the associatedcontract requirements. These reporting requirements differ from generally accepted accountingprinciples. Accordingly, only a portion of the amounts reported to funding sources have beenrecorded as donated services in the accompanying consolidated financial statements.

Contracts and grants

Revenue from government contracts and grants, including overhead allowance, is generallyrecognized as the related expenses are incurred. The Organization has significant contracts andgrants with various agencies of the federal and state governments, departments of the City ofPhiladelphia, and various counties in Pennsylvania.

17

RESOURCES FOR HUMAN DEVELOPMENT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1. Summary of significant accounting policies (continued)

Net assets

Net assets are categorized according to externally (donor) imposed restrictions. A description ofthe net asset categories is as follows:

Unrestricted Net Assets - are those assets that are available for the support of operationsand whose use is not externally restricted.

Temporarily Restricted Net Assets - are those assets whose use by the Organization hasbeen limited by donors to a specific time period or purpose.

Restricted contributions received, whose restrictions are met in the same reporting period arereflected as unrestricted contributions.

Concentrations of credit risk

Financial instruments that potentially subject the Organization to concentrations of credit riskconsist principally of temporary cash investments and receivables from governmental and otheragencies. The receivables from governmental agencies are primarily obligations of the federaland various state governments, the City of Philadelphia and various counties. In addition, thereare accounts receivable from third party managed care organizations that reimburse theOrganization on behalf of governmental agencies.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Organization considers cash onhand, deposits with banks and short-term investments with original maturities of three months orless to be cash and cash equivalents.

Limited use cash

Limited use cash consists of representative payee cash funds and cash with contractualrestrictions. Some of these contractual restrictions require the funds to be held in a separate bankaccount.

Representative payee cash funds are custodial funds that have been established to account forassets received by the Organization on behalf of certain clients of certain programs. These fundsare expended at the discretion of the program directors, for the direct benefit of the individualclients. This amount is also included as a current liability, due to custodial clients.

18




Inventory

Inventory is recorded at the lower of cost, on a specific identification basis, or market (netrealizable value) and consists primarily of residential properties purchased for resale and relatedconstruction-in-progress. Through various programs, the Organization purchases, renovates andsells homes, primarily to eligible low-income families. Inventory also consists of prescriptionand over-the-counter drugs used in the Organization's closed-door pharmacy that servicesresidential and other care-giving facilities in the greater Philadelphia area.

Property and equipment and depreciation and amortization

Property and equipment are recorded at cost. Provisions for depreciation and amortization aremade over the estimated useful lives, ranging from 3 to 25 years, of the respective assets usingthe straight-line method. Maintenance and repairs are charged to activities as incurred. Asubstantial portion of capital assets has been purchased through grants and contracts. Suchamounts received are included in support and revenue. Related expenditures are capitalized anddepreciated over estimated lives when title to the related assets is held by the Organization.

Under certain program-funded agreements, ownership of property and equipment acquired withgrantor funds is vested with and may revert back to the grantor under certain circumstances.However, due to the nature of the programs and the long-term relationships of the Organizationwith the grantors, management feels that the financial statements of the Organization are morecomplete by capitalizing these assets.

Investments

Investments in partnerships, limited liability companies and unconsolidated corporations areincluded hi the accompanying consolidated financial statements using the equity and costmethods of accounting.

Deferred revenue

Deferred revenue consists primarily of program revenues received but not earned as of the date ofthe statement of financial position. Deferred revenues will be earned as the program conditionsare met.

In addition, the Organization receives grants to subsidize the construction and rehabilitation ofhomes under its affordable housing programs. Revenue from these grants is deferred until thehomes are sold. At the time of the sale of a home, the portion of the deferred revenue related tothe sold home is recognized as revenue in the statement of activities.

19




Vacation accrual

All eligible employees (including program employees) of the Organization are able to carry overunused earned vacation time. Employees are able until September 30 to use vacation time earnedas of June 30. Since the vacation expenses related to program employees will ultimately becharged to and reimbursed by funded programs, this results in an accrual of program revenue andexpenses. At June 30, 2007 and 2006, $1,614,520 and $1,365,425, respectively, of vacationexpenses is included in grants and services receivable and accrued expenses.

Tax status

The Organization and NPHO are exempt from federal, state and local income taxes under Section501(c)(3) of the Internal Revenue Code and similar state and local laws, therefore, no provisionfor income taxes has been made in the accompanying consolidated financial statements. Murexand Murex Investments, for-profit corporations, are subject to federal, state and local taxation.The SQ Foundation is in the process of applying for exempt tax status under Section 501(c).

Use of estimates

The preparation of financial statements in conformity with generally accepted accountingprinciples in the United States of America requires management to make estimates andassumptions that affect the "reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenditures during the reporting period. Actual results coulddiffer from those estimates.

Financial instruments

Generally accepted accounting principles require entities to disclose the estimated fair value oftheir financial instrument assets and liabilities. The Organization has identified the following asfinancial instruments, all of which have carrying values which approximate fair value: cash andcash equivalents, investments in and advances to companies and long-term debt.

Minority interests

Minority interests reflect the equity of a subsidiary which is not owned by the Organization or itssubsidiaries.

Reclassification

Certain amounts in the 2006 financial statements have been reclassified to conform with the 2007financial statement presentation.

20



2. Unconditional promises to give

The Organization records unconditional promises to give when received. During the year endedJune 30, 2007, contributions were received with multiple year payment terms. These receivableswere recorded at their present value using a discount rate equal to the prime rate at June 30, 2007of 8.25%.

Gross unconditional promises to give $ 520,300Less unamortized discount ( 12.285 )

508.015

Amounts due:Within one year $ 390,800Within two to five years 117.215

$ 508.015

The current portion of this receivable is reported as part of grants and services receivable at June30, 2007, with the remaining balance reported as an other asset in the statements of financialposition.

3. Property and equipment

The following is a summary of property and equipment (at cost) and accumulated depreciationand amortization:

2007 2006

Real estate and improvements $ 19,298,784 $ 18,954,329Leasehold improvements 4,983,784 4,434,498Furniture and fixtures 2,713,722 2,419,408Computer equipment and software 3,866,306 3,235,116Automobiles 5.706.783 4.893.319

36,569,379 33,936,670Less accumulated depreciation

and amortization 19.367.494 17.569.309

Property and equipment, net $ 17.^01.885 $ 16.367.361

Depreciation and amortization expense for the year:2007 2006

Program $ 1,529,241 $ 1,450,195Management and general 962,702 908,564Other operating 213.139 195.533

$ 2.705.082 $ 2.554.292

21



3. Property and equipment (continued)

Equipment purchased through grants and contracts amounted to $1,699,733 and $2,058,742 forthe years ended June 30,2007 and 2006, respectively.

4. Equity investments in companies and minority interests

The Organization has investments in the following companies either individually or through itsfor-profit subsidiaries, Murex and Murex Investments:

Company name Percentage of ownership

Biosoftware systems 13.20 %Computer Systems and Solutions, Inc. 30.00CSS Staffing, Inc. 30.00Laser Laboratories, LLC 43.33Lighthouse Ventures 30.00Murex Capital, LP 27.30Murex Capital n, LP 39.80Murex Investments I, LP 42.72Murex Investments, LLC 20.00Murex Investments H, LLC 20.00Sun & Earth, Inc. 9.30The Service Works Company 20.90Other miscellaneous investments .01-1.00

Aggregate cost and carrying values of the investments are as follows:

2007 2006

Original investments $ 4,945,213 $ 4,356,753

Accumulated allocated earnings (losses),net of dividends ( 3.287.817 ) ( 2.275.825 )

1,657,396 2,080,928

Direct write off of investments ( 520,203 ) ( 479,063 )

Valuation allowances ( 165.750 ) ( 165.750 )

Equity investments in companies, net $ 971.443 $ 1.436.115

22



4. Equity investments in companies and minority interests (continued)

Over the past several years, the Organization has received donor designated grants and donationsfor the purpose of investing in companies through Murex and Murex Investments, to promoteeconomic and job development in specified areas in Pennsylvania. These companies are typicallyconsidered risky based on their current financial position and inability to receive additionalfinancing from their banks. During the year ended June 30, 2007, the Organization recognized$819,805 in losses in investments, primarily related to these companies. The valuation allowanceof $165,750 pertains to The ServiceWorks Company investment.

The Organization has elected to record most of its investments using the equity method, evensome in which they own less than 20%. In most cases, the Organization exercises significantinfluence and in those investments in which it owns less than 20%, the equity methodapproximates the cost method. The Organization uses the cost method in cases in which theyown less than 20% and do not exercise significant influence. The Organization's losses arelimited to the extent of their capital contributions.

The minority interest in Murex Investments consists of a 7% non-voting common stockownership by another investor as of June 30, 2007 and 2006. The Organization owns all of thevoting equity of this subsidiary.

The minority interest in The SQ Foundation, as displayed in the consolidated financialstatements, consists of a 33.3% voting common stock ownership by Murex Investments I, LP inSQA Pharmacy.

There are two investments of Murex which have minority interests. Murex has control of thecompanies but not majority ownership. Control results from the Organization's appointment ofmanagement or members of the board of directors. The minority interests own 99% and 99.9% ofthe equity of the companies.

5. Advances and loans to investees

The Organization through its for-profit subsidiaries, Murex and Murex Investments, has madeloans and advances to certain partnerships and companies. In addition, the Organization, throughits subsidiary, Murex Investments, has made loans to certain companies in which it has an equityinterest. Murex Investments invests in certain companies located in distressed areas ofPhiladelphia, Pennsylvania. It requires all of its investees to adhere to certain principles,including a minimum level of hiring local people from welfare, a minimum wage in excess of thefederal minimum wage, and the sharing of profits with the employees. The major sources offunds for investing in and lending to these companies were restricted grants and donations. Theinvestments in these companies are accounted for using the equity method of accounting. Thenature of the significant loans are as follows:

23



5. Advances and loans to investees (continued)

2007 2006

Various advances to affiliated entities inwhich the Organization or its subsidiaries hasan ownership interest or control. These advanceshave no repayment terms. $ 642,796 $ 450,884

Note receivable to three partnerships in whichMurex is a partner. The note bears interest at1 % over prime rate, 9.25% at June 30,2007 and 2006, and is due on demand. 58,000 72,000

Various advances to companies, payable ondemand and bearing a 5% interest rate. 82,000 82,000

Various advances to companies, payable ondemand and bearing an 8% interest rate. 72.387 75.086

855,183 679,970

Less allowance for uncollectible advances and loans ( 170.930 ) ( 75.022 )

$ 684.253 $ 6Q4.94S

6. Deferred income taxes and net operating loss carryforwards

The for-profit corporations (Murex and Murex Investments) have accumulated deferred incometax assets resulting primarily from allowances created against investments, notes, and accountsreceivable and net operating loss carryforwards aggregating approximately $600,000. Avaluation allowance was created to offset the assets, as management believes it is not likely thatthey will be utilized.

The Companies have net operating loss carryforwards of approximately $1,443,000 atDecember 31, 2006 (their latest tax year end) which are available to offset future federaltaxable income. These carryforwards will begin to expire in 2019.

24



7. Lines of credit and short-term borrowings

The Organization has lines of credit and short-term borrowings as follows:

2007 2006

Line of credit of $20,000,000 with two banks;interest on borrowings under this agreementis based on the lower of prime rate less 1%orLIBOR+2.0%. The interest rate at June 30,2007 was 7.25%. It is collateralized by accountsreceivable and other assets of the Organization. $ 6,000,000 $

Line of credit of $650,000 with a bank; intereston borrowings under this agreement is primerate minus 1%; the interest rate at June 30,2007was 7.25%; the line is collateralized by allpersonal property of SQA Pharmacy. 344,000

Line of credit of $1,500,000 with a bank;interest on borrowings under this agreementis based on the federal funds rate plus 1%.At June 30,2006, the effective rate was7.5 %. This line of credit was cancelled duringfiscal year ended June 30,2007. - 683,977

Line of credit of $12,000,000 with anotherbank; interest under this agreement is at thelower of LIBOR + 2.75% or the bank's prime rate.The interest rate was 8.08% at June 30,2006.It is collateralized by accounts receivable andinventory. This line of credit was amended andconsolidated with the $20,000,000 line of creditnoted above during fiscal year endedJune 30,2007. -_ 2.199.000

$ 6.344.QpQ $ 2.882.977

The Organization is obligated under outstanding letters of credit of $3,426,700 and $3,263,178 atJune 30,2007 and 2006, respectively.

The SQA Pharmacy line of credit agreement includes certain financial covenants includingrequirements to maintain defined ratios of current assets to current liabilities, liabilities to tangiblenet worth, and other requirements. At June 30, 2007, the Pharmacy was not in compliance withthe financial ratios, however, the Pharmacy obtained a waiver for the noncompliance from thebank.

25

RESOURCES FOR HUMAN DEVELOPMENT, INCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8. Long-term debt2007 2006

Mortgage notes, payable in monthly installmentsranging from $0 to $4,313, mostly including interestranging from 4.0% to 8.75%, collateralized byvarious properties, maturing at various times fromJuly, 2007 through June, 2036. $ 4,151,113 $ 4,172,069

Mortgage notes, payable in monthly installmentsranging from $0 to $21,841, mostly including interestranging from 1% to 7.1%, collateralized by rentalproperty and equipment, maturing at various timesfrom June, 2027 through December, 2028. 4,237,940 4,356,843

Mortgage notes, payable in monthly installmentsranging from $0 to $4,428, mostly including interestranging from 1% to 10.5%, collateralized by theincome producing assets, maturing at various timesfrom year 2021 through 2035. 700,428 715,585

Note payable, interest due semi-annually basedon interest income received related to investmentof these proceeds. 1,500,000 1,500,000

Notes payable, due in monthly installments of $1,825including interest at 7.5%, uncollateralized,maturing July, 2007. 90,884 106,422

Note payable, interest due semi-annually at 4.0%,principal due July, 2007. 50,000 50,000

Note payable, interest due semi-annually at 3%,principal due February, 2012. 15,000

Note payable maturing September, 2007 includinginterest at 3%. 25.000 25.000

10,770,365 10,925,919

Less current portion 286.568 215.513

Long-term portion $ JQ.483.797 $ 1Q.71Q.4Q6

26



8. Long-term debt (continued)

Maturities of long-term debt over the next five years and thereafter are as follows:

Year ending June 30.2008 $ 286,5682009 202,9852010 214,5242011 278,8822012 456,892Thereafter 9.330.514

$ 1Q.77Q.365

Interest expense for the years ended June 30, 2007 and 2006 was $833,608 and $747,904,respectively.

9. Deferred credits

The Organization has received grants/loans from various governmental agencies for acquiringand/or rehabilitating properties for specified purposes. If the conditions of each grant/loanagreement are met, these balances will be forgiven over periods ranging from 10 to 20 years. Thegrants/loans bear no interest except in the event of default. No interest has been accrued becauseit is the intention of the Organization to comply with all related conditions. The deferred creditbalances are as follows:

2007 2006

Federal Home Loan Bank (originated June, 1993in the amount of $70,000 to be forgiven at therate of 6.667% per year over a 15-year periodending June, 2008) $ 2,795 $ 7,462

Montgomery County Home Program (originatedJune, 1996 in the amount of $68,333 to beforgiven in July, 2011) 68,333 68,333

Montgomery County Home Program (originatedSeptember, 1988 in the amount of $83,690 to beforgiven at the rate of 10% per year after the initial10-year period) 5,607 13,976

27



9. Deferred credits (continued)

2007 2006

Florida Department of Children and Families(originated July, 2003 in the amount of $11,180 tobe forgiven 20% per year through June, 2008) 2.236 4.472

$ 78.971 $ 94.243

During the year ending June 30, 2008, it is anticipated that $10,638 of deferred credits will beforgiven.

10. Lease commitments

Operating leases

The Organization leases various buildings and equipment under leasing arrangements expiringthrough the year 2036. These leases are accounted for as operating leases. Generally, leases withterms beyond one year contain defending clauses which allow the Organization to terminate alease, within 90 days of the loss of government funding. Future minimum annual rentals requiredunder lease arrangements at June 30, 2007 are as follows:

Year ending June 30.2008 $ 5,281,8962009 2,912,0682010 2,532,4792011 1,926,4282012 1,598,781Thereafter 6.670.171

Total $ 20.921.823

The Organization also maintains numerous leases with terms of up to one year which are notincluded in the above schedule. Rent expense for the years ended June 30, 2007 and 2006 totaled$8,101,269 and $7,100,878, respectively.

Capital lease obligations

The Company leases numerous automobiles under noncancellable capital leases. As a result,$815,294 and $1,041,430 of leased assets and $794,420 and $979,511 of related accumulateddepreciation have been included in property and equipment as of June 30, 2007 and 2006,respectively. The leases have imputed interest rates ranging between 4% and 8% per .annum.Future minimum lease payments are as follows:

28



10. Lease commitments (continued)

Capital lease obligations (continued)

Year ending June 30.2008 $ 18,3182009 616

18,934

Less amount representing interest 506

Present value of minimum lease payments 18,428

Current portion 17.819

Long-term portion $ 609

11. Captive and self-insurance

The Organization belongs to a captive insurance program, which covers workers compensation,automobile and general liability. Excess insurance policies are maintained with respect to thevarious self-insurance plans, and claims are handled by third-party administrators. Included inaccounts payable and accrued expenses at June 30, 2007 and 2006 is $1,399,847 and $1,206,388,respectively, for future claims for all self-insurance coverage, which represents an estimate bymanagement. The ultimate cost, however, will depend on the extent of future claims.

The Organization is also self-insured for unemployment claims in certain states, and therefore isresponsible for paying actual unemployment claims as they are incurred. As a result,approximately $3,000,000 and $2,700,000 is included in accrued expenses, as of June 30, 2007and 2006, respectively, as a reserve for potential future claims. This also is an estimate bymanagement and the ultimate cost will depend on the extent of future claims.

12. Retirement plans

Deferred compensation plan

The Organization has implemented a non-qualified deferred compensation plan in accordancewith Internal Revenue Service Code Section 457. In order to receive a payment under this plan,an employee must have both worked full-time for the Organization for 25 years and have attainedthe age of 65. The benefit amount is equal to the annual salary that the employee was receivingon the later of the dates on which the employee completes 25 years of service or attains the age of65. It will be paid to the employee in four annual installments beginning hi the year the employeeattains both criteria. At June 30,2007 and 2006, the estimated present value of the future benefitsare $337,269 and $227,268, respectively, and have been included in accrued expenses.

29



12. Retirement plans (continued)

Pension plan

The Organization maintains a noncontributory, variable annuity "403(b)n plan for the benefit ofall full-time eligible employees. Each employee is fully vested immediately upon entry into theplan. Employee participation is voluntary and contributions by the employees are pursuant tosalary reduction. The Organization does not match employee contributions.

13. Revenues - various states

A breakdown of support from various states is as follows:

Years ended June 30.

ConnecticutDelawareFloridaLouisianaMarylandMassachusettsNew JerseyNorth CarolinaPennsylvaniaRhode IslandTennesseeWashington, DC

Total

$2007

5,416,6482,103,9415,980,8163,897,633826,589

5,602,0881,694,5441,992,5485,050,352972,088

5,820,5006.296.811

2006$ 3,584,446

1,454,5325,599,7462,386,650

-5,436,1561,358,3801,200,6095,544,508704,881

2,765,1681.424.784

S 45.654.558 $ 31.459.860

14. Concentrations of credit risk

Programs operated by the Organization are primarily funded by various governmental agencies.The ability of the Organization to maintain its overhead structure and meet future financialcommitments is dependent on the continued funding of these programs.

The Organization maintains cash balances at financial institutions located in various states.Accounts at an institution may, at times, exceed the Federally insured limits of $100,000. As ofJune 30,2007, approximately $5,597,000 of cash balances exceeded insured limits.

30



15. Other commitments and contingencies

Litigation

The Organization is currently defending itself in several ongoing lawsuits. All estimated costsrelating to these actions have been included in accrued expenses or are covered under existinginsurance policies.

Guarantee commitment

The Organization has applied the disclosure provisions of FASB Interpretation No. 45 (FIN 45),"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others", to its agreements that contain guarantee clauses. Thesedisclosure provisions expand those required by FASB Statement No. 5, "Accounting forContingencies", by requiring a guarantor to disclose certain types of guarantees, even if thelikelihood of requiring the guarantor's performance is remote. FIN 45 requires the Organizationto record the guarantee commitments as liabilities in the statement of financial position, startingwith guarantees entered into after December 31,2002, rather than simply disclosing the guaranteecommitments in the financial statement footnotes. The following is a description of arrangementsin which the Organization is the guarantor.

The Organization has guaranteed that there will be funds available in an entity partially owned byMurex Investments over a ten year period to match similar amounts provided by the SmallBusiness Administration (SBA). The entity will use these funds for technical assistance in itsinvestment program. If the entity cannot generate funds equal to the funds provided by the SBAfor paying its technical assistance costs, then the Organization must provide the funds. At June30, 2007, the Organization has received restricted contributions and grants available to fund thisproject, if necessary. The present value of the liability at June 30, 2007 and 2006 was $428,952and $809,397, respectively. The current portion of this liability is $165,000 and is reported aspart of accrued expenses at June 30, 2007 and 2006, with the remaining balance reported as along-term commitment in the statement of financial position.

Murex Investments is also a guarantor of a $100,000 loan obtained by another company in whichit is an investor. The total liability of $100,000 is included in long-term commitments in thestatement of financial position at June 30,2007 and 2006.

Capital commitment

Murex Investments is committed to invest $2,350,000 in a limited partnership whose objective isto invest in a diversified portfolio of companies located primarily in economically distressedareas. The commitment is funded based on capital calls made by the general partner of thepartnership and must be funded by March 31, 2009. As of June 30, 2007, approximately$1,926,000 had been funded. Subsequent to June 30, 2007, Murex Investments contributed anadditional $424,000 of capital, to fulfill this commitment.

31

RESOURCES FOR HUMAN DEVELOPMENT, BVC,NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15. Other commitments and contingencies (continued)

Other commitments

SQA Pharmacy has a consulting agreement contingent upon future services that expires on July31, 2011. The following summarizes the future minimum consulting fees due under thisconsulting agreement which extend beyond one year:

Year ending June 30. Amount

2008 $ 132,0002009 132,0002010 132,0002011 132,0002012 11.000

$ 539.000

The Pharmacy also has a prime vendor agreement. This agreement provides that this vendor willbe its primary provider of prescription and over-the-counter drugs purchased for resale.

16. Subsequent events

In October 2007, the Organization entered into a swap transaction with a bank in connection withfinancing $6,000,000 in leasehold improvements at its main headquarters as well as two locationsfor its Family Practice and Counseling Network. The Organization has also received acommitment from the same bank to provide a $6,000,000 revolving credit line, which wouldconvert to a 10-year term loan, maturing July 2018. Under these agreements, the Organizationwill incur net interest on outstanding balances at 6.45% per annum.

Subsequent to June 30, 2007, the Organization purchased two residential properties inMassachusetts and three residential properties in Connecticut, which will be used to expandservices in both states. Mortgage debt incurred related to these property purchases amounted toapproximately $2,100,000.

Subsequent to June 30, 2007, the Organization notified the funder that effective January 31, 2008,the Organization will no longer be providing services to consumers in Washington, DC. Duringfiscal year ended June 30, 2007, the Organization generated approximately $6,300,000 hi supportfrom Washington, DC.

32

SUPPLEMENTAL INFORMATION

SHECHTMAN MARKS DEVOR PCCer t i f i ed P u b l i c A c c o u n t a n t s

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ONOTHER SUPPLEMENTAL INFORMATION


Our audits were performed for the purpose of forming an opinion on the basic consolidated financialstatements of the Organization taken as a whole. The accompanying other supplemental information onpages 34 through 78 is presented for purposes of additional analysis and is not a required part of the basicconsolidated financial statements. Such information has been subjected to the auditing procedures appliedin the audits of the basic consolidated financial statements and, in our opinion, is fairly stated, in allmaterial respects, in relation to the basic consolidated financial statements taken as a whole.


33

2000 Market Street • Suite 500 • Philadelphia, PA 19103 • phone: 215.496.9200 • fax 215.496.9604 • www.smd-pc.com

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RESOURCES FOR HUMAN DEVELOPMENT, INC.OFFICE OF BEHAVORIAL HEALTH & MENTAL RETARDATION

SCHEDULE OF ADJUSTMENTS ON PROGRAM ACTIVITY INVOICE SUMMARYCONTRACTS NO. 05-20051-02,02-20112-02, AND 05-20060-02

YEAR ENDED JUNE 30,2007

Contract number:

Code no.

Contract number:

Code no.

05-20051-02

0200-1637

02-20112-02

0202-0942

Contract number:

Code nos.

05-20060-02

0260-12000260-16170260-1637

0260-28570261-16150261-2857

0260-0042

There were no adjustments to the above Program Activity Invoice Summary.

Contract number:

Code no.

05-20060-02

0260-1615

There were adjustments made to the Program Activity Invoice Summary for the above code no.which are explained on the following page.

39

RESOURCES FOR HUMAN DEVELOPMENT, INC.OFFICE OF BEHAVIORAL HEALTH & MENTAL RETARDATION

SCHEDULE OF ADJUSTMENTS ON PROGRAM ACTIVITY INVOICE SUMMARYYEAR ENDED JUNE 30,2007

Contract numberCode no.

Personnel

Operating

Administration

Total

Revenue

Net to .be Funded

05-20060-020260-1615

AuditedProgram Program

Activity Invoice Activity InvoiceSummary Summary

Adjustment/Difference

14,754,982 14,757,966

14,754,982 14,757,966

2,984 (A)

2,984

$ 14,754,982 $ 14,757,966 $ 2,984 (B)

Explanation of Adjustment/Difference:

(A) Expenses booked after invoice was prepared.

(B) Sum of resultant effects.

40

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RESOURCES FOR HUMAN DEVELOPMENT, INC.OFFICE OF BEHAVORIAL HEALTH & MENTAL RETARDATION

SCHEDULE OF ADJUSTMENTS ON PROGRAM ACTIVITY INVOICE SUMMARYCONTRACT NO. 05-20048-02YEAR ENDED JUNE 30,2007

Code nos. 01-00-140001-00-149301-00-161201-00-161501-00-161601-00-161801-00-162101-00-1634

01-00-164301-00-169001-00-169501-00-169601-00-221801-02-161601-02-169501-04-1615

01-04-162101-04-162201-06-162201-07-162001-08-162201-24-160201-40-145601-40-1626

01-82-152601-84-145601-84-152601-84-161301-84-162601-84-165301-84-2090

There were no adjustments to the above Program Activity Invoice Summary.

Code nos. 01-00-1613, 01-00-1653 and 01-24-1613

There were adjustments made to the Program Activity Invoice Summary for the above code nos.which are explained on the following pages.

42



Contract numberCode no.

Personnel

Operating

Administration

Total

Revenue

Net to be Funded

05-20048-0201-00-1613


Activity InvoiceSummary

$

$

3,176,849

1,270,484

667,100

5,114,433

334,024

4,780,409

Activity Invoice Adjustment/Summary Difference

$ 3,176,849 $

1,270,661

667,126

5,114,636

334,469

$ 4,780,167 $

-

177 (A)

26 (B)

203

445 (C)

(242) (D)


(A) Expenses booked after invoice was prepared.

(B) Administrative overhead allocation based on difference in revenue items.

(C) Room and Board revenue booked after invoice was prepared.

(D) Sum of resultant effects.

43


SCHEDULE OF ADJUSTMENTS ON PROGRAM ACTIVITY INVOICE SUMMARYYEAR ENDED JUNE 30, 2007

Contract number:Code no.

Personnel

Operating

Administration

Total

Revenue

Net to be Funded

05-20048-0201-00-1653


Activity Invoice Activity Invoice Adjustment/Summary Summary Difference

$

$

417,926 $

271,365

103,394

792,685

427,916

364,769 $

417,926 $

271,365

103,394

792,685

429,305

363,380 $

-

-

_

-

1,389 (A)

(1,389)(B)


(A) Room and Board revenue booked after invoice was prepared.

(B) Sum of resultant effects.

44



Contract number:Code no.

Personnel

Operating

Administration

Total

Revenue

Net to be Funded

05-20048-0201-24-1613


Activity Invoice Activity Invoice Adjustment/Summary Summary Difference

$

$

491,885 $

128,628

93,077

713,590

536,576

177,014 $

491,885 $

128,628

93,069

713,582

536,734

176,848 $

-

-

(8) (A)

(8)

158 (B)

(166) (C)

Hxnlanation of Adjustment/Difference:

(A) Administrative overhead allocation based on difference in revenue items.

(B) Room and Board revenue booked after invoice was prepared.

(C) Sum of resultant effects.

45

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REPORT OF FUNCTIONAL EXPENDITURES

YEAR ENDED JUNE 30, 2007

AGENCY NAME AND ADDRESS

RESOURCES FOR HUMAN DEVELOPMENT, INC.4700 WSSAMCKON AVENUEPHILADELPHIA, PA 19144

SUBMIT TO

CITY OF PHILADELPHIADEPARTMENT Of HUMAN SERVICESCHILDREN AND YOUTH AGENCYPURCHASE OF SERVICES

OBJECTS OF EXPENSE

1 SALARIES & WAGESAdministrationProfessionalClericalMaintenance & ServicesChBd Care & ActivitiesOvertime

6 F.I.CA7 Unemployment Comp8 Worker's Compensation9 Employee Health & Welfare Benefits

30 TOTAL SALARIES & WAGES

OPERATING EXP& ADMIN31 Professional Fees & Contract Payment32 Supplies33 Telephones. Telegraph34 Postage & Shipping35 Local Transportation36 Outskte Printing, Art Work, Etc.37 Conferences, Conventions, Meetings38 Subscriptions, Reference Publications39 Membership Dues40 Awards and Grants41 Equip., Fum.&Mtr.Veh.43 Fund Raising44 Other -Miscellaneous

Administrative Overhead Allocation

TOTAL OPERATING EXPENSE

OCCUPANCY60 Office Rent51 Btdg & Bkfg Equipment Ins52 BuMoIng & Ground Upkeep53 Utilities57 Other

Janitorial & Mairrt. Serv CootMortgage trrteresVTaxes

82 TOTAL OCCUPANCY EXPENSE

CHILDREN'S DIRECT EXPENSE63 Food or Board Payment65 Clothing, cleaning & repairing66 Activities: recreation, camp67 Personal Expenses68 Transportation69 Medteal & Dental Fees & Supplies70 Other

75 TOTAL CHILDREN'S DIRECT EXP.

TOTALCORPORATION

$ 61,994,463------

6,258,2381,285,194%231,7319.067.104

101,836,730

9,140,3416,615,9371,755,879

285,71069,828

313,526----

8,149,572382,614

8,351,444-

35,065,051

8,128,7021,596,028

735,9162,326,709

211,372755.916

13,754,643

9,351---

18,748--

28.099

FH NorristownFamily Service

Coordinator$ 39,760

--•---

2,790320

1,9774.705

49,552

-1,875

600-

1.943-------

3,4195,739

13,576

---.

.-

-

.------

.

FH-NOWFamlr/ Service

Coordinator$ 43,111

--•--•

3,052628

2,1493.341

52,281

-1,000

600•

1,820•------

1,7905.749

10,959

----

-•

-

---

--

.

YOUTHEMPLOYMENT

$ 528,721-•-•--

39,0714,9534,368

59,106

636,219

46,38147,12312,9073,301

10,017--•--

57,771-

58,555128.125

364,180

130,2429,5594,3726,774

--

150,947

8259

-

18,748

-

27,007

COMMUNITYREINTEGRATION$ 467267

-•••••--•

112296

599,563

•4,997

15.9101,121

56,046-•--•

10,955-

21,976117,730

228.737

50,5808,1997,4187,008

--

73205

1,092

-

--

1.092

81 GRAND TOTAL ALL EXPENSES

TOTAL DAYS OF CARE - ALL CHILDRENTOTAL DAYS OF CARE - DHS CHILDREN

CAPACITY OF ALL FACILITIES

$ 150,664,523 1 1 S

N/AN/A

N/A

63,128 I $

N/AN/A

N/A

63240 | |$ 1,178,3531$

N/AN/A

N/A

902.687

N/AN/A

N/A

47

REPORT OF FUNCTIONAL EXPENDITURES


AGENCY NAME AND ADDRESS

RESOURCES FOR HUMAN DEVELOPMENT, INC.4700 WISSAHICKON AVENUEPHILADELPHIA, PA 19144

SUBMIT TO

CITY OF PHILADELPHIADEPARTMENT OF HUMAN SERVICESCHILDREN AND YOUTH AGENCYPURCHASE OF SERVICES

REPORT OF REVENUE BYFUNCTIONAL PROGRAM

60 | FEDERAL GOVERNMENT61 Tm_EI62 TFTLEII63 TITLE XIX$4 TITLE XX65 FEDERAL -OTHER71 PA STATE GOVT

STATES - OTHER

74 PHILA., DHS76 OTHER PA COUNTIES

MONTGOMERY COUNTYOTHERS

81 C.O.DAA.P.62 MR/MH-PHILADELPHiA83 OTHER PHILA

78 MEDICAL ASSISTANCE /CBH/MAG

88 RENTAL INCOME90 FOUNDATIONS/CORPORATIONS91 ORGANIZATIONS92 PROGRAM INCOME93 CLIENTS FEES

OTHER INCOMEGRANTS/DONATIONSSALES/FEESINTEREST/MISCELLANEOUSNET ASSETS RELEASED FROM

RESTRICTIONS

TOTALCORPORATION

$ 3,939,667-----

5,050,35240,604,206

1,452,042

9,897,17410,351,688

490,49238,750,3894,710,642

12,560,361

.

.--

14,248,158

1,885,6666,574,340

345,282

905.798

FH NorristownFamily ServiceCoordinator

$--•----

62,307

-•

.-•

-

.

.--.

.

.-

-

FH-NOWFamily ServiceCoordinator

$---•.-•

62,932

--

.-•

-

.

.---

.

.-

•

YOUTHEMPLOYMENT

$•---.-•

363,239

--

.-

815,000

-

.

.

.

.-

.

.-

-

COMMUNITYREINTEGRATION

$•-----•

983,564

-•

.-•

-

.

.

.

.-

7,041..

-

] 95 T GRAND TOTAL f$ 151.766.4771 1$ 82.3071$ 62.9321 IS 1.176.239 I $ 970.6051

RESOURCES FOR HUMAN DEVELOPMENT, INC.CITY OF PHILADELPHIA OFFICE OF HOUSING AND COMMUNITY DEVELOPMENT

SCHEDULE OF SOURCE AND STATUS OF FUNDSCONTRACT NO. 07-20033


Total contract:

Less:Funds drawn down - prior fiscal year

Funds drawn down - current year

Total funds drawn down

Funds still available for draw down

Total funds drawn down

Add:Program income

Total funds received

Less:Program income expendedFunds applied - prior fiscal yearFunds applied - current fiscal year

Total funds applied

Total funds due from funding source

Total funds available for disposition

CDBGFunds

$ 90,733

90,068

90,068

$ 665

$ 90,068

90,068

90,068

90,068

$

$ 665

HOME Other CityFunds Funds

$ 217,200 $

214,614

214,614

$ 2,586 $

$ 214,614 $

214,614

214,614

214,614

$ - $

$ 2,586 $

Non-CityFunds Total

$ 307.933

304,682

304,682

3,251

$ 304,682

304,682

304,682

304,682

3,251

Amounts on this schedule do not include the accrual for vacation as discussed in footnote 1.49


SCHEDULE OF PROGRAM INCOMECONTRACT NO. 07-20033


Sale Rentproceeds collected Total

Program income (cumulative through June 30,2006) $

Less program income expended in prior fiscal years

Beginning balance, July 1, 2006

Add program income received in current fiscal year

Less program income expended in current fiscal year

Ending balance, June 30,2007 $


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RECONCILIATION SCHEDULECONTRACT NO. 07-20033


Amount Per Amount Per June 30,2007Audit Report Subrecipient Invoices Differences

Contract amount $ 307,933 $ 307,933 $

Program costCurrent year 304,682 304,682Cumulative 304,682 304,682

Funds drawn downCurrent year 304,682 304,682Cumulative 304,682 304,682

Balance of advance $ 3,251 $ 3,251 $


RESOURCES FOR HUMAN DEVELOPMENT, INCCITY OF PHILADELPHIA OFFICE OF SUPPORTIVE HOUSING

RECONCILIATION OF AGENCY REPORTED EXPENDITURES/REVENUESTO AUDITED EXPENDITURES/REVENUES

CONTRACT NO. 06-20180-01YEAR ENDED JUNE 30,2007

Expenditures by cost center:

Total personnel services

Total operating expenses

AmountReportedon FiscalReport

Total fixed assets

Total client expenses

Total expenditures by cost center

Funding sources:

Client fees

City of Philadelphia, OSH

Total funding

Excess of expenditures over funding sources $

(A)Other

Adjustments

$ 144,645 $

44,377 (1,207)

10,496

199,518 (1,207)

196,166

196,166

$ (3,352) $ 1,207

Amountper

Audit

$ 144,645

43,170

10,496

198,311

196,166

196,166

(2,145)

(A) Amount of operating expenses previously reported incorrectly.


RESOURCES FOR HUMAN DEVELOPMENT, INC.CITY OF PHILADELPHIA OFFICE OF SUPPORTIVE HOUSING






Total fixed assets



Funding sources:

Client fees


Total funding



1,458,962

1,458,010

1,458,010

OtherAdjustments

$ 1,091,684 $

219,545

20,165

127,568

(952) $

Amountper

Audit

$ 1,091,684

219,545

20,165

127,568

1,458,962

1,458,010

1,458,010

(952)


RESOURCES FOR HUMAN DEVELOPMENT, INC.CITY OF PHILADELPHIA OFFICE OF SUPPORTIVE HOUSING




OtherAdjustments

Amountper

Audit




Total fixed assets



Funding sources:

Client fees


Total funding


Note: There was no activity for this contract during the year ended June 30,2007.


RESOURCES FOR HUMAN DEVELOPMENT, INC.CITY OF PHILADELPHIA

COORDINATING OFFICE FOR DRUG AND ALCOHOL ABUSE PROGRAMSSCHEDULE OF FUNCTIONAL EXPENDITURES

BY CONTRACT/PROGRAM AND REVENUES BY FUNDING SOURCECONTRACT NO. 05-20006-01YEAR ENDED JUNE 30,2007

Endow-a-HomeOutpatient Services

Contract No.05-20006-01

Expenditures by cost center:Total personnel services $ 210,947Total operating expenses 52,494Total fixed asests

Total expenditures by cost center 263,441

Funding sources:Client feesCity of Philadelphia, Coordinating

Office for Drug and Alcohol Abuse 64J560Other 193,566

Total funding sources 258,126

Excess of expenditures over funding sources $ (5,315)


RESOURCES FOR HUMAN DEVELOPMENT, INC.CITY OF PHILADELPHIA

COORDINATING OFFICE FOR DRUG AND ALCOHOL ABUSE PROGRAMSSTATEMENT OF UNITS OF SERVICE AND PROGRAM REVENUE


Type of Service

Residential

A.H.A.D. (Always Have A Dream)

Total Unitsof Net Approved Unit

Service Per Billing RateAudit Per Audit Gross Cost

14,232 $33.26 $ 473,356

Detail of Program RevenueProgram Revenues Related to:

Client Program Fees

Food Stamps

Private Health Insurance

Other Third Party Fees

Total

21,787

10,718

605

33,110

Net Billing Per Audit

Net Billed to CODAAP- Contract Ceiling

$ 440,246

$ 425,932


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RESOURCES FOR HUMAN DEVELOPMENT, INC.LEHIGH COUNTY

SCHEDULE OF REVENUE AND EXPENSES - MH PROGRAMSYEAR ENDED JUNE 30,2007

Revenue:FFS revenuePrior year write offRecruitment and retentionRoom, boardOther income: donation/vehicle salesProgram funding

Total Revenue

Expenses:Salaries & wagesSocial security taxesOther benefitsStaff developmentPurchased personnel and servicesOn-Site psychiatric (Hope House only)RentUtilitiesInsurance-contentsInsurance-serviceHousekeepingCommunicationsOffice/computer suppliesCopy machine leaseMedical suppliesMedicationsClothingFoodRehabilitation suppliesRecreationHousehold goodsStafftravelClient transportationLibraryMiscellaneous operatingEquipment and furnishings-largeEquipment and furnishings-smallBuilding repair and maintenanceEquipment repair and maintenance contractsMotor vehicle lease/purchaseMotor vehicle expenseMotor vehicle repairs/suppliesMotor vehicle insurance

Total Direct ExpensesAdministrative Overhead

Total Expenses

Support and revenue over/(under) expenses

Request for retained revenue

Hope SpringsAlmond Rd.

$ _

7,87918,503

72281,555308,009

137,7388,725

24,226251

2,3131,7338,6423,377

1462,0692,4863,0571,420

-131

--

5,5781,148

3612,4861,247

-6

257719682578

1,0372,8602,5331,0731,985

218,86427,804

$ 246,668

$ 61,341

$

Hope SpringsFriedens Rd.

$.

7,87819,886

69178,788206,621

147,3829,358

30,102185

4,1331,7127,6393,219

1472,0791,8792,4901,292

-228

--

5,6461,294

3371,6481,857

-6

137770808

4,5631,1072,7852,0551,5551,986

238,39929,563

$ 267,962

$ (61,341)

$

LVACT

$ 100,934.----

100,934

46,1653,6077,008

9226,754

-5,572

9036

90029

2,2728638650

56618

89-

363,570

-29

240842293

190

754424190437

81,92412,289

$ 94,213

$ 6,721

$

FlexibleFunds

$----

53,09453,094

---

60-

47,785-------

404186251938

2,667-

91-

712-------.--

53,094-

$ 53,094

$

$

LV MedicalMobile

$ 14,636147

182,4386,608

80-

203,909

86,0356,6835,304

9239,317

-1,396

11121

-5

3,7181,652

263

508--

37--5-

741,0727,5352,6011,000

1719,176

239-

880177,50726,626

$ 204,133

j jga$



SCHEDULE OF REVENUE AND EXPENSES - MR PROGRAMSYEAR ENDED JUNE 30, 2007

28th Street Hanoverville Total

Revenue:Lehigh County MRClient room & boardOther income, net

Total Revenue

Expenses:Wages and salariesEmployee benefitsMiscellaneous personnelOccupancyCommunicationsSupportive servicesTransportationMiscellaneous expenseEquipment and fixed assetsRepair and improvementsAdministrative overhead expenses

Total expenses

Less Client room and boardPrivate PayOther

Unallowable Expense per 4300 regs

Total Net Allowable Expenses per 4300 Regs

Supported revenue under expenses


$

$

$

326,875 $5,533

(1,047)331,361

186,39450,4382,360

22,1173,717

13,0129,5715,0393,697

58735,632

332,564

5,533

815,614

326,950

(1,203) $

2,055 $

4,425--

4,425

2,321696

--

934-----

4744,425

-

.

-

4,425

.

_

$ 331,3005,533

(1,047)335,786

188,71551,1342,360

22,1174,651

13,0129,5715,0393,697

58736,106

336,989

5,533

815,614

331,375

$ (1,203)

$ 2,055



SCHEDULE OF REVENUE AND EXPENSES - MR PROGRAMS (CONTINUED)YEAR ENDED JUNE 30,2007

28th Street Hanoverville Total

UNIT COSTS/FUNDING BREAKOUT:

Total Number of Units Provided

Total Lehigh County Units Waiver

Total Lehigh County Units Non Waiver

Total Net Allowable Waiver Eligible Costs - Lehigh County

Total Net Allowable Waiver Ineligible Costs - Lehigh County

Total Net Allowable Non Waiver Costs - Lehigh CountyTotal Net Allowable Lehigh County Expense

Net Total Allowable Unit Rate - Lehigh County

Net Allowable Waiver Eligible Rate - Lehigh CountyNet Allowable Waiver Ineligible Rate - Lehigh County

Net Allowable Non-Waiver Rate - Lehigh County

23

23

23

$ 310,382 $

16,568

$ 326,950 $

$ 14,215.22 $

13,494.88$ 720.34 $

23

23

23

$ 310,382

16,568

$ 326,950

$ 14,215.22

13,494.88$ 720.34


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RESOURCES FOR HUMAN DEVELOPMENT, INC.MONTGOMERY COUNTY FUNDED PROGRAMS

SCHEDULE OF REVENUE AND EXPENSESYEAR ENDED JUNE 30,2007

Mental Retardation

Revenue:Montco program fundedMontco fee-for-serviceOther Co/StateProgram/client feeMiscellaneous income

Total Revenue

Expenses:SalariesTaxes/benefitsPurchased personnelRent, utilities and housekeepingInsuranceCommunicationsOffice and program suppliesFoodStaff travelPurchased equipmentProperty and building maintenanceTransportation-vehicle

Total direct expensesAdministrative overhead

Total expenses

RSS

$ 152,9552,384,429

-161,69824,980

2,724,062

971,683259,703459,173303,31327,10514,51441,68949,2469,547

19,605135,685107,620

2,398,883301,441

2,700,324

LMVTC

$ 16,594829,79934,24495,50885,688

1,061,833

515,051143,29014,97058,89917,30411,97388,226

221393

10,02527,01924,403

911,774127,863

1,039,637

Family SupportServices

$ 40,226---

27,78668,012

-28,714

---

38,245-

1,053---

68,012-

68,012

Totals

$ 209,7753,214,228

34,244257,206138,454

3,853,907

1,486,734402,993502,857362,21244,40926,487

168,16049,46710,99329,630

162,704132,023

3,378,669429^04

3,807,973

Support arid revenue over expenses 23,738 $ 22,196 $ 45,934

Revenue for RSS does not include $146,023 which was received in FY 06-07 to offset renovation costs at 7931 Green Laneincurred in prior years.


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RESOURCES FOR HUMAN DEVELOPMENT, INC.NORTHAMPTON COUNTY

SCHEDULE OF REVENUE AND EXPENSES - MENTAL RETARDATION PROGRAMSYEAR ENDED JUNE 30,2007

On Our Way

Revenue:Northampton County MRClient room and boardNorthampton County C&YUse of prior year retained revenueOther

Total revenue

Expenses:Salaries and wagesEmployee benefitsMiscellaneous personnelOccupancyCommunicationsSupportive servicesTransportationMiscellaneous expenseEquipment and fixed assetsRepair and improvementsOther administrative suppliesAdministrative overhead expenses

Less client room and boardPrivate payOther

Unallowable expenses per 4300 regsTotal net allowable expenses per 4300 regs

Support and revenue over/(under) expenses


$

$

$

Wagner

565,13711,066226,267

23,909826,379

477,089128,5989,13942,23410,87031,37615,7648,9715,5143,0454,47487,434824,508

11,06623,909220,768255,743568,765

1,871

15,109

Bath Pike

$ 583,85713,422

-

189597,468

316,07377,5103,60442,4838,94125,97310,2868,90818,03511,0324,67770,220597,742

13,422-

18913,611

584,131

$ (274)

$ 35,969

Total

$ 1,148,99424,488

226,267

24,0981,423,847

793,162206,108

12,74384,71719,81157,34926,05017,87923,54914,0779,151

157,6541,422,250

24,48823,909

220,957269,354

1,152,896

$ 1,597

$ 51,078


RESOURCES FOR HUMAN DEVELOPMENT, INC.NORTHAMPTON COUNTY

SCHEDULE OF REVENUE AND EXPENSES - MENTAL RETARDATION PROGRAMS (CONTINUED)YEAR ENDED JUNE 30,2007

Unit costs/funding breakout:Total number of units provided

Total Northampton County units waiver

Total Northampton County units non-waiverTotal net allowable waiver eligible costs -Northampton County

Total net allowable waiver ineligible costs -Northampton County

Total net allowable non-waiver costs -Northampton County

Total net allowable Northampton Countyexpense

Net total allowable unit rate -Northampton County

Net allowable waiver eligible rate -Northampton County

Net allowable waiver ineligible rate -Northampton County

Net allowable non-waiver rate -Northampton County

On Our WayWagner

72

72

$ 568,764

$ 568,764

$ 7,899.50

7,899.50

Bath Pike

63

63

$ 543,366

40,764

$ 584,130

$ 9,271.91

8,624.86

$ 647.05

Total

135

135

$ 1,112,130

40,764

$ 1,152,894

$ 8,539.96

8,238.00

$ 301.96


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RESOURCES FOR HUMAN DEVELOPMENT, INC.STATE OF RHODE ISLAND

SCHEDULE OF REVENUE AND EXPENSES FOR ALL AGENCY PROGRAMSYEAR ENDED JUNE 30, 2007

Revenue:State of Rhode IslandDepartment of MHRHOther state depts.

Outside contractsCity or town supportContributions and grantsSpecial events - fundraisingProgram revenueOther-

Total revenue

Expenses:Salaries and wagesBenefitsConsultantsSuppliesVehicles and travelInsuranceLeases and rentalsUtilitiesRepairs and maintenanceOther

Subtotal

Allocation of administrative expenses

Total expenses

Net surplus/(deficit)

Total

$ 970,219

7,440

86

977,745

543,616155,176

4,23629,46144,02712,79836,02712,3201,003

95,644

934,308

.

934,308

$ 43,437

DAY PROGRAMLess than24 hour

Administrative Residential Day Program

$ - $

-

160,30045,7774,2362,9465,0371,2793,6036,733

-3,695

233,606

(233,606)

S - S

10,224 $ 733,044

7,440

-

10,224 740,484

4,189 290,7781,086 83,019

-22,09617,3209,599

27,0204,655

50261,931

5,275 516,920

2,336 177,541

7,611 694,461

2,613 $ 46,023

In Home OtherSupport Program

$ 226,951 $

-

226,951

88,34925,294

-4,419

21,6701,9205,404

932501

30,018

178,507

53,729

232,236

$ (5,285) $

-

86

86

---------

-_

86

Amounts on this schedule do not include the accrual for vacation as discussed in footnote I.75


SCHEDULE OF ADMINISTRATIVE WAGESYEAR ENDED JUNE 30,2007

Number of HourlyHours Rate Total

Employee Job Title a Week of Pay Wages

Raymond Memery Program Director 40 $ 29.27 $ 60,882Timothy Jarkowsky Clerical 5 7.30 1,717Paul Everett Supervisor 38 15.14 29,562Erin Velino Administrative Assistant 40 18.48 38,439Joshua Kretzmann Supervisor 39 14.79 29,700

Total Administrative Wages $ 160,300



SCHEDULE OF PROFESSIONAL SERVICESYEAR ENDED JUNE 30,2007

Name CredentialsProgram orResidence

HourlyRate of

Pay

TotalHours

Worked

TotalPaid forthe Year

TotalConsultantsfor the Year

NURSING SERVICESEMPLOYEES

Sandra Founder 73.25 $ 1,868Sub-total 1,868

TOTAL $ 1,868


RESOURCES FOR HUMAN DEVELOPMENT, ESC.STATE OF RHODE ISLAND

DETERMINATION OF EXCESS (DEFICIT) FUNDINGYEAR ENDED JUNE 30,2007

Less Than24 Hour Day In-Home

Residential Program Support Total

Revenue from DDD $ 10,224 $ 733,044 $ 226,951 $ 970,219

Expenses related to DDD programs 7,611 694,461 232,236 934,308

Excess (deficit) $ 2,613 $ 38,583 $ (5,285) $ 35,911

5% of revenue $ 48,511

Monies due to the division* $

Excess/total DDD revenue 3.70%"~(must be 5% or less)

*Per the certification any funds over 5% are due to the Division


SHECHTMAN MARKS D EVQR PCCer t i f i ed P u b l i c A c c o u n t a n t s

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON

COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIALSTATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS


We have audited the consolidated financial statements of Resources for Human Development, Inc. andsubsidiaries as of and for the year ended June 30, 2007, and have issued our report thereon datedNovember 29,2007. We conducted our audit in accordance with auditing standards generally accepted inthe United States of America and the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and^performing our audit, we considered the Organization's internal control over financialreporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on theconsolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness ofthe Organization's internal control over financial reporting. Accordingly, we do not express an opinionon the effectiveness of the Organization's internal control over financial reporting.

A control deficiency exists when the design or operation of a control does not allow management oremployees, in the normal course of performing their assigned functions, to prevent or detectmisstatements on a timely basis. A significant deficiency is a control deficiency, or combination ofcontrol deficiencies, that adversely affects the organization's ability to initiate, authorize, record, process,or report financial data reliably in accordance with generally accepted accounting principles, such thatthere is more than a remote likelihood that a misstatement of the organization's financial statements thatis more than inconsequential will not be prevented or detected by the organization's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results inmore than a remote likelihood that a material misstatement of the financial statements will not beprevented or detected by the organization's internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in thefirst paragraph of this section and would not necessarily identify all deficiencies in internal control thatmight be significant deficiencies or material weaknesses. We did not identify any deficiencies in internalcontrol over financial reporting that we consider to be material weaknesses, as defined above.

79

2000 Market Street - Suite 500 . Philadelphia, PA 19103 • phone: 215.496.9200 • fax: 215.496.9604 - www.smd-pc.com

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Organization's consolidated financialstatements are free of material misstatement, we performed tests of its compliance with certain provisionsof laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct andmaterial effect on the determination of financial statement amounts. However, providing an opinion oncompliance with those provisions was not an objective of our audit, and accordingly, we do not expresssuch an opinion. The results of our tests disclosed no instances of noncompliance or other matters thatare required to be reported under Government Auditing Standards.

We noted certain other matters that we reported to management of the Organization in a separate letterdated November 29,2007.

This report is intended solely for the information and use of the Board of Directors, management andvarious Federal and state funding agencies, pass-through entities, City of Philadelphia, and theDepartment of Public Health and is not intended to be and should not be used by anyone other than thesespecified parties. Under Louisiana Revised Statute 24:513, this report is distributed by the LegislativeAuditor as a public document.

^e^P^^


80

SHECHTMAN MARKS D EVOR PCCer t i f i ed P u b l i c A c c o u n t a n t s

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSON COMPLIANCE WITH REQUIREMENTSAPPLICABLE TO EACH MAJOR PROGRAM

AND ON INTERNAL CONTROL OVER COMPLIANCEIN ACCORDANCE WITH OMB CIRCULAR A-133


Compliance

We have audited the compliance of Resources for Human Development, Inc. (the Organization) with thetypes of compliance requirements described in the U.S. Office of Management and Budget (OMB)Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for theyear ended June 30, 2007. The Organization's major federal programs are identified in the summary ofauditor's results section of the accompanying schedule of findings and questioned costs. Compliance withthe requirements of laws, regulations, contracts and grants applicable to each of its major federalprograms is the responsibility of the Organization's management. Our responsibility is to express anopinion on the Organization's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in theUnited States of America; the standards applicable to financial audits contained in Government AuditingStandards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations and the City of Philadelphia SubrecipientAudit Guide. Those standards, OMB Circular A-133 and the City of Philadelphia Subrecipient AuditGuide require that we plan and perform the audit to obtain reasonable assurance about whethernoncompliance with the types of compliance requirements referred to above that could have a direct andmaterial effect on a major federal program occurred. An audit includes examining, on a test basis,evidence about the Organization's compliance with those requirements and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion. Our audit does not provide a legal determination of the Organization'scompliance with those requirements.

As described in item 07-1, 07-2, and 07-3 in the accompanying schedule of findings and questioned costs,the Organization did not comply with requirements regarding procurement, suspension and debarmentthat are applicable to its major federal programs. Compliance with such requirements is necessary, in ouropinion, for the Organization to comply with the requirements applicable to these programs.

In our opinion, except for the noncompliance described in the preceding paragraph, the Organizationcomplied, in all material respects, with the requirements referred to above that are applicable to each of itsmajor federal programs for the year ended June 30,2007.

81

2000 Market Street . Suite 500 • Philadelphia, PA 19103 - phone: 215.496.9200 • fax 215.496.9604 - www.smd-pc.com

Internal Control Over Compliance

The management of the Organization is responsible for establishing and maintaining effective internalcontrol over compliance with the requirements of laws, regulations, contracts and grants applicable tofederal programs. In planning and performing our audit, we considered the Organization's internalcontrol over compliance with the requirements that could have a direct and material effect on a majorfederal program in order to determine our auditing procedures for the purpose of expressing our opinionon compliance, but not for the purpose of expressing an opinion on the effectiveness of internal controlover compliance. Accordingly, we do not express an opinion on the effectiveness of the Organization'sinternal control over compliance.

A control deficiency in an entity's internal control over compliance exists when the design or operation ofa control does not allow management or employees, in the normal course of performing their assignedfunctions, to prevent or detect noncompliance with a type of compliance requirement of a federal programon a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies,that adversely affects the entity's ability to administer a federal program such that there is more than aremote likelihood that noncompliance with a type of compliance requirement of a federal program that ismore than inconsequential will not be prevented or detected by the entity's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results inmore than a remote likelihood that material noncompliance with a type of compliance requirement of afederal program will not be prevented or detected by the entity's internal control.

Our consideration of internal control over compliance was for the limited purpose described in the firstparagraph of this section and would not necessarily identity all deficiencies in internal control that mightbe significant deficiencies or material weaknesses. We did not identify any deficiencies in internalcontrol over compliance that we consider to be material weaknesses, as defined above.

Schedule of Expenditures of Federal. State and Citv Awards

We have audited the basic consolidated financial statements of Resources for Human Development, Inc.and subsidiaries as of and for the year ended June 30, 2007, and have issued our report thereon datedNovember 29, 2007. Our audit was performed for the purpose of forming an opinion on the basicconsolidated financial statements taken as a whole. The accompanying schedule of expenditures ofFederal, state and city awards is presented for purposes of additional analysis as required by OMBCircular A-133 and the City of Philadelphia Subrecipient Audit Guide and is not a required part of thebasic consolidated financial statements. Such information has been subjected to the auditing proceduresapplied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated, inall material respects, in relation to the basic consolidated financial statements taken as a whole.

This report is intended solely for the information and use of the Board of Directors, management andvarious Federal and state funding agencies, pass-through entities, City of Philadelphia, and theDepartment of Public Health and is not intended to be and should not be used by anyone other than thesespecified parties. Under Louisiana Revised Statute 24:513, this report is distributed by the LegislativeAuditor as a public document.


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RESOURCES FOR HUMAN DEVELOPMENT, INC.NOTES TO SCHEDULE OF EXPENDITURES OF

FEDERAL, STATE AND CITY AWARDSYEAR ENDED JUNE 30,2007

1. General information

The accompanying schedule of expenditures of federal, state and city awards presents activities inall federal, state and city award programs of Resources for Human Development, toe. Allfinancial assistance received directly from federal agencies, as well as financial assistance passedthrough other governmental agencies or not-for-profit organizations, is included on the schedule.

2. Basis of accounting

The accompanying schedule of expenditures of federal, state and city awards is presented usingthe accrual basis of accounting. The amounts reported in this schedule as expenditures may differfrom certain financial reports submitted to funding agencies because those reports may besubmitted on either a cash or modified cash basis of accounting.

3. Relationship to basic consolidated financial statements

Federal, state and city award expenditures are reported on the statement of functionalexpenditures as program costs. However, expenditures in the schedule of expenditures of federal,state and city awards for certain programs which have incurred deficits have been limited to therelated contracted amount. In addition, for certain programs, the expenditures reported in thebasic consolidated financial statements may differ from the expenditures reported in the scheduleof expenditures of federal, state and city awards due to program expenditures exceeding grant orcontract budget limitations which are not included as federal, state and city financial assistance.

As further discussed in footnote 1, the Organization changed their policy on carryover of unusedvacation time for program employees. This schedule does not reflect the accrual for theseexpenditures.

96

RESOURCES FOR HUMAN DEVELOPMENT, INC.SCHEDULE OF FINDINGS AND QUESTIONED COSTS


Section I - Summary of Auditors' Results

Financial Statements

Type of auditors' report issued: Unqualified

Internal control over financial reporting:Material weakness(es) identified?Signficant deficiency(ies) identified not consideredto be material weakness(es) reported

Noncompliance material to financial statements noted?

yes

yes

yes

no

none

no

Federal Awards

Internal control over major programs:Material weakness(es) identified?Signficant deficiencies) identified not consideredto be material weakness(es) reported

Type of auditors' report issued on compliance formajor programs: Qualified

Any audit findings disclosed that are required tobe reported in accordance with Circular A-133,Section .510(a)?

Qualification of major programs:

CFDA Number(s)

14.235

yes

yes

yes

Name of Federal Program or Cluster

Supportive Housing Program

no

none

no

93.778 Medical Assistance Program93.959 Block Grants for Prevention and Treatment of Substance Abuse

Dollar threshold used to distinguishbetween Type A and Type B programs: $817,399

Auditee qualified as low-risk auditee yes no

97

RESOURCES FOR HUMAN DEVELOPMENT, INC.SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)


Section II - Financial Statement Findings

No financial statement findings noted.

Section III - Federal Awards Findings and Questioned Costs

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

07-1 Supportive Housing Program - CFDA No. 14.235 - Year ended June 30,2007

Procurement and Suspension and Debarment

Condition: The procurement files maintained by the Organization did not contain therequired documentation as required by federal guidelines. In addition, the Organizationdid not verity that vendors were not suspended or debarred at time of procurement asrequired by federal guidelines.

Criteria: The federal procurement standards require that records and files for purchasesin excess of $25,000 shall include the following at a minimum: (a) basis for vendorselection, (b) justification for lack of competition when competitive bids or offers are notobtained, and (c) basis for award cost or price. The nonprocurement suspension anddebarment rules require that entities are prohibited from contracting with or makingsubawards to parties that are suspended or debarred or whose principals are suspended ordebarred for purchases in excess of $25,000.

Effect: The procurement files lack the documentation to verify that the contractor'sselection followed the procurement standards. In addition, the Organization did notverify that the vendors were not suspended or debarred and could possibly be in violationof the rules for suspension and debarment.

Cause of condition: The Organization has a documented procurement policy whichconforms to the spirit of the federal standards. This policy is not being consistentlyapplied and the proper documentation is not being consistently maintained as required byfederal procurement guidelines. In addition, the Organization does not appear to becommunicating to individuals in charge of purchasing, the list of suspended or debarredvendors.

Questioned costs: Auditor tested 1 vendor totaling $30,542 which was noncompliantwith procurement, suspension and debarment regulations. Total population of vendorswith purchases over $25,000 for this program was one vendor totaling $30,542.

98

RESOURCES FOR HUMAN DEVELOPMENT, INC.SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)


Section III - Federal Awards Findings and Questioned Costs (Continued)

Recommendation: The Organization should train all employees responsible forpurchasing supplies and other expendable property, equipment, or services hi excess of$25,000 on the procurement, suspension and debarment regulations. In addition, theOrganization should assign a department or individual to maintain documentation ofprocurement procedures. The Organization should also include the requirements forsuspension and debarment in the procurement manual.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

07-2 Block Grants for Prevention and Treatment of Substance Abuse - CFDA No. 93.959 -Year ended June 30,2007

Condition, Criteria, Effect and Cause of condition: The significant deficiency at Finding07-1 also applies to this program.

Questioned costs: Auditor tested 2 vendors totaling $82,623 which all items werenoncompliant with procurement, suspension and debarment regulations. Total populationof vendors with purchases over $25,000 for this program was for two vendors totaling$82,623.

Recommendation: The recommendation at Finding 07-1 also applies to this program.

07-3 Medical Assistance Program - CFDA No. 93.778 - Year ended June 30,2007

Condition, Criteria, Effect and Cause of condition: The significant deficiency at Finding07-1 also applies to this program.

Questioned costs: Auditor tested 8 vendors totaling $469,264 which all items werenoncompliant with procurement, suspension and debarment regulations. Total populationof vendors with purchases over $25,000 for this program was for ten vendors totaling$572,275.

Recommendation: The recommendation at Finding 07-1 also applies to this program.

99

R E S O U R C E SF 0 R

H U M A N D E V E L O P M E N T , I N C .

December 20,2007

Resources for Human Development, Inc. respectfully submits the following correctiveaction plan for the year ended June 30, 2007.

Name and address of independent accounting firm: Shechtman Marks Devor PC - 2000Market Street - Suite 500 - Philadelphia, Pa. 19103

Audit period: Year ended June 30,2007.

The findings from the June 30, 2007 schedule of findings and questioned costs arediscussed below. The findings are numbered consistently with the numbers assigned inthe schedule.

Federal Awards Findings and Questioned Costs

Department of Housing and Urban Development

07-01 Supportive Housing Program CFDA No. 14.235

Procurement and Suspension and Debarment

Recommendation: The Organization should train all employees responsible forpurchasing supplies and other expendable property, equipment, or services in excess of$25,000 on the procurement, suspension and debarment regulations. In addition, theOrganization should assign a department or individual to maintain documentation ofprocurement procedures. The Organization should also include the requirements forsuspension and debarment in the procurement manual.

Corrective Action: The organization strives to comply with all government regulationsincluding those regarding procurement. Consistent with RHD's operating philosophy ofdecentralized decision-making, vendor negotiations frequently occur by Unit Directors.Documentation of such compliance has not been centralized but has been maintainedwith other program files either in Central Office or at program sites. Many of our vendorrelations are long standing relationships where original documentation or anunderstanding of the procurement processes is not retrievable.

1004700 W1SSAHICKON AVENUE - SUITE 126 • PHILADELPHIA, PA 19144-4248 * 215-951-0300 • FAX 215-951-0312 • WWW.RHD.ORG

The Organization agrees with this recommendation, however believes that through propercommunication and training it may not be necessary to centralize the procurementdocumentation. We will provide detailed training to all employees responsible forpurchasing supplies and other expendable property, equipment, or services in excess of$25,000 reinforcing our procurement policies. Finally, we will ensure that our corporatepolicy is consistent with government requirements, including suspension and debarmentrequirements.

Job Position Responsible for Overseeing this Issue: Chief Accounting Officer

Time Period for Resolution: March 31,2008

Department of Health and Human Services07-02 Block Grants for Prevention and Treatment of Substance Abuse CFDA No. 93.959

See Finding 07-01

07-03 Medical Assistance Program CFDA No. 93.778

See Finding 07-01.

If there any questions regarding this plan, please call Marco Giordano, Chief AccountingOfficer, at 215-951-0300.

Marco GiordanoChief Accounting Officer

1014700 WISSAHICKON AVENUE • SUITE 126 • PHILADELPHIA, PA 19144-4248 • 215-951-0300 - FAX 215-951-0312 • WWW.RHD.ORG

RESOURCES FOR HUMAN DEVELOPMENT, INC.SUMMARY SCHEDULE OF PRIOR AUDIT FINDING


Finding 06-2 Medical Assistance Program - CFDA No. 93.778

Condition:

Recommendation:

Current status:

This finding was a reportable condition stating that the number of totalhours worked per day on employee time sheets was not computedcorrectly in a number of instances.

The Organization should provide additional training to employees on theproper way to complete time sheets and to the supervisors who approvethese time sheets. In the absence of this training, the Organization shouldexplore other ways for employees to enter time as to minimize oreliminate the errors in employee time sheets.

During the fiscal year ended June 30, 2007, the Organization continued toprovide training to those using the scantron time reporting process. Inaddition, an electronic timesheet process was implemented, whicheliminated manual calculations of hours worked and misinterpretedhandwriting. More recently, the Organization has purchased LawsonHUM; a web based payroll software, and has begun implementationduring the year. This software will replace the scantron time reportingprocess and the electronic timesheet process. The Organization expectsthis system to be fully operational by June 30,2009.

The Organization expects that by eliminating manual calculations andhandwriting by our non-exempt program staff, the type of errorspreviously identified by the auditors will be eliminated.

Finding 06-3 Projects for Assistance in Transition from Homelessness - CFDA No. 93.150

Condition:

Recommendation:



102

RESOURCES FOR HUMAN DEVELOPMENT, INC.SUMMARY SCHEDULE OF PRIOR AUDIT FINDING (CONTINUED)


Finding 06-3 Projects for Assistance in Transition from Homelessness - CFDA No. 93.150(continued)

Current status: During the fiscal year ended June 30, 2007, the Organization continued toprovide training to those using the scantron time reporting process. Inaddition, an electronic timesheet process was implemented, whicheliminated manual calculations of hours worked and misinterpretedhandwriting. More recently, the Organization has purchased LawsonHRM; a web based payroll software, and has begun implementationduring the year. This software will replace the scantron time reportingprocess and the electronic timesheet process. The Organization expectsthis system to be fully operational by June 30,2009.



Finding 06-4 Supportive Housing Program - CFDA No. 14.235

Condition:

Recommendation:



103

RESOURCES FOR HUMAN DEVELOPMENT, INC.SUMMARY SCHEDULE OF PRIOR AUDIT FINDING (CONTINUED)



Finding 06-4 Supportive Housing Program - CFDA No. 14.235 (continued)

Current status: During the fiscal year ended June 30, 2007, the Organization continued toprovide training to those using the scantron time reporting process. Inaddition, an electronic timesheet process was implemented, whicheliminated manual calculations of hours worked and misinterpretedhandwriting. More recently, the Organization has purchased LawsonHRM; a web based payroll software, and has begun implementationduring the year. This software will replace the scantron time reportingprocess and the electronic timesheet process. The Organization expectsthis system to be fully operational by June 30,2009.


104

SHECHTMAN MARKS DEVOR PCCert i f ied Publ ic Accoun tan ts

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSON COMPLIANCE WITH SPECIFIED INDIRECT COST ALLOCATION

REQUIREMENTS


We have examined Resources for Human Development, Inc.'s compliance with allocating indirect costsreflected in the City of Philadelphia, Department of Public Health, Office of Behavioral Health andMental Retardation Services program activity invoice summary as required by the Commonwealth ofPennsylvania, Department of Public Welfare, Section 4300.94 of the Title 4300 Regulations during theyear ended June 30, 2007. Management is responsible for the Organization's compliance with thoserequirements. Our responsibility is to express an opinion on the Organization's compliance based on ourexamination.

Our examination was conducted in accordance with attestation standards established by the AmericanInstitute of Certified Public Accountants and, accordingly, include examining, on a test basis, evidenceabout the Organization's compliance with those requirements and performing such other procedures aswe- considered necessary in the circumstances. We believe that our examination provides a reasonablebasis for our opinion. Our examination does not provide a legal determination on the Organization'scompliance with specified requirements.

The method of allocating costs for the year ended June 30, 2007 was based on various formulas whichallocate costs depending on the nature of the individual costs.

In our opinion, the Organization complied, in all material respects, with the aforementioned, for the yearended June 30, 2007.

This report is intended for the information and use of the Board of Directors, management and the City ofPhiladelphia, Department of Public Health and is not intended to be and should not be used by anyoneother than these specified parties.

Philadelphia, PANovember 29, 2007

105

2000 Market Street • Surte 500 • Philadelphia, PA 19103 • phone: 215.496.9200 - fax: 215.496.9604 • www.smd-pc.com

S HECHTMAN M ARKS D EVOR PCCer t i f i ed P u b l i c A c c o u n t a n t s

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COSTALLOCATION (FOR THE UPCOMING BUDGET YEAR)


At your request we have performed the procedures enumerated below with respect to the administrativecosts distribution included in the Line Item Budget for the year ending June 30, 2008 submitted byResources for Human Development, Inc. ("the Organization") to the City of Philadelphia, Department ofHealth. Our review was made solely to assist you in your filing requirements with the City ofPhiladelphia, Department of Public Health.

The procedures we performed are summarized as follows:

a. We reviewed a schedule contained within the 2008 Line Item Budget which reflected theallocation factors utilized in distributing administrative costs.

b. We confirmed our understanding of the method of allocating administrative costs througha review of supporting work papers and by discussions with management responsible forallocation factors.

c. We compared the Organization's method of allocating costs to those requirements asspecified in Section 4300.94 of the Title 4300 Regulations Related Methods forAllocating Indirect Costs in order to determine whether the cost allocation is incompliance with those regulations.

d. We compared the allocation methods used between the current fiscal year and prior fiscalyear to determine consistency between years. The cost allocation method is based onvarious formulas which allocate costs depending on the nature of the individual costs.

The Commonwealth of Pennsylvania, Department of Public Welfare, Section 4300.94 of Title 4300Regulations state "The overall objective of the allocation process is to distribute the indirect costs of theAgency to its various services or cost categories in reasonable proportion with the benefits provided tothese services or cost categories." The Regulations require that the method used results in a fair andequitable distribution of costs which shall be in direct relation to actual benefits accruing to the services towhich costs are charged.

106

2000 Market Stnset - SuteSOO • Philadelphia, PA 19(03 • phone: 215.496.9200 - fax: 215.496.9604 • www.smd-pc.com

Because the above procedures do not constitute an audit made in accordance with generally acceptedauditing standards, we do not express an opinion on the amount of administrative costs distributed to theCity nor on any other amounts contained within the June 30, 2008 budget submitted to the City ofPhiladelphia, Department of Public Health. Had we performed additional procedures or had weconducted an audit in accordance with generally accepted auditing standards, other matters might havecome to our attention that would have been reported to you. This report relates only to the items specifiedabove and does not extend to any financial statements of the Organization, taken as a whole.

This report is intended for the information of the Board of Directors, management, and the City ofPhiladelphia, Department of Public Health. This restriction is not intended to limit the distribution of thisreport, which is a matter of public record.


107

MEMORANDUM OF ADVISORY COMMENTSRESOURCES FOR HUMAN DEVELOPMENT, INC.

June 30,2007

C e r t i f i e d P u b l i c A c c o u n t a n t s

SHECHTMAN MARKS DEVOR PCCertified Public Accountants

November 29,2007

Board of DirectorsResources for Human Development

In connection with our audit of the consolidated financial statements for Resources for HumanDevelopment, Inc. and Subsidiaries (RHD or the "Organization") as of June 30, 2007, we issuedtwo reports, which addressed internal controls. The reports are Report of independent certifiedpublic accountants on internal control over financial reporting and on compliance and othermatters based on an audit of financial statements in accordance with Government AuditingStandards and Report of independent certified public accountants on compliance withrequirements applicable to each major program and internal control over compliance inaccordance with OMB Circular A-133. In addition, we noted certain matters that we believe youshould consider. Our observations were formed as a by-product of our auditing procedures,which did not include a comprehensive review for the purpose of submitting detailedrecommendations.

The following summarizes our comments and suggestions.

Comments for June 30, 2007

Payroll - Calculation of Hours Worked

RHD has an automated system for submitting payroll information to the central office forpayment. This system allows hourly employees to fill out time sheets, which are scanned into acomputer program that interprets the scanned data which is then forwarded to another softwareprogram that calculates and totals the number of hours worked. In our audit this year, we foundsome cases in which hours worked were misread by the scanning software and therefore,incorrectly calculated using this new system. The incorrectly calculated time was then used toprocess employee payroll. As a result, in those cases, hourly workers were not paid the properamount. The errors go in both directions, sometimes more hours were paid than actually workedand at other times, fewer hours were paid than actually worked. The net dollar impact to RHDwas insignificant.

During the course of our tests of payroll time sheets, we noticed that the errors resulted from theemployee not clearly completing the new time sheet, which resulted in the system misreading thetime recorded by the employee.

22000 Market Street • Suite 500 • Philadelphia, PA 19103 • phone: 215.496.9200 • fax: 215.496.9604 • vwvw.smd-pc.com

We recommend that RHD continue to train employees on the proper way to complete the timesheet and the supervisors who approve these timesheets. In the absence of this training, RHDshould explore other ways for employees to enter time as to minimize or eliminate the errors inemployee time sheets.

RHD has purchased a new payroll computer system which will begin implementation duringfiscal year ending June 30, 2008 but most likely will not be used organization wide untilsometime during fiscal year ending June 30, 2009. This new system will use online reporting byeach employee and will eliminate the use of the Scantron system.

Payroll - Documentation in personnel files

During the course of our testing, we found several instances where the personnel filedocumentation was not signed or missing. Such documentation included Form 1-9, direct depositauthorization forms, employee handbook acknowledgement forms and employment applications.In addition, certain funders require specific documentation be maintained in the personnel files.We noted instances where this documentation was not maintained.

We recommend that the payroll department review all personnel files for required documentationas required by RHD internal policies, federal, state or county guidelines.

Indirect Cost Allocation

Included in most RHD contracts is a provision for Administrative overhead. This isrepresentative of the amount of the Organization's management and general costs are attributableto maintaining the program. RHD's current practice is to estimate the expected overhead costsand charge each Hinder on a monthly basis, not to exceed the contract maximum. Only at yearend does RHD verify the reasonableness of the estimate and the allowability of the overheadcosts charged. During the year ended June 30, 2007, RHD determined adjustments wererequired at year end to justify the allocation and the cost allocated during the year. Auditprocedures determined the final allocation method to be reasonable.

We recommend that management review the estimate of overhead costs charged to each contracton a more regular basis by cumulating the allowable overhead costs and estimating futureallowable costs to determine the adequacy of the overhead costs charged. This oversight couldavoid potential year end adjustments that could be material.

Contract Compliance

RHD operates over 150 different programs. As RHD continues to grow at such a rapid pace, thecontracts and program requirements continue to grow. Based on inquiry of management, wenoted that understanding the requirements of the contract and compliance with thoserequirements lies primarily with the budget managers.

We recommend that management create a job position of contract compliance. We recommendthat this person be responsible for understanding all federal, state and local guidelines to whichthe various programs are responsible to adhere. In addition, we recommend this person train andcontinually update the budget managers on the compliance requirements.

Procurement, Suspension & Debarment

RHD has a documented procurement policy. Although this policy appears to comply with thefederal standards, we noted in our testing that the procurement policy is not being consistentlyapplied and the proper documentation is not being consistently maintained as required by federal,state and local requirements. In addition, we noted that in some cases, individuals in charge ofpurchasing were not aware of the requirements to verify that vendors were not listed assuspended or debarred.

We recommend that RHD train all employees responsible for purchasing items over $25,000 onthe procurement, suspension and debarment regulations. In addition, we recommend thatmanagement assign a department or individual to maintain documentation of procurementprocedures. In addition, we noted that there was no written document for suspension anddebarment procedures. We recommend that these requirements be included in the procurementmanual/policy.

Corporate Accounting System Computer Controls

The Organization's accounting is recorded using Macola software. Due to the number of userswho feed information into the system, the magnitude of data and transactions that are processedby the system, the reliance of users of financial data generated by the system for both internaland external users, as well as the integration with other systems, we reviewed the accountingcontrols surrounding the system. Our goal was to evaluate whether there were opportunities thatcould potentially expose the system or the Organization to problems. Overall, we found thecontrols and safeguards to be reasonably strong. The system seems to be safeguarded fromexternal attacks to disable, destroy or exploit business systems and information. It appears to beprotected from hardware failures; malicious intent by disgruntled users; site disasters resultingfrom fire, theft, etc. and shared resources seem secure. However, we noted certain matters thatwe feel should be brought to the attention of management in order to avoid potential problems.

Enforce Stricter Password Complexity

We recommend the organization require an increased complexity and frequency of expiration forkey personnel that have access to financial and payroll processing and data. This should includeDomain Administrator accounts.

Implement Source Code Control Software

We recommend keeping the internal software development source code organized andcentralized. There are many software applications available to assist in this effort. Such recordswill help to avoid problems when there are changes in development resources personnel orprojects are outsourced to external service providers.

SOA Pharmacy - Accounting principles and processes

SQA Pharmacy is a controlled entity of SQ Foundation which is a not-for-profit organizationcombined with RHD for financial reporting. The books and records as well as accountingcontrols for both the Foundation and the Pharmacy are separate from RHD. We noted during ouraudit testing and inquiry of the management of the Pharmacy certain issues related to theapplication of accounting principles and processes in the financial areas of inventory valuationand the valuation allowances of certain accounts receivable classes. We have communicatedthese issues to both the management of the Pharmacy as well as RHD management.

We recommend that management for the Pharmacy assign an individual to examine theaccounting processes applied to the financial areas identified and to potentially redefine theprocedures currently performed in the Pharmacy accounting department.

Summary

While correcting each of the foregoing points will not prevent or preclude errors or illegal actsfrom occurring, they will assist in improving record keeping, internal controls, and the financialstability of RHD. If you would like to discuss any of the matters in greater detail, please call us.

Very truly yours,

Shechtman Marks Devor PC

R E S O U R C E SF 0 R

H U M A N D E V E L O P M E N T , I N C .

Resources for Human Development, Inc. (RHD) responses to the June 30, 2007Memorandum of Advisory Comments

Payroll - Calculation of Hours Worked

As noted, RHD has an automated time sheet process whereby each non-exempt employeeenters his/her hours worked, a supervisor reviews the times recorded for appropriatenessand the time sheet is scanned into a file housed in the Central Office. Hours on thescanned time sheet are interpreted by the software and forwarded to another softwarewhere the hours are automatically computed for payment. This process has eliminatedall manual calculations/recalculations of hours to be paid. However, unless a number iswritten very clearly on a time sheet, the scanning software may not accurately interpret it.If a number is misinterpreted by the software, the total time calculation will be in error.

Because, regardless of instruction, we recognize that our employees will not all writelegibly, we also have an electronic timesheet process that does not require goodpenmanship. This process, however, requires computer equipment and computer usetraining. Several of our programs are using this electronic system. However, some ofour programs and staff are not yet prepared for the new electronic process.

During the fiscal year ended June 30, 2007, RHD purchased and began implementationof Lawson HRM, a web based payroll system, which will automate time capturing acrossthe organization and will replace the existing scanning and electronic time capturingsystems. The Lawson HRM system will eliminate handwritten time entry and thereforeeliminate the errors in time calculation that we are currently experiencing. Lawson HRMis planned to be fully operational by June 30,2009.

At the same time we will be providing computer readiness and basic training to all unitstaff.

It is our hope that eliminating manual calculations and handwriting by the non-exemptstaff in our programs will solve the errors identified by the auditors.

4700 WISSAHICKON AVENUE • SUITE 126 • PHILADELPHIA. PA 19144-4248 • 215-951-0300 • FAX 215-951-0312 • WWW.RHD.ORG

Payroll -Documentation in Personnel Files

Consistent with RHD's operating philosophy of decentralized decision-making, RHDpersonnel files are maintained either at Central Office and/or at the Program. Everyeffort is made to obtain the necessary documentation that is required by internal andexternal policies during the recruiting and hiring processes. We recognize that thedocumentation may not always get appropriately filed in the employees personnel file.

We agree with the auditor's recommendation and will further evaluate the concern andensure that the process ensures obtaining the necessary documentation; as well asensuring that those involved in managing personnel files are appropriately informed andtrained regarding the requirements.

Indirect Cost Allocation

During the fiscal year ended June 30, 2007 growth in revenues generated for servicesprovided was approximately 15%; significantly greater than the growth in allowableindirect costs as defined by Circular A-122 and A-110. In addition an increasingpercentage of services continue to move from program funded to fee for service causingthe need to further define overhead in terms of allowable costs and other costs, which arenot allowed. These issues caused us to revise its initial cost allocation during the audit,which primarily impacted fee for service programs.

We believe that we have appropriately allocated costs for the fiscal year ended June 30,2007; but recognize the need to review the estimate of overhead costs charged to eachcontract on a more regular basis by cumulating the allowable overhead costs andestimating future allowable costs to determine the adequacy of the overhead costscharged. We plan to implement improvements in its cost allocations process during thenext fiscal year.

Contract Compliance

While RHD is committed to ensuring that we are in compliance with governmentalcontracts, consistent with RHD's operating philosophy of decentralization we do notbelieve that centralizing this function under one individual is the only option. We believethat through proper training and oversight, we can ensure that we are in compliance. Asnoted by the auditors the Organization has empowered the fiscal management of theprograms to ensure its compliance with governmental contract requirements. We believethat this model will continue to work along with oversight by the Chief AccountingOfficer.

4700 WISSAHICKON AVENUE - SUITE 126 • PHILADELPHIA, PA 19144-4248 • 215-951-0300 - FAX 215-951-0312 • WWW.RHD.ORG

Procurement, suspension & Debarment

The Organization strives to comply with all government regulations including thoseregarding procurement. Consistent with RHD's operating philosophy of decentralizeddecision-making, vendor negotiations frequently occur by Unit Directors.Documentation of such compliance has not been centralized but has been maintainedwith other program files either in Central Office or at program sites. Many of our vendorrelations are long standing relationships where original documentation or anunderstanding of the procurement processes is not retrievable.

The Organization agrees with parts of the auditors' recommendation. However, webelieve that with additional communication and training it may not be necessary tocentralize the procurement documentation. We will provide detailed training to allemployees responsible for purchasing supplies and other expendable property,equipment, or services in excess of $25,000, reinforcing our procurement policies.Finally, we will ensure that our corporate policy is consistent with governmentrequirements, including suspension and debarment requirements.

Corporate Accounting System Computer Controls

We recognize the sensitivity of certain information used by certain personnel as well asthe need to have adequate organization over our software development source code. Weagree with both of the recommendations and will address these concerns over the nextfiscal year.

SOA Pharmacy -Accounting Principles and Procedures

SQA Pharmacy is an independent for-profit company combined with RHD for financialreporting purposes only. The books and records as well as accounting controls for thePharmacy are separate from RHD. As of June 30, 2007 SQA Pharmacy has been inoperations for ten months. The company continues to evaluate its processes during itsinitial year of operation and is currently reevaluatirig its accounting processes applied toinventory valuation and the valuation allowance of certain accounts receivable classes.

4700 WISSAHICKON AVENUE • SUITE 126 - PHILADELPHIA, PA 19144-4248 • 215-951-0300 • FAX 215-951-0312 • WWW.RHD.ORG

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